The Supreme Court ruled on Thursday in favor of workers at Hyundai Heavy Industries (HHI), who demanded that regular periodic bonuses be included as part of their ordinary wages, and are therefore due to receive major compensation from the company.
It is estimated that the ruling will cost the company 630 billion won ($532 million) after a nine-year-long legal battle initiated by 10 unionists on behalf of more than 30,000 employees.
Industry sources argue that the court’s decision will set a negative precedent, in that it will place a financial burden on companies’ business management in the future.
The unionists asked for recognition of regular bonuses as part of their ordinary wages and demanded that the company cover the differences in legal allowances and retirement pay retroactively for the period from December 2009 to May 2014 by including regular bonuses when calculating the allowances.
In Korea, many large businesses pay their employees fixed bonuses on a regular basis aside from their ordinary salaries.
Companies argue that if the bonuses are calculated into ordinary wages, they will be stuck with a huge financial burden, as all other benefits and allowances, including overtime and retirement pay, need to be increased, based on the ordinary pay raise.
Regarding the ruling, the Federation of Korean Industries (FKI) said that the inclusion of bonuses in ordinary wages is concerning and that it will “increase the uncertainty of labor costs in corporate management.”
“In a situation where national competitiveness has weakened due to the delay of economic recovery as a result of the extended pandemic and the deterioration of the domestic and international business environment, this ruling, which does not recognize the principle of good faith, will unexpectedly increase the burden of labor costs,” said Choo Gwang-ho, the head of economic policy at the Korea Economic Research Institute under the FKI.
HHI argued that the inclusion of bonuses in ordinary wages violates the principle of good faith under the Civil Code. Under the code, if additional wages cause serious business difficulties or threaten the existence of a company, having to pay them amounts to a violation of the principle of good faith.
The first trial ruled in favor of the workers, but the appellate court ruled in favor of management before the case came before the Supreme Court.
“Even if a company faces temporary business difficulties, if the employer made reasonable and objective forecasts, then such difficulties could have been predicted,” the Supreme Court said. “The company should not reject workers’ claims for additional due allowances based on the principle of good faith.”
The HHI official said, “We respect the judgment of the court, but this ruling is contrary to our position, so we plan to thoroughly make our case in the retrial at the high court.”
