The Seoul Central District Court ruled on September 1 that the regular bonuses and lunch expenses paid to Kia Motors workers should be regarded as constituting their ordinary wages. Under the circumstances, a large number of ordinary wage suits are likely to follow in many other companies in various industries.
According to the Bareun Party, a total of 192 companies with at least 100 employees each were engaged in ordinary wage suits between 2013 and the end of June this year and the litigation is still going on in 115 out of them.
“The ruling is likely to have a serious negative impact on the numerous small and medium-sized enterprises that are partnering with Kia Motors, and then the manufacturing sector of South Korea will be significantly affected,” the Korea Employers Federation (KEF) commented after the ruling.
According to a KEF report released in 2013, South Korean enterprises have to bear an additional financial burden of up to 38.5509 trillion won once regular bonuses are included in the scope of ordinary wage. Some experts pointed out that the ruling could have a negative effect on workers as well in the long term although it can be seen as a judgment in favor of employees.
Renault Samsung Motor Affected First
After the court ruled in favor of the Kia Motors Labor Union in the normal wage lawsuit, wage negotiations between other carmakers and their labor unions encouraged by a pay raise at Kia Motors are going through rough going.
On the same day, the Renault Samsung Labor Union voted down a tentative collective bargaining agreement with 53% opposition at its Busan Factory Renault Samsung's union plans to discuss additional future negotiation schedules on September 4. In the automobile industry, it is said that Kia Motors' normal wage lawsuit affected the Renault Samsung Labor Union’s rejection.
Earlier the labor union passed a strike with the approval of union members at the beginning of August, but did not actually go on a strike. The labor-management relationship was not bad such as hammering out a provisional agreement with no dispute for three consecutive years.
However, there is an analysis in the automobile industry that Renault Samsung Labor Union’s rejection stemmed from the results of Kia Motors’ normal wage lawsuit. The Renault Samsung labor and management agreed not to include regular bonuses in normal wages in 2015.
It is said that a forecast that winning the normal wage case on August 31 will give much better treatment to members of the Kia Motors Labor Union led members of the Renault Samsung Labor Union to think that they also deserve to receive much better treatment. "Even now, members of the Kia Motors Labor Union are better treated than members of Renault Samsung's. Members of the Renault Samsung Labor Union became dissatisfied about the fact that the normal wage lawsuit will bring better treatment to members of the Kia Motors Labor Union in the future. Their dissatisfaction play a role," a representative of the automobile industry. “Reaching the tentative agreement was harder than usual so it is expected that it will be difficult to make progress in the future."
The GM Korea Labor Union also has been pressuring Kaher Kazem, a new president of GM Korea with a negative view on a wage raise demanded by the union by staging partial strikes on September 14, 15, 18 and 20 following the first strike (a 4-hour partial strike) on September 5.
The Gov’t to Clarify Legal Scope of Ordinary Wages
Under the circumstances, Deputy Prime Minister Kim Dong-yeon said on the same day that the government would further clarify the legal standards regarding ordinary wages.
At present, approximately 20 cases are pending at the Supreme Court as ordinary wage litigation involving large corporations. The number increases to more than 200 when those involving smaller companies and first and second trials are included in the calculation. The case involving Asiana Airlines has been pending for two years with the verdict of the second trial opposite to that of the first trial. GM Korea and Hyundai Heavy Industries are in the same situation, too.
Two of the most controversial parts are whether to see ordinary wages as a specific salary item and whether to apply the principle of good faith that is based on the Supreme Court’s precedent dating back to 2013. Different lower courts have come up with different judgments after individually looking into each company’s labor-management relations, management situations and so on. The principle of good faith, in particular, can be interpreted in various ways from case to case and many have pointed out the necessity of a new judicial precedent or relevant legislation.
It is in this regard that the Deputy Prime Minister said the government would revise the Labor Standards Act in order to clarify the legal scope of ordinary wages.
Paradox Of Ordinary Wages
As the Kia Motors Labor Union won the ordinary wage lawsuit, rather wages of workers decreased. Kia Motors has decided to halt overtime since the ruling. This will lead to a 3% decrement in annual production and an average annual pay cut of 1 million won (US$90,000) per worker. As the prolonged recession is ramping up inventory burdens on manufacturers, this decision is likely to spread beyond Kia Motors to other Korean manufacturers.
"We stopped all overtime at our Gwangju, Sohari and Hwaseong factories starting on September 25 and informed the labor union that we will minimize overtime work in the future," Kia Motors said on September 21. “According to the government policy, the decision is aimed at improving the health and quality of life of workers and eliminating their overwork.”
As a consequence, Kia Motors will reduce the two-shift 8 Hours + 8 Hours Working System including 30-minute overtime work by a total of 30 minutes by cutting 10 minutes of first-shift laborers’ overtime and 20 minutes of second-shift laborers’. Kia Motors' change in its work system stemmed partly from the global recession and its sharply reduced Chinese sales kindled by China’s retaliation against South Korea for the deployment of the THAAD System. However, the direct and main cause was the August 31 court ruling of the first trial that recognized regular bonuses and lunch fees as ordinary wages. It is estimated that the average annual salary of labor union members will reach the middle of the 100 million won (US$90,000) level if normal wage includes pays for late-night work, extended work and work on holidays and annual allowances.
In order to scale down burdens of soaring labor costs, the company is reducing the amount of work that is paid for. Last year, Kia Motors laborers worked overtime for 30 minutes a day on average, adding 41,000 units a year and each of union members received an additional wage of 1 million won. When overtime is suspended beginning on September 25, such additional wages will be deducted from laborers’ annual salaries. “If we accumulate loss reserves of 1 trillion won in book value following the first ruling on normal wages, we cannot avoid posting operating profit loss in the third quarter," a Kia Motors official said:. "If laborers work overtime and late night as in the past, it may lead to weakened profitability. Therefore, we I cannot help but minimize the causes of pay raises."
In addition, Kia Motors said that the company will minimize overtime and extra work through the recruitment of new employees, the revision of the shift system and an improvement in worker’s job skills even if overtime and extra work are needed after a recovery in sales in the future. In the automobile industry, it is forecast that a cut in production volume triggered by the abolition of overtime, extra work and extended work will be filled by overseas production bases rather than by means of new employment. In the case of Kia Motors, the factory utilization rate stands at 103.4% at home and 99.1% abroad. The normal wage ruling will not lead to a rise in wages of Kia Motors workers or the creation of jobs in Korea, but to a decline in their wages and sending jobs overseas.