On August 27, 2026, the Seoul Central District Court (the “SCDC”) rendered decisions denying the wage nature of corporate performance-based bonuses—specifically Productivity Incentives (“PI”) and Profit Sharing (“PS”)—paid by two insurance companies (“Company A” and “Company B”) (SCDC Decisions 2022Gahap512589 and 2022Gahap512619).
Previously, on January 29, 2026, the Supreme Court acknowledged the wage nature of PI while denying the wage nature of PS at an affiliated semiconductor manufacturing company (“Company C”) (Supreme Court Decision 2021Da248299). However, the recent SCDC decisions are highly significant since they denied the wage nature of the PI for Company A and Company B specifically on the grounds that these employers bore no obligation to pay them.
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Background: Company C’s Obligation to Pay
As to the Company C case, the Supreme Court held that the company was obligated to pay PI if the payment criteria were met. This was because the basis, targets, and conditions for payment were specifically predetermined in the “Salary, Benefits, and Attendance Standards” and “HR Regulations” (which constitute the Rules of Employment (“ROE”)), and the incentives had been paid continuously and regularly to employees each year.
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Why Was Company A’s Obligation to Pay Denied?
In contrast, the SCDC found it difficult to conclude that Company A bore any obligation to pay PI under its ROE, Collective Bargaining Agreements (“CBA”), or customary labor practices. The court cited the following factors:
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Discretionary Regulations: Company A’s HR regulations merely stipulated that the company “may pay performance bonuses.”
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Lack of Specific Agreement: Company A’s CBA stated that “the method, criteria, and amount of the performance bonus payment shall be separately determined by the Labor-Management Council.” However, no separate agreement was reached, and the CBA provision alone was insufficient to establish specific payment criteria.
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Absence of Customary Practice: Company A determined the payment criteria based on business conditions and merely explained or confirmed them with the Labor-Management Council or labor union, which did not constitute the formation of a customary labor practice.
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Why Was Company B’s Obligation to Pay Denied?
The SCDC similarly denied Company B’s obligation to pay, reasoning as follows:
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No Governing Provisions: No provisions stipulating whether to pay PI or setting forth payment criteria could be found in Company B’s ROE or salary guidelines.
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Temporary Internal Guidelines: Company B’s internal operation guidelines for incentives were newly drafted each year to establish criteria strictly for that respective year. Therefore, they did not constitute ROE, and their effect was limited to the relevant year.
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Absence of Customary Practice: Company B determined the payment criteria based on business conditions and engaged in consultations merely to explain or confirm such criteria between labor and management, which fell short of establishing a customary labor practice.
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The SCDC decisions demonstrate a concrete application of the test for determining the wage nature of a bonus established by the Supreme Court as follows: (1) whether the employer has an obligation to pay, and (2) whether the payment is directly or closely related to the provision of labor (consideration for labor).
These decisions clarify that if the employer’s obligation to pay (requirement (1) above) is not recognized, the wage nature of PI can be denied outright, entirely bypassing the need to assess whether the payment constitutes consideration for labor (requirement (2) above).
[Korean Version]
