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Newsletter | August 2014, Issue 3
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LABOR & EMPLOYMENT
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Court Decisions Since the Supreme Court Rulings on Ordinary Wage
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Since the Supreme Court rulings in Kabul Autotech cases last year, the courts rendered a number of decisions applying these Supreme Court rulings on ordinary wage and the applicability of good faith preclusion, including the following.
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Fixed Bonus Does Not Constitute Ordinary Wage If Payment Is Conditional on Employment at the Time of Payment
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Recently, the lower courts determined that a fixed bonus paid only to employees who are employed at the time of the payment does not constitute ordinary wage. (See 2011Na826, Daegu H. Ct., May 1, 2014, and others.) These judgments seem to be in line with Kabul Autotech.
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Like welfare benefits, whether a fixed bonus, if paid only to the employees who are employed at the time of payment, lacks “on a fixed basis” element to qualify as ordinary wage was questionable. However, the recent lower court judgments suggest that payment of a fixed bonus conditional on employment at the time of payment lacks “on a fixed basis” element and, therefore, do not qualify as ordinary wage.
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Wage Does Not Constitute Ordinary Wage If Payment Is Conditional on Employment by Implied Consent or Customary Practice at the Time of Payment
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Recently, the Supreme Court ruled that even if a condition that limits payment of certain wage to employees who are employed at the time of payment is not expressly stated in the collective bargaining agreement (or any other agreement), such wage lacks “on a fixed basis” element and, therefore, do not qualify as ordinary wage if implied consent or customary practice of paying the wage on such condition of employment has been established. (See 2012Da39639, S. Ct., Jun. 12, 2014.)
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This ruling suggests that the condition of employment, which negates “on a fixed basis” element of ordinary wage, need not be expressly stated. Therefore, in determining whether certain wage qualifies as ordinary wage, express agreements (e.g., collective bargaining agreement) as well as implied agreements and customary practices must also be considered.
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Concrete Financial Figures Need Not Be Shown to Assert Good Faith Preclusion
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Recently, the Supreme Court ruled that the possibility that the actual ordinary wage will far exceed the amount of ordinary wage agreed to between the employer and the employee and the possibility that the actual wage increase rate will far exceed the wage increase rate agreed to between the employer and the employee may be sufficient to show that there is an unforeseeable financial burden on the company to qualify as “significant business difficulties.” (See 2012Da116871, S. Ct., May 29, 2014.)
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This ruling is notable as it suggests that the courts may apply good faith preclusion even in the absence of showing any concrete financial figures.
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However, in certain cases, the courts sought to review concrete financial figures in determining good faith preclusion. For instance, the Seoul Central District Court rejected the good faith preclusion reasoning that there is no evidence to show that the financial burden that the employer would need to bear exceeds 1~2% of the pre-existing labor costs and that the additional increase rates for ordinary wage and actual wage are excessively high. (See 2012GaHap33469, Seoul Central Dist. Ct., May 29, 2014.)
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Since the standard for determining good faith preclusion has not yet been settled, it is recommended that the upcoming court decisions be monitored.
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Good Faith Preclusion Is Inapplicable to Other Allowances
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Aside from fixed bonus, the Supreme Court ruling, in Kabul Autotech, was unclear as to whether the good faith preclusion is applicable to other allowances. Recently, however, the Seoul Southern District Court, in a case where whether an allowance for continuous employment and an incentive qualifies as ordinary wage was at issue, determined that the good faith preclusion does not apply in cases other than fixed bonus. (See 2013GaHap3805, Seoul Southern Dist. Ct., April 18, 2014.)
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However, the Court, in its decision, did not offer any ground or reason as to whether the good faith preclusion must be applied differently depending on the particular wage item. Accordingly, whether the Court’s judgment will be sustained if appealed is worth monitoring
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