1.

Overruling Previous Decision on Ordinary Wage

On December 19, 2024, the Supreme Court issued two en banc decisions and overruled its previous decision on ordinary wage (notably the December 18, 2013 en banc decision) by nullifying the “fixed” element of the requirement of ordinary wage.

The 2013 Supreme Court decision held that wage items that are paid to employees only if the employee is employed at a particular time are not ordinary wage because they are not compensation for “prescribed labor” and also do not meet the “fixed” requirement for ordinary wage. This has been considered a well-established court precedent on this issue but the Supreme Court today overruled its position and presented a new basis for determining which wage items should be included in ordinary wage.
 

2.

Key Elements of En Banc Decisions

The 2013 Supreme Court decision had presented the “fixed” element as a key requirement in determining what should be included in ordinary wage. Today’s decisions eliminated the “fixed” element and reestablished the definition of ordinary wage as “…compensation for prescribed labor that is paid on regular and uniform basis…” The following factors were considered by the Supreme Court in reaching this conclusion:
 

(1)

There is no statutory basis for this “fixed” element and requiring this concept (which determines whether payment should be made and whether the payment should be predetermined) to be a part of the definition of ordinary wage unfairly reduces the scope of ordinary wage;
 

(2)

The “fixed” element can be imposed on any wage item as a condition of payment, and this will allow such wage item to be easily excluded from ordinary wage which in turn will hinder the mandatory applicability of ordinary wage;
 

(3)

Furthermore, the “fixed” element reduces the scope of ordinary wage and this results in insufficient compensation for overtime, nighttime and holiday work, which contradicts with the policy goal of the Labor Standards Act in reducing overtime work;
 

(4)

Ordinary wage is a concept that reflects the value of prescribed labor and should reflect the value of prescribed labor in its entirety (irrespective of the actual labor provided). The previous court precedent took the position that the “fixed” requirement will not be satisfied if the determination of whether the wage item will be paid is tied to the satisfaction of a particular condition. This means that elements of actual labor would influence the ordinary wage concept and this is not an appropriate conclusion; and
 

(5)

Ordinary wage should be determined prior to the work provided but the previous precedent was problematic in that the determination of whether a wage item should be ordinary wage was determined on the basis of whether it was paid or whether confirmation of payment was made.
 

3.

Impact of Supreme Court En Banc Decisions

Employers that have the payment of certain wage items conditioned on the employee being employed on the day of payment or on the employee having to work a minimum number of days will have to review and improve their salary system and/or prepare for potential disputes. Unions will also take a keen interest on the development of these issues.