Company A provides a 20% discount to its employees for its products within an annual limit of KRW 2 million. This benefit is limited to the employees themselves and their immediate family members who live together. When it was discovered that one employee had violated this regulation by purchasing company products, the company issued a written warning to the employee and obtained the employee's consent to deduct KRW 500,000 in unjust enrichment from their wages. Such cases are common and closely related to the issue of whether wage claims and compensation claims can be offset.
Wages received as compensation for labor are directly related to guaranteeing the right of workers to survive. Therefore, deductions for claims from wages are strictly limited. Article 43, Paragraph 1 of the Labor Standards Act states that "wages must be paid directly to workers in currency" and specifies the principle of full payment of wages. Wages generally follow the principle of full payment, with minimal exceptions. Legally permissible wage deductions include (1) statutory laws (court judgments), (2) collective agreements, and (3) deductions for payment errors in wage calculations. Kim Hyungbae. Labor Law, 24th ed., Parkyoungsa, 2015, p. 364; Im, J.R. Labor Law, 14th ed., Parkyoungsa, 2016, p. 417.
■ Principle of Full Payment of Wages
The principle of full payment of wages aims to ensure that workers receive their full wages without any unilateral deductions by the employer, so as to prevent any threat to the workers' livelihood. Exceptions to the principle of full payment of wages are strictly limited to cases allowed by law or collective agreements. The courts have stated that "even if an employer unilaterally reduces bonuses due to a management crisis and the workers continue to work without objection, it cannot be considered that the workers have waived their right to claim the bonus due to the employer's unilateral deduction." Supreme Court ruling 1999. 6. 11. 98da22185 Decision
■ Exceptions to the Principle of Full Payment of Wages
❍ Exception by law
Exceptions by Law Deductions allowed by law are only possible in cases explicitly stated in laws such as the Income Tax Act and the Four Major Insurance Collection Act. In addition, when a creditor receives a wage claim seizure ruling from a court, they can seize up to half the amount of the monthly wage exceeding 1.5 million won, which is the minimum cost of living. Supreme Court ruling 1994. 3. 16. 94ma1822; Article 246 of the Civil Execution Act (Seizure Prohibition Bonds) Paragraph 1 Subparagraph 4, the amount equivalent to 1/2 of salary, pension, salary, bonus, retirement pension, and other salary claims with similar properties. However, in the provison, the seizure of the amount corresponding to the minimum cost of living (1.5 million won for a family of 4) out of the worker's salary is prohibited.
In particular, recent precedent has emphasized that wage claim seizures are possible for monthly wages but not for retirement pay or pensions.
Article 7 of the Employee Retirement Benefit Security Act prohibits the transfer of the right to receive benefits from the retirement pension plan, so the transfer prohibition provision can be regarded as a compulsory law. Therefore, the seizure order for the right to receive benefits from the retirement pension plan is invalid under substantive law, and the tertiary debtor can refuse to pay for the claim for collection of seized bonds by citing the above invalidity. On the other hand, Article 246 Paragraph 1 Item 4 of the Civil Execution Act stipulates that retirement pensions and other benefit claims with similar properties cannot be seized for only half of the amount. Since this is related to the general law and the special law in relation to the transfer prohibition provisions of the Retirement Benefit Act, it should be seen that seizure of the full amount of retirement pension claims under the Retirement Benefit Act is prohibited.” Supreme Court ruling 2014. 1. 23. 2013da71180 Decision
❍ Deductions by Collective Agreement
Deductions by collective agreement are commonly referred to as "check-off" deductions for union fees. When a labor union demands a deduction for a strike fund, equivalent to 10 times the monthly union fee per member, or KRW 500,000 per member, even without individual consent, there is a question of whether the employer must cooperate with the request. The Ministry of Employment and Labor takes the position that even for strike funds decided through proper resolution procedures of the labor union (such as through the vote of all members or under the union's rules and regulations), deductions for such funds must be made as union fees without requiring individual consent. Refusal by an employer to cooperate with the special union fee deduction for the purpose of the labor union's struggle against the employer can be considered an unfair labor practice.
