Recently, Korean courts rendered several conflicting decisions as to whether performance-based incentives paid in accordance with business performance (“incentives”) are considered wages. In this regard, we provide an overview of the recent court decisions1.
In order for a certain type of money and valuables to be considered “wages,” the money and valuables must be (i) paid as compensation for work, (ii) paid by the employer in accordance with the collective bargaining agreement and the Rules of Employment, and (iii) continuously and regularly paid to workers (Supreme Court Decision No. 2014Da27807, rendered on April 23, 2019). Disputes over whether incentives of private companies are considered wages have been centered on the above three factors, and key recent court decisions are as follows.
1. Seoul Central District Court Decision No. 2019GaHap542535 (first appeal in progress)
In the above case, the court recognized that incentives are considered “wages” on the following grounds:
| Whether the payment is made as compensation for work | It is difficult to conclude that the incentives are not paid as compensation for work simply because individual workers do not directly have a significant impact on the company’s business performance. |
| Payment obligation | The payment standards were determined in advance through labor-management agreements/internal approvals. |
| Whether the payment is made continuously and regularly | The incentives have been paid for more than 12 years on an annual basis. |
2. Seoul Central District Court Decision No. 2019GaHap538253, rendered on April 15, 2021 (first appeal in progress)
In the above case, the court recognized that incentives are considered “wages” on the following grounds:
| Whether the payment is made as compensation for work | If the employer paid incentives to a group of employees in a collective manner to motivate and encourage them to achieve the company’s goal or performance, the said incentives may be considered a remuneration for improving the quality of labor demanded by the company, including the quality of cooperation. |
| Payment obligation | The obligation to pay is confirmed based on the wage regulations which specifically set the eligibility for payment, calculation standards, and payment date relating to the incentives. |
| Whether the payment is made continuously and regularly | The incentives have been paid for around 20 years on an annual basis. |
3. Suwon High Court Decision No. 2020Na26085, rendered on June 17, 2021 (second appeal in progress)
In the above case, the court denied that incentives are considered “wages” on the following grounds:
| Whether the payment is made as compensation for work | If incentives are only a partial distribution of business performance (profits) whose payment or amount varies depending on the company’s overall business performance or financial performance, the said incentives are not paid as an evaluation or consideration for the volume or quality of labor provided by employees. |
| Payment obligation | There are no specific standards for incentive payment. |
| Whether the payment is made continuously and regularly | The incentives have been paid continuously almost every year. |
4. Suwon District Court Decision No. 2020Na55510, rendered on April 2, 2021 (second appeal in progress)
In the above case, the court denied that incentives are considered “wages” on the following grounds:
| Whether the payment is made as compensation for work | It is difficult to view that incentives, which are paid when the company achieves its production goals and satisfies additional conditions, are directly or closely related to the provision of labor by individual employees. |
| Payment obligation | The grounds for payment are not specified in the collective bargaining agreement, Rules of Employment and any other payment regulations. The status, standards and amount of the payment vary according to the wage negotiation with the labor union every year. |
| Whether the payment is made continuously and regularly | Partial payment was made depending on whether or not the payment conditions were fulfilled. |
As the Supreme Court has not yet established clear standards for judging whether or not incentives of private companies are considered wages, the courts’ judgments have varied even under similar or identical facts. It is therefore necessary to continue to monitor how the Supreme Court will establish the judgment standards for private companies’ incentives.
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#Incentives #Wages #Labor & Employment #2021 Issue 3 #Newsletter
