1.

Factors on Whether Each Allowance Constitutes Ordinary Wages

In this decision, the Court conducted a granular analysis of whether each allowance satisfied the “consideration for prescribed work” requirement, taking into account factors such as the historical background of each allowance’s introduction, the basis for its payment, and the actual manner in which it was administered.
 

(1)

Homecoming Travel Allowance (Ordinary Wage: Yes): The Court held that this allowance constituted ordinary wages, noting that it was stipulated as a component of the annual salary in the company’s rules of employment (“ROE”) and other internal regulations, that it was paid on a regular and uniform basis each year in accordance with fixed criteria, and that the mere fact it was paid around the same time as national holidays was not sufficient to characterize it as a welfare benefit.
 

(2)

Holiday Ceremonial Allowance (Ordinary Wage: No): The Court held that this allowance lacked the character of consideration for prescribed work and therefore did not constitute ordinary wages. Key factors included: there was no payment basis in the company’s ROE or collective bargaining agreement, and it was paid each year through an internal approval process for purposes such as “boosting employee morale”; dispatched workers who were not employees of the company were also included among the recipients; and the amount paid was a small, fixed sum.
 

(3)

Company Contribution to Individual Pension Plans (Ordinary Wage: No): The Court held that this contribution was a welfare benefit contingent upon an individual employee’s incidental choice of whether to enroll in a personal pension product, as it was provided only to employees who had voluntarily applied for enrollment and was not paid to employees who had not enrolled or who had terminated their plans mid-course. Accordingly, the Court found that this benefit lacked the character of consideration for prescribed work and did not constitute ordinary wages.
 

(4)

Fixed Overtime Allowance (Ordinary Wage: No): Although this allowance had been paid to office workers as a fixed monthly amount, the Court found, based on the history of this allowance’s introduction and its actual administration, that it was paid as compensation for “overtime work” exceeding prescribed working hours. The Court therefore held that it lacked the character of consideration for prescribed work and did not constitute ordinary wages.
 

2.

The Need to Reassess the Risks Associated to Ordinary Wages from the New Perspective of “Consideration for Prescribed Work”

This decision by the Court is significant in that it strictly interpreted the “Consideration for Prescribed Work” requirement and thereby dismissed a substantial portion of the employees’ ordinary-wage claims. While the consideration-for-prescribed-work requirement has long been an important indicator of ordinary wages, it had been overshadowed by the “fixedness” requirement and other criteria, and thus had not carried great weight in determining whether specific allowances constituted ordinary wages. Now, however, the fixedness requirement has been effectively abolished by this new Supreme Court en banc decision, and this ruling appears to have taken that development as an opportunity to apply a rigorous standard in assessing whether the consideration-for-prescribed-work requirement was met. In light of this, employers should not hastily conclude that any given allowance constitutes ordinary wages simply because the fixedness requirement has been eliminated. Instead, in view of the legal principles set forth in this decision, employers should re-examine whether each allowance provided to employees was truly paid as consideration for prescribed work.

In short, the abolishment of the fixedness requirement does not mean that every allowance to which a continued-employment condition or similar condition had been attached is deemed ordinary wages. Only allowances that satisfy the separate and important requirement of “Consideration for Prescribed Work” will qualify as ordinary wages. Accordingly, employers should analyze the substance of each allowance — including the manner in which it is paid — to determine whether it is paid as consideration for prescribed work or whether it is paid on a discretionary basis, such as for welfare or motivational purposes. Furthermore, when negotiating with labor unions and other counterparts, employers should refrain from taking the position that all allowances automatically constitute ordinary wages, and should instead make effective use of the consideration-for-prescribed-work requirement.