3. Supreme Court Decisions on Ordinary Wage

(1) First Case

1) Background
The defendant company(hereinafter, referred to as “the Company”) paid bonuses every even month, in accordance with the Company’s Bonus Payment Regulation, with the full amount paid to employees with at least two months of service. However, a different amount calculated by application of a pre-determined rate, according to the corresponding period of the bonus payment, is paid to new employees with less than two months of service, those who have just returned after taking at least two months of leave, and those who are on leave. As for those who resigned during the corresponding period of bonus payment, the company pays the pro-rated amount according to the number of days worked. When determining the amount of wage to be included in ordinary wage in the collective agreement concluded on October 8, 2008, the Company and the labor union excluded the bonuses from calculation of ordinary wage, assuming that the bonuses in this case were not included in ordinary wage in the Labor Standards Act.

2) Legal issues considered
1) Whether or not the bonuses in this case are included in ordinary wage;
2) Although the Company and the union agreed to exclude the bonuses from calculation of ordinary wage, if an employee applied for additional wage, claiming that the agreement was invalid, whether or not this claim violated the good-faith principle.

3) Court ruling
1) Even though the Company paid the bonus for a period exceeding one month(every two months during each period of wage payment), this amount has satisfied the requirement of periodic payment, as it was paid periodically. Also, since whether or not the payment was made, and the amount had already been determined uniformly for all employees, the bonus qualifies as uniform and fixed. As the bonus payment varies according to the particular service period(as of two months), it could be misunderstood that there is no uniformity or it could incorrectly be regarded as money not previously determined. However, in considering it in the situation of overtime work(when the ordinary wage needs to be calculated), whether the employees concerned had served two months or not was already determined. As those who resigned received their bonus in proportion to the number of days they worked, the bonus is recognized as uniform and fixed. As explained above, those on leave were treated differently, due to their extraordinary situations, and so it is not an obstacle to consider that payment ordinary wage. Accordingly, the regular bonus in this case shall be included in ordinary wage.
2) A labor contract which establishes working conditions that do not meet the standards provided for in the Labor Standards Act shall be null(Article 15 of the Labor Standards Act). Accordingly, even though the employer and the union agreed to exclude the regular bonus as legally included in ordinary wage, this mutual agreement is invalid as it is in violation of the Labor Standards Act. As the above agreement is invalid, it is a principle that the employer shall recalculate the overtime work allowance, adding the wage included in legal ordinary wage, and that the employee can apply for retroactive payment for the variance from the amount already paid. However, the additional wage claim based on the regular bonus can be restricted due to the good-faith principle. In those workplaces where there were no agreements on the exclusion of ordinary wage, additional wage for different amounts recalculated by including the regular bonus in the ordinary wage can be claimed, provided, that this retroactive claim can be valid only for the amount payable for the past three years.

(2) Second Case

1) Background and controversial points
Whether the amount of kimchi bonus should be determined based on whether it is part of ordinary wage; Whether Lunar New Year and Chuseok(Korean Thanksgiving) bonuses, summer leave bonuses, gift allowances, birthday allowances, individual pension premium subsidies, group insurance, etc., which were paid to incumbent employees as of a particular time period, are included in ordinary wage.

2) Court ruling
Even though there is a possibility that the above bonuses etc., which were paid only to those in active service as of a particular time period, may be seen as ordinary wage, the subordinate judicial ruling that considers them as ordinary wage is overturned as being incorrect.

3. Judgment Criteria for Determining Ordinary wage

(1) Concept of ordinary wage

Ordinary wage is the wage determined to be paid uniformly when contractual labor service is provided. All allowances which legally qualify as ordinary wage shall be included in ordinary wage regardless of the title of the allowance. It is recognized as the basic wage when calculating additional wage for extended work, night-time and holiday work, allowance replacing advance notice of dismissal, and the unused annual leave allowance. Additional wage under the Labor Standards Act shall be 150%, calculated by adding 50% of ordinary wage.

(2) Criteria for inclusion in ordinary wage

1) Requirements of ordinary wage
Since ordinary wage becomes the basic wage used to calculate additional wage, it should be considered financial remuneration reflecting the value of labor service provided ordinarily for contractual working hours in accordance with the employment contract(remuneration for labor). Accordingly, the additional wage paid for special work provided, and not for assigned work as per the employment contract, shall not be considered ordinary wage. In addition, this ordinary wage must have been determined before providing actual overtime work. The reason for this is that the previously determined ordinary wage calculation shall be used immediately when the overtime work is actually provided. Requirements of the ordinary wage shall be comprised of all three components: ① periodicity; ② uniformity, and ③ fixedness.

