1.

Introduction

Recently, the Supreme Court reversed and remanded the lower court’s decision, stating that (i) the retroactive payment of a wage increase is deemed ordinary wage based on the on the collective bargaining agreement (“CBA”) between labor and management (the “Retroactive Wage Increase”), and (ii) whether on-call and standby time qualifies as working hours under the Labor Standards Act (“LSA”) and the extent of such time should be determined based on the actual work pattern of the employees (Supreme Court Decisions 2021Da220062, etc., rendered on November 14, 2024 (consolidated)).
 

2.

Summary of Supreme Court Decision
 

A.

Facts and Issues

In this case, the plaintiffs - nurses, clinical pathologists, and radiologists employed at the hospital affiliated with the Korea Workers’ Compensation and Welfare Service (“COMWEL”) - filed a claim against COMWEL for unpaid wages resulting from the reassessment of their ordinary wage by COMWEL. Specifically, the plaintiffs argued that various allowances, including bonuses, meal allowances, long-service pay, transportation allowances, position and job-related expenses, welfare points, and retroactive wage increases, should all be deemed ordinary wage. Accordingly, they also claimed that their ordinary wage should be recalculated to include all of the aforementioned allowances, and based on this recalculated amount of ordinary wage, COMWEL should reassess their overtime, annual leave, severance pay etc., and make additional payments to cover the difference in what they would been entitled to taking into account the recalculated ordinary wage and what they had received to date.

As for the Retroactive Wage Increase, COMWEL regularly conducted wage negotiations with its labor union in December of each year, agreed on an annual wage increase rate, and then paid the increased wage to the employees retroactively from a certain date (the “Retroactive Base Date”). In addition, COMWEL had designated employees perform on-call and standby duty for medical treatment such as urgent surgical assistance and received on-call and standby allowances in connection thereto. If patients required night-time surgery while the plaintiffs were at home after work, they reported to the hospital and worked in the operating room.

In response to the plaintiffs’ claims, COMWEL countered that none of the above allowances should be included in the ordinary wage. It argued that the on-call and standby duty allowances do not qualify as statutory allowances under the LSA, since such duties are significantly less burdensome to the employees than their normal work. Therefore, COMWEL’s position was that the allowance paid for on-call and standby work should be excluded from the calculation of ordinary wage.
 

B.

Lower Court Decision

The lower court in this case ruled that the retroactive portion of the wage increase is not deemed ordinary wage since the payment or the amount of the wage increase was not predetermined.

In addition, the lower court ruled that, since on-call and standby duties are not fundamentally different from normal work and are similarly subject to the employer’s instruction and supervision, the entire hours for these duties should be included in the working hours under the LSA and the allowance should be included in the ordinary wage.
 

C.

Supreme Court Decision

The Supreme Court reversed the lower court’s decision and held that the Retroactive Wage Increase is deemed ordinary wage on the following grounds: (i) as long as the employer and the employees have agreed on the value of the prescribed work and the corresponding compensation, it cannot be ruled out that the Retroactive Wage Increase does not qualify as ordinary wage merely because it was paid retroactively due to a delay in the execution of the CBA; (ii) the Retroactive Wage Increase was determined by the CBA to be equivalent to the statutory ordinary wage, such as basic salary and regular bonuses; and (iii) even though the payment or the amount of the wage increase was not predetermined for the period between the Retroactive Base Date and the execution of the CBA, the affected employees could reasonably expect to receive the Retroactive Wage Increase since such increases had occurred each year.

With respect to on-call and standby work, the Supreme Court also reversed the lower court’s decision (Supreme Court Decisions 93Da46254 rendered on January 20, 1995, and 94Da14742 rendered on June 28, 1996). It emphasized that the lower court needed to fully consider the following factors but failed to do so by recognizing all of the on-call and standby time as working hours under the LSA: (i) whether on-call work is performed entirely outside of normal working hours, (ii) whether the normal work pattern continues during on-call duty, (iii) the frequency or duration of the time spent performing normal work, and (iv) whether sufficient sleep time was guaranteed.
 

3.

Implications

In this case, the Supreme Court reaffirmed its previous position on the retroactive wage increase (i.e., qualifies as ordinary wage recognizing the fixed element thereof). Furthermore, the recent Supreme Court en banc decisions discussed in our previous newsletter reestablished the definition of ordinary wage as “…compensation for prescribed labor that is paid on a regular and uniform basis,” thereby eliminating the necessity for a “fixed” element. In this regard, it appears that the Supreme Court’s decision will provide clearer guidance to subsequent decisions by determining that the retroactive wage increase is recognized as ordinary wage.

The Supreme Court in this particular case also reaffirmed the legal principle that in the event of on-call duty with a lighter workload, only the hours actually worked should be considered as working hours, and therefore, the on-call duty allowance for the actual work may be included in the ordinary wage.

Going forward, it will be important to monitor how the courts rule as to whether or not on-call and standby time for operating room nurses and radiation technicians, etc., are deemed working hours under the LSA.