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“Principle of Good Faith” Likely to Cause Continuing Legal Disputes
Ordinary Wage Ruling
“Principle of Good Faith” Likely to Cause Continuing Legal Disputes
  • By matthew
  • December 20, 2013, 02:24
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The Supreme Court ruled that a retroactive request is not acceptable, since it is unjust and in breach of the principle of good faith.
The Supreme Court ruled that a retroactive request is not acceptable, since it is unjust and in breach of the principle of good faith.

 

The Supreme Court stated on December 18 that wages paid for one’s work are regarded as ordinary wages provided that the payment is made on a “regular, uniform, and fixed basis.” The court added, “Regular bonuses are considered to be ordinary wages on the condition that those bonuses are paid regularly and uniformly despite the difference in wages based on seniority.” However, it ruled that performance-based bonuses are not included in regular wages.

The court said that benefits, including bonuses for New Year’s Day, Chuseok, and vacations, are not deemed to be ordinary wages if paid to those working in the company at the time of disbursement. It also stressed that any previous labor-management agreements to exclude bonuses from ordinary wages are invalid, since the agreements are in violation of the Labor Standards Act.

Nevertheless, the Supreme Court ruled, “Employees shall not retroactively demand the difference in overtime pay as additional wages, in the event that the demand itself causes an unexpected increase in spending for their company, and thus gives the firm financial difficulty. In that case, the request is not acceptable, since it is unjust, and it is in breach of the principle of good faith." The ruling can be interpreted as the court's consideration of the implications for the employer's financial burden.

Despite the court's decision, legal disputes between labor and management are likely to continue, since the court can decide whether or not a certain wage claim engenders financial problems for business. Those working in the company without precedent for the exclusion agreement can demand the difference, but only three years of differences in overtime pay are acknowledged.

Meanwhile, the Korean government announced, "The Supreme Court ruling should serve as an opportunity to revampthe controversial ordinary wage system in a future-oriented and reasonable manner." The announcement was made during a ministerial level meeting betweenthe Ministry of Strategy and Finance (MOSF), the Ministry of Trade, Industry and Energy (MOTIE), the Ministry of Employment and Labor (MOEL), and the Small and Medium Business Administration (SMBA), held immediately after the court's decision. 

Employment and Labor Minister Phang Ha-nam said, "The current wage system, which is unfavorablein the age of limitless competition, reduces our economic competitiveness, and makes investment and employment difficult. The minister added, "We will come up with measures to improve the system by reflecting the effects of those measures on our economy, labor-management agreements, and basic principles."

Lim Moo-song, Director General of the Manpower Policy Bureau at MOEL pointed out, "We will make standards for an overhaul of our wage system before wage negotiations swing into high gear next spring."

The government already made guidelines to revamp the system after discussing the matter for nearly half a year in meetings of the Wage Reform Committee.

Once a revision to the Labor Standard Actis made, comprehensive ways to reform the system will be discussed at the Special Committee on Wage and Working Hours within the Economic and Social Development Commission. But the problem is that representatives of labor and management can reach an agreement at all. So far, labor unions have never participated in committee meetings. 

In line with the government's plan to change the overall system, companies also appear to be eager to simplify their wage payment systems. In particular, firms that provide low wages and high benefits to their workers seem to be willing to remove many types of bonuses, or incorporate those bonuses into wages. If that happens, the controversy surrounding regular wages are likely to subside.