2) Requirement of periodicity

[Regular bonuses] Employees are paid their regular wage once a month in return for work, but their regular bonus is paid either every two months, once per quarter, or once a year, depending on the company. These bonuses are regarded as having a character of periodicity if they are paid periodically, despite being paid every two months, every quarter, every half year or each year. Accordingly, the regular bonus normally paid for a period exceeding one month can be included into the ordinary wage.

This is a wage which is paid periodically for a previously-determined period. Even if it is paid for a period exceeding one month, if it is paid periodically for a regular period, it is included in ordinary wage.

3) Requirement of uniformity
It is considered ordinary wage only when it is paid to all employees or all employees meeting identical conditions or criteria. Even though the bonus is not paid to all employees, but only to those who meet the identical conditions or criteria, it is considered to have a characteristic of uniformity. Accordingly, identical condition here means that it is not changeable from time to time, but is fixed. Even though there may be some restrictions concerning payment of a particular wage to an employee on leave, returning from leave, or under disciplinary measures, these restrictions are designed to consider the individual special circumstances, but cannot deny the uniformity of wage to normal employees maintaining a regular employment relationship. Therefore, this wage is included in ordinary wage.
As ordinary wage includes the concept evaluating the value of contractual work, the identical conditions or criteria shall be conditions related to work. Accordingly, the family allowance paid only to those employees with dependent family cannot be considered ordinary wage, as the payment condition is not related to work performed. Provided, that in cases where the company pays a fixed allowance under the description of family allowance to all employees, and then pays an additional amount to employees with a dependent family, the fixed amount that is paid to all employees uniformly as remuneration of work shall be included in ordinary wage, but the additionally-paid family allowance shall not.

4) Requirement of fixedness
When an employee works overtime, whether or not the company has to pay shall be determined in advance, regardless of any achievements, performance or other additional conditions. In this case, such payment is considered as having a characteristic of fixedness. Fixed wage means the least amount to be guaranteed to be paid as remuneration for labor to the employee who provided that labor for contractual working hours, even if the employee resigned the next day, and regardless of what that wage may be called. A general regular bonus is considered as fixed as this is determined as regular payment. An allowance that is paid only upon satisfaction of an additional condition or any other allowance that is paid a varying amount according to whether or not it satisfies a certain condition shall not be considered ordinary wage as there is no fixedness. In this instance, an additional condition suggests an unclear condition for its achievement in considering it at the time of performing overtime work. Caution should be taken that the part of wage not affected by the condition shall be the ordinary wage as a fixed wage. The incentive pay conditional upon actual performance results is the most suitable example, and shall not be considered ordinary wage as its payment is not fixed. Even in this instance, as much as the least amount guaranteed for payment regardless of performance is fixed, that portion shall be included in ordinary wage.

(3) Criteria for judgment

In order to become ordinary wage for calculating additional wage for night-time, holiday, and extended work, in its evaluation for overtime work, the wage to be paid for the work stipulated in the employment contract shall be paid periodically for a certain time frame(periodicity), be paid uniformly to all employees or all employees corresponding to the identical conditions or criteria related to work(uniformity), and be previously determined to be paid regardless of achievement, performance results, or other additional conditions(fixedness). When the above conditions are satisfied, it is ordinary wage regardless of what it may be called.

4. Substantial Applications

(1) Wage changed according to the length of service period (long-service allowance)
Service period is related to employee proficiency(long experience) and so corresponds to identical conditions or criteria related to work, and all employees meeting these conditions and criteria shall be paid uniformly. In considering overtime work, the employees’ service period is not an unclear condition for either its period or its fulfillment. Therefore, as there is uniformity, this is ordinary wage.

(2) Wage variance based on the number of working days
This wage requires the additional condition of fulfillment of working days in addition to the provision of work, and so, as this wage is not determined at the time of providing overtime work, it cannot be a fixed amount, and therefore is not ordinary wage. That is, as the employee must complete the correct number of working days in order to get paid, the wage corresponding to this cannot be guaranteed to be paid.

