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Dec 23, 2013

"Ordinary Wages" Under Korean Labor & Employment Law: Korean Supreme Court

The definition of "ordinary wage" has been clarified by the Korean Supreme Court in two decisions handed down this week.  The calculation for an Ordinary Wage is utilized to calculate statutory entitlements, thus, has an impact on the aggregate amount of contributions necessary to be paid to an employee.  The issue is one of the most significant issues, this year, for domestic and foreign employers.  

The basic test has  been that an Ordinary Wage is a "regular, uniform and flat" payment.   Obviously, this "test" leaves much unanswered.

With this vague definition, the Korean courts have inconsistently interpreted the definition, thus, leading to much confusion.  I have written many memos on this issue with few opportunities to give a definitive answer, because of the lack of a consistent interpretation of the definition by the lower courts and, seemingly, even the Supreme Court.

This week, the Supreme Court, in a case that I will call the Regular Interval Bonus Case, has delivered  a couple of more clear examples, than in the past, of cases that will be considered Ordinary Wages.   In the case, the employer was providing a "regular bonus" every two months.

The Court in the Regular Interval Bonus Case opined, in part, that:
  1. Any collective bargaining agreement (labor-management agreement or like agreement) that deems a certain type of payment as not an Ordinary Wage is void and, thus, unenforceable.  An exception is available for certain specific companies that have implemented this practice in particular limited situations based on the vague principle of "good faith and trust."  I will elaborate on this more in a followup post after the holidays; and
  2. Payments paid at regular intervals (e.g. every other month) are an Ordinary Wage.
The Supreme Court remanded the case to the High Court to determine if the exception is applicable.

In the second case, that I will call the Allowances Case, utilized the Ordinary Wage definition and rationale in the Regular Interval Bonus Case to opine that these allowances when paid just for being employed at a certain period of time will not be considered "flat" under the Ordinary Wage "regular, uniform, and flat" definition.

The Allowances Case was remanded, also, to the High Court to determine if the payments were, only, payments made for being employed during a certain period of time.


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