Samsung Group affiliates are bracing for a new wave of severance pay lawsuits after the Supreme Court ruled last month that Samsung Electronics’ target-based bonus must be treated as wages when calculating retirement pay.
Legal sources said Thursday that unions and former employees at Samsung Electronics Service, Samsung Fire and Samsung SDS are consulting with law firm A Pro on potential claims seeking additional severance.
The legal turning point came Jan. 29, when the Supreme Court held that Samsung Electronics’ Target Achievement Incentive, or TAI, qualifies as “average wages.” Under Korean law, severance is calculated by multiplying average wages earned in the three months before departure by years of service.
The court ruled that TAI constitutes wages because its payment formula is preset in employment regulations and it is paid on a regular basis. However, it excluded Samsung’s separate economic value-added-based performance bonus, finding that it does not meet the legal criteria for wages in severance calculations.
Litigation has already begun at Samsung Electronics. Twenty retirees filed suit at the Seoul Central District Court on Feb. 4, followed by another group of about 40 on Feb. 13, seeking recalculation of severance to include TAI payments.
The National Samsung Electronics Union is also reviewing the possibility of a collective lawsuit on behalf of former employees still within the three-year statute of limitations for wage claims.
A Pro, which represented the retirees in the Supreme Court case, said it continues to advise additional former Samsung employees and has received inquiries from workers at other companies with similar incentive systems.
Samsung Electronics has begun applying the ruling to new retirees. Industry sources said the company is including TAI in severance calculations for employees departing on or after Jan. 29, though it has not disclosed the expected financial impact. Legal observers estimate that for a long-serving employee with consistently high TAI payouts, severance could rise by roughly 13 million won ($9,000).
A separate Supreme Court ruling suggests the fallout will vary across companies depending on bonus scheme structure.
On Feb. 12, the court rejected a claim by two SK hynix retirees, ruling that the chipmaker’s productivity and profit-sharing bonuses do not qualify as wages. The court found that SK hynix is not legally bound under its employment rules or collective agreements to pay those bonuses annually. Payout levels are also determined through yearly negotiations and can be adjusted or withheld depending on business conditions.
mjh@heraldcorp.com