❍ Deductions Due to Errors in Wage Calculation
If an employer mistakenly overpays an employee due to an error in wage calculation, the excess amount can be deducted from future wages or severance pay, regardless of the principle of paying wages in full. However, even in such cases, the court considers that an employer's automatic offset of the repayment obligation for unjust enrichment to an employee's severance pay claim is only allowed for the portion exceeding half of the severance pay claim.
■ Precedents and Cases Related to Setoff of Employee Wage Claims
First of all, the Supreme Court has ruled as follows as a criterion for determining whether workers' wage claims can be offset. “It will be said that the employer is prohibited from unilaterally offsetting the worker's wage claim with the claim that the employer has against the worker, but if the employer obtains the worker's consent and offsets the worker's wage claim, the consent is based on the worker's free will. If there are objectively reasonable grounds for recognizing that it has been established, it should be deemed not to violate the main sentence of Article 43 (1) of the Labor Standards Act. However, in light of the purpose of the principle of full wage payment, the judgment that the consent is based on the free will of the worker must be made strictly and prudently.” Supreme Court ruling 2001. 10. 23. 2001da25184.
Next, some cases related to the setoff of employee wage claims are as follows:
First, there is the case of repayment of training expenses, where a company bears the cost of training by sending employees abroad for training and requires them to repay all or part of the training expenses if the employees fail to work for a certain mandatory period after completing the training. Therefore, when an employee works for the mandatory period after receiving overseas training, the company's training regulations that exempt the employee from repayment of the training expenses are not considered a penalty or a pre-agreement for compensation for damages that are prohibited by Article 20 of the Labor Standards Act. It can be considered that it is not a violation of Article 7 of the Labor Standards Act, which prohibits the use of means that unjustly restrict an employee's mental or physical freedom or force labor that is contrary to the employee's free will, or an agreement that sets off a wage claim with a claim for an advance payment or other work condition.
Secondly, in cases where bonuses are reduced to overcome a company's financial difficulties, there are situations where the bonus is reduced or returned through agreements with labor unions. The Ministry of Employment and Labor distinguishes between past and future bonuses and requires individual worker agreement for bonus reduction (or return) for already completed work. However, in cases where future bonuses are reduced (downward adjustments) as a labor condition, it is possible to revise a collective agreement through negotiations with the labor union, obtaining the approval of the majority of employees, or labor regulations without individual worker agreement.
The courts also make the same judgment. Already accrued wages (including bonuses) or severance pay are transferred to the employee's personal property domain, and if the labor union does not receive individual consent from employees, the disposal action, such as giving up or delaying payment, cannot be taken solely through a collective agreement with the employer. Thus, requiring employees to return wages paid through a collective agreement without individual worker consent is invalid. Supreme Court ruling 2010. 1. 28. 2009da76317 Decision
Thirdly, regarding loans such as housing funds, when a company lends housing funds to employees, deducts a certain amount from the salary to repay it, and deducts the entire unpaid amount of the housing funds from the severance pay when the employee retires, there may be a question of whether this violates the principle of full payment. In this regard, precedents state that "a collective agreement is an agreement concluded between a labor union and an employer or an employer organization on matters related to working conditions and other labor-management relations, and that its sincerity and clarity are guaranteed even during the negotiation process and that it is based on the free will of individual workers. Considering that employers can offset automatic claims against workers and workers' wage claims, it cannot be deemed invalid to provide for a collective agreement that allows employers to deduct loan principal and other claims from their employees, including housing loans, if it has been lawfully concluded." The Supreme Court acknowledged the deduction of housing loan principal from severance pay. Supreme Court ruling 2003. 6. 27. 2003da7623 Decision
Lastly, as in the case cited above, deductions (reimbursement) for claims for compensation for illegal acts of workers or claims for other damages frequently occur on a daily basis. However, this violates the principle of full wage payment. This is because the principle of full wage payment is a mandatory regulation to prevent the unilateral deduction (offsetting) of general claims held by employers against workers from wage claims. Therefore, if the employer unilaterally deducts the employer's claims to the employee from wages for the employer's convenience, the act is invalid and may be subject to punishment as a violation of the Labor Standards Act.
