The Supreme Court recently affirmed an appellate court’s decision ruling that the waiver of claims signed by a company’s former employees, who had also filed an ordinary wage lawsuit against the company in return for an ex-gratia payment, did not necessarily constitute a waiver of wages and severance pay in advance and was therefore valid. Based on the aforementioned reasoning, the Supreme Court ruled the lawsuit filed by the former employees unlawful (Supreme Court Decision 2022Da295186, February 23, 2023).

In this case, employees of Company A, an auto manufacturer, filed a lawsuit against the company, claiming that their regular bonuses, etc. constituted ordinary wages (this lawsuit will hereby be referred to as the “Lawsuit”). During the course of the Lawsuit, the employees resigned from Company A pursuant to its Early Retirement Program (“ERP”) and signed a waiver of claims in connection thereto. Despite signing such a waiver, the employees continued with the Lawsuit, claiming that their waiver was not valid as it constituted a prior waiver of their claim to wages and severance pay, which is legally not enforceable.

Although the trial court recognized the former employees’ claims, the appellate court dismissed the trial court’s decision on the grounds that the employees’ waiver did not constitute a prior waiver of their claims for wages and severance pay, and that there was no employee interest to be protected in the case. In response, the employees filed an appeal but the Supreme Court affirmed the appellate court’s decision.

The employees argued that (i) as the waiver was made prior to their effective resignation date and (ii) their application for the ERP, which was submitted along with the waiver, was not yet approved, the waiver should be nullified. The appellate court held that the waiver should be deemed to have been provided simultaneously with the employees’ intent to resign, and the fact that there was a gap between the date in which the waiver was made and the employees’ actual resignation date, by itself, should not nullify the waiver.

In addition, the employees also argued that the waiver did not cover the penalty that would be assessed against Company A for failing to pay their wages and severance pay (as the company would not be subject to any penalty for late payment). However, the appellate court held that given the wording of the waiver, it did cover all of the payments due to the employees, including the penalty for delaying the payments and any other incidental payments. The appellate court argued that the waiver should not be invalidated nor considered unfair given that the delay in making the payment was not prolonged, that Company A paid a significant ex-gratia payment, etc.

The Supreme Court affirmed the appellate court’s decision.

In practice, a waiver of one’s claims is generally made prior to one’s actual resignation date. The court’s decision regarding the time gap between the date of the execution of the waiver and the actual resignation date of the employees will likely serve as an important standard in cases regarding the validity of a waiver, which is usually provided in exchange for an employee’s resignation and ex-gratia payment.

Moreover, it should be noted that a waiver of claims can include not only wages and severance pay but also penalties for delays in payment. Notably, factors such as payment delays, the compensation provided in exchange for the waiver, etc. are considered in determining the validity of a waiver.