(3) Wage to be paid only to incumbent employees during a particular period
This wage, because of its payment to incumbent employees regardless of work performed, is not paid in return for contractual work. In considering it at the time of performing overtime work, whether the employee is working in a particular period or not is not certain, and so there is no fixedness. If an employee resigns before a particular period, that employee cannot receive that particular allowance. Provided, that even if the employee resigned before the particular period, if they receive an amount calculated in proportion to the number of working days, the amount pro-rated for working days is the ordinary wage. Let us assume, for example, that a bonus is paid every even month, and an additional bonus is paid for the Chuseok and Lunar New Year holidays. The bonus paid every second month is paid on a pro-rated basis at the time of resignation, but traditional holiday bonuses are not paid to employees who resign before the particular traditional holiday. In this case, the bonus paid every two months is fixed, and is paid on a pro-rated basis of working days, regardless of a resignation prior to the payment day, and so this bonus is included in ordinary wage. However, as the traditional holiday bonus is not paid in situations where an employee resigns prior to those holidays, it is not included in ordinary wage.

(4) Wage paid according to special skills, experience, etc. (technology, qualifications, license allowances, etc.)
These allowances are paid to employees with special skills and experience related to work, corresponding to the identical conditions or criteria, which satisfies the requirement of uniformity. When considering it while the employee is providing overtime work, as the corresponding technology and particular experience are already determined, this can be considered as fixedness, and so is included in ordinary wage.

(5) wage depending on performance results
Incentives are the bonuses payable upon favorable evaluation of the performance results for the specific period worked, and by determining whether or not payment is due and the amount to be paid. At the time of providing overtime work, performance evaluation and follow-up incentive, plus the amount of payment, are not yet determined. Accordingly, as this payment has a condition that cannot be determined in advance and thereby not admissible as fixed, it is not ordinary wage. However, even if an employee receives the lowest scores in their work performance evaluation, and if a minimum is still paid, this minimum amount can be determined as the amount to be paid regardless of their lowest scores, and so this amount is included in ordinary wage, as it is fixed. In cases where the incentive is already determined to be paid this year based on the performance results of last year, as the payment and amount are already guaranteed at the time of working overtime, this incentive is fixed and belongs to the ordinary wage. Provided, that if the incentive that should have been paid last year was delayed only in its payment, this is not a fixed amount and is not included in ordinary wage.


[Examples]
(1)Work performance was scored as A, B, or C: those receiving the lowest grade, C, were paid 1 million won, those receiving a B were paid 2 million won, and those receiving an A were paid 3 million won. Therefore, a minimum of 1 million won was guaranteed, and this 1 million won shall be included in ordinary wage. The additional money paid for the higher grades are not ordinary wage.

(2) Work performance was scored as A, B, or C: those receiving the lowest grade, C, were paid nothing, those receiving a B were paid 2 million won, and those receiving an A were paid 3 million won. In this case, as those receiving a C will not be paid at all, the incentive bonuses are not included in ordinary wage.


(6) Amount of Kimchi bonus not confirmed
The collective agreement stipulates that ‘a kimchi bonus is paid during Kimjang(the kimchi-making period), with the amount determined through labor-management consultation.’ The amount was determined in this way just prior to the payment date. In this case, the amount to be paid cannot be confirmed at the time of overtime work performance, and therefore cannot be regarded as a fixed payment or included in ordinary wage.




5. Application of Good-Faith Principle

Any labor-management agreement that excludes regular bonus corresponding to the statutory ordinary wage in the calculation of ordinary wage is null and void due to it being a violation of the Labor Standards Act. However, both the company and the labor union have believed for a long time that regular bonuses are not included in ordinary wage, according to social recognition and working practices, and have agreed to exclude them from the calculation of ordinary wage, determining wage increases and other working conditions on the basis of that belief. ① When the company and the labor union agree to wage increases, the increase is generally determined as based on total wage, not the detailed components of the wage, within the company’s labor cost limits. ② If the company and the labor union had been aware that the regular bonus was included in ordinary wage, the company may have changed other conditions and striven to adjust the amount to maintain the previously agreed-upon wage level. ③ If the employees are able to apply for additional wage, claiming that the non-inclusion of regular bonus into the ordinary wage is null and void, the fact remains that they have already received all the wage increases in accordance with the collective agreement between the company and the union for those days, and this would allow them to receive additional wage, exceeding the company’s labor cost limits as a result. This would result in unexpected, excessive costs to the company, leading to severe managerial difficulties, which cannot be acceptable in light of the notion of justice and equity. In this type of situation, the employees’ claim is not granted due to it being a violation of the good-faith principle. That is, in this case, the employees cannot retroactively claim a recalculated overtime work allowance based on regular bonuses being included in ordinary wage.