"'Second Regular Wage Judgment' Concerns... Preparing for the Risk of Including Performance Bonuses in Average Wages"

KCCI's 'Notable Labor Court Rulings and Corporate HR Strategies Seminar'
Performance Pay as Average Wage, Dismissal of Low Performers, Subcontractor-Prime Contractor Negotiation Rulings, etc.

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] Advice has been given that companies need to prepare as court rulings are moving toward including performance bonuses in ordinary wages. The legal community pointed out that the situation is unfolding similarly to the litigation crisis caused when the court included regular bonuses in ordinary wages in 2013.

On the 3rd, the Korea Chamber of Commerce and Industry (KCCI) announced that it held an online seminar titled "Labor Court Rulings to Watch This Year and Corporate HR Labor Strategies" at the Chamber of Commerce building in collaboration with the law firm Sejong. Lawyers Kim Dongwook and Kim Jongsu from Sejong Law Firm introduced notable case issues and related precedents, explaining their impact on companies and response strategies. Key case issues included "Inclusion of private company performance bonuses in average wages," "Possibility of dismissing low performers," and "Obligation of primary contractors to engage in collective bargaining with subcontractor unions."

Lawyer Kim Jongsu explained that recent legal disputes over the average wage nature of performance bonuses resemble the 2013 litigation crisis. He urged companies to exercise caution. Earlier, on the 28th of last month, the Supreme Court ruled in a lawsuit between Hyundai Steel’s in-house subcontractors and workers that bonuses must be paid even to workers who retired before the bonus payment. Even if there is a condition that bonuses are paid only during employment, the collective agreement stipulates that bonuses must be paid "proportionally" upon joining, reinstatement, or leave, which can apply after resignation. If the ruling is followed, companies may face increased labor cost burdens.

Kim Jongsu pointed out that many lawsuits have been filed regarding performance bonuses, which were previously not considered wages, since the Supreme Court ruled that performance bonuses of public institutions are included in average wages. "Especially, lower courts have issued differing rulings, so caution is necessary," he said. He added, "If the Supreme Court recognizes performance bonuses as average wages, a 'second ordinary wage lawsuit' will unfold. Individual companies need to recognize and prepare for this performance bonus risk in advance."

Attention is also needed on precedents related to dismissing low performers. Kim Jongsu said, "After the fair personnel guidelines containing dismissal standards for low performers, enacted during the Park Geun-hye administration, were abolished under the frame of 'easy dismissal,' the Supreme Court has issued its first ruling recognizing dismissal of low performers. This ruling has secured the legitimacy of corporate low performer programs (PIP)." He added, "It is necessary to reorganize PIP based on the Supreme Court’s dismissal requirements, such as 'going through fair and objective personnel evaluations,' 'proving the worker’s low work ability,' and 'providing opportunities to improve work performance.'"

Lawyer Kim Dongwook gave a lecture on precedents expanding the primary contractor’s employer status regarding subcontractor labor unions. He advised preparing for legal risks as the scope of primary contractor responsibility is expanding. Kim Dongwook explained, "The previous stance that did not hold primary contractors responsible under labor union law because they have no direct employment contract with subcontractor unions is becoming blurred. The Labor Relations Commission and lower courts have been recognizing primary contractors as employers under labor union law for subcontractor unions, raising concerns about significant changes in labor relations." He added, "Especially since the Supreme Court recognizes primary contractors as subjects of unfair labor practices, primary contractors should refrain from intervening in subcontractor labor relations." He also advised, "There is a movement in lower courts to apply substitute labor prohibition clauses to primary contractors’ replacement labor during subcontractor union strikes, so countermeasures should be reviewed."

Additionally, it was pointed out that companies need to prepare for issues such as "the court’s limited recognition of the comprehensive wage system that includes fixed overtime pay in the basic wage," "the Ministry of Employment and Labor’s guideline and the principle of employing dispatched workers directly as indefinite-term employees rather than fixed-term," and "precedents on wage peak system introduction for workers with annual salary contracts."

Jeon Insik, Director of Industrial Policy at KCCI, said, "Due to significant legislative changes such as the implementation of the 52-hour workweek system, amendments to the Labor Union Act, and enactment of the Serious Accident Punishment Act, companies have focused heavily on legislation and somewhat neglected changes in court rulings. However, as there have been successive rulings with impacts as significant as legislation, companies need to be cautious."

The presentation can be rewatched on the KCCI website under the 'Online Seminar' section.