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Supreme Court rules bonuses as ordinary pay

By Cho Chung-un

The Supreme Court on Wednesday sided with employees ruling that bonuses, if paid out regularly, constitute part of “ordinary wage” used as basis of calculating the amount of various compensations and severance pay.

The top court said in a landmark ruling that any labor-business agreement that excludes bonuses from ordinary wages will be regarded as invalid. The court, however, didn’t recognize welfare benefits such as vacation bonuses, as ordinary pay.

“Bonuses paid regularly and uniformly are included in ordinary wages,” the court said.

The landmark ruling made by the 13 Supreme Court judges is expected to directly affect all lower courts and add significant financial burden for companies that didn’t include bonuses as ordinary pay so far.

The litigation filed by about 300 employees at a local auto part-maker, centered whether to classify bonuses as part of ordinary pay. Ordinary pay is used as the base to calculate overtime, nighttime and holiday pay and affects the amount offered in severance packages. Bonuses are not currently included in ordinary pay.

As the issue sparked a heated debate in the labor, business and political circles, the top court had decided to make a full-member decision. The top court holds such trials when the cases are important enough to set a precedent for other cases down the road.

Businesses expressed grave concerns immediately after the ruling that it would have a huge impact on the Korean economy and entire nation. “Companies would suffer greatly from intensifying conflicts between the labor and the management and lawsuits (expected to be) followed (by the top court‘s ruling),” the Korea Federation of Small and Medium Business said in a statement.

Labor circles and businesses have been in a war of nerves, striving to win over the public, the court and political parties.

Companies in Korea would have to pay out a combined, additional 38 trillion won ($34.4 billion) if bonuses were to be included in the ordinary wage, undermining their export competitiveness, according to the Korea Chamber of Commerce and Industry, one of the five major business groups here.

Labor unions welcomed the court’s decision.

“We welcome the ruling that included bonuses (as part of ordinary pay), but excluding welfare benefits is perceived as a retreat from the previous ruling,” said Choi Jong-hwan, deputy director of Federation of Korean Trade Unions, one of two major umbrella trade union groups here.

The ruling is likely to urge businesses to improve their pay systems, in consultation with trade unions. Definition of ordinary wages will be drafted in clear terms by the labor and the management in each business unit. The government is also expected to revise relevant laws and enforcement ordinances.

Currently, more than 160 civil cases are being processed. Among those embroiled in such legal dispute is GM Korea.

Daniel Akerson, former chairman and chief executive officer of General Motors, which operates a subsidiary in Korea, raised the issue when he and other American businessmen met with President Park Geun-hye during her U.S. visit in May. As Akerson cited the wage issue as a key barrier to investment in Korea, Park said the Korean government would reassess the wage rule.

(christory@heraldcorp.com)