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Newsletter | July 2016, Issue 2
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Litigation
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Busan High Court Reverses Lower Court’s Judgment in Ordinary Wage Case in Favor of the Employer
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In a recent case brought by employees involving “ordinary wages,” the Busan High Court issued a judgment in favor of the employer company.
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Reversing the lower court’s position, and accepting the employer’s argument that the good faith principle precluded the inclusion of alleged bonuses in calculating the employees’ “ordinary wages,” the Busan High Court considered the financial difficulties the company might face, as well as previous wage agreements between the company and its employees.
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Lower Court’s Decision
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The lower court had ruled against the company, holding that the bonuses the employees had received constituted “ordinary wage,” which is the basis for calculating statutory allowances.
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In finding for the employees, the lower court had denied the company’s argument that the employee’s claim was in violation of good faith principles, and held that paying the additional statutory allowances would neither cause “serious business difficulties” nor “threaten the very existence” of the company. In particular, the lower court found that: (1) the additional amount the company would incur by including the bonus in ordinary wage would not be high (compared to total personnel costs); (2) the company could afford the additional payment (considering the size of its business and its earnings); (3) the company had been providing the employees with incentives and/or performance bonuses during the years when business was good; and (4) it was difficult to conclude that the company suffered a substantial deficit in 2014, because the company had achieved high net profits for in the recent years (until 2012).
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Details of the Busan High Court’s Decision
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However, in its decision recognizing that the employees’ claims were in violation of the good faith principle, the Busan High Court ruled that the plaintiffs’ claimed amount far exceeded the level of wages previously agreed to between the company and the employees.
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Specifically, the Busan High Court found that: (1) the amount of ordinary wage including the bonus would increase by 60% (compared to the amount of previously agreed-upon wages); and (2) the additional statutory allowances the company would have to pay, if the bonus was included in ordinary wage, would far exceed the previously agreed-upon wage increase.
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The Busan High Court paid close attention to the fact that: (1) the operating losses of the company had been continuously increasing since 2014; (2) the additional costs the company would have to bear would be substantially higher than yearly net profit; (3) the company was struggling with an increased debt ratio and net debt-to-capital ratio, due to the worldwide decline in the shipbuilding industry; and (4) the credit rating of the company had been downgraded several times.
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Accordingly, the Busan High Court found that the company would face serious business difficulties arising from the unexpected financial burden of including bonuses in the ordinary wage calculation.
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Our Representation
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During the appellate process, Kim & Chang, representing the employer, examined the company’s business conditions from various perspectives, such as the state of the industry, the company’s profitability, and its financial structure.
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Based on this in-depth analysis, we successfully argued that the business difficulties the company faced from the employees’ back-pay claims were serious enough such that it should be excluded on the good faith principle. We also provided a comprehensive set of evidence, such as the rate of increasing net pay, the increasing debt ratio, the loss of other business opportunities, and lost new hire opportunities.
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Potential Impact
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The decision by the Busan High Court is noteworthy in that it not only reaffirmed the Supreme Court’s previous ruling concerning the applicability of the good faith principle in ordinary wage cases, but also applied more concrete standards to arrive at this conclusion.
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The decision is expected to have a significant impact on other pending ordinary wage cases dealing with the same or similar issues.
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Back to Main Page
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