Korea Employers Federation to Hold Briefing Next Week on Ordinary Wage Response
Legal Ruling Increases Total Corporate Labor Costs by 6.7 Trillion Won
Business Community Concerns Over Increased Litigation Risks and Labor Disputes
Expected Push for Wage System Reform with Higher Performance Proportion
The Supreme Court's full bench issued a precedent ruling that 'conditional bonuses' must also be included in ordinary wages, revealing that the additional labor costs domestic companies must bear amount to 6.7 trillion won annually. The business community expressed serious concerns, stating that in addition to global economic uncertainties, domestic political turmoil, and sluggish domestic demand, companies are now burdened with increased labor costs and litigation risks.
On the 20th, the Korea Employers Federation (KEF) announced it will hold briefing sessions next week, primarily for member companies, to respond to the Supreme Court's ruling on reflecting conditional bonuses in ordinary wages. The purpose is to listen to each company's opinions and jointly devise countermeasures. According to KEF's own investigation immediately after the ruling, one manufacturing company estimated additional labor costs at around 10 billion won, while another holding company expected over 100 billion won in additional labor costs across its subsidiaries.
KEF estimated that the total additional labor costs domestic companies must bear due to this Supreme Court ruling amount to 6.7889 trillion won annually. This figure is based on a survey of 210 member companies, analyzing the scale of additional wages payable per workplace if conditional bonuses are converted into ordinary wages.
Regarding this ruling, the business community, centered around economic organizations, expressed concerns about confusion in the industrial field. The biggest issue is the financial burden caused by increased labor costs. Hwang Yong-yeon, head of KEF's Labor Policy Division, said, "In a difficult situation with sluggish domestic demand and declining export growth, this ruling has imposed unexpected financial burdens on our companies," adding, "Our corporate management environment will worsen further."
Lee Sang-ho, head of the Economic and Industrial Division at the Korea Economic Association, stated, "This ruling shakes the foundation of the wage system and increases unforeseen management risks, negatively impacting employment stability," and added, "Changing the legal principles of ordinary wages established since 2013 is expected to cause unnecessary confusion in labor-management relations in Korea."
Another issue is the increasing litigation risk and labor disputes. This precedent does not apply retroactively to past cases. However, it applies to ongoing cases with the same issues and future lawsuits. The business community fears a surge in lawsuits filed by workers expecting favorable rulings. In fact, immediately after the ruling, labor-specialized law firms launched extensive promotions, advising both workers and companies to professionally respond to litigation risks arising from this ruling.
Going forward, the industrial field's focus is expected to shift to reforming the wage system centered on performance. Painful negotiations to reach labor-management agreements are also anticipated during this process. According to this ruling, performance bonuses based on individual workers' results are still not included in ordinary wages, but the minimum guaranteed payments paid regardless of performance are recognized as ordinary wages.
Companies are expected to pursue wage system reforms to reduce the increasing labor cost burden. The aim is to move away from the traditional seniority-based wage structure and establish a wage system with a higher performance component. Hwang emphasized, "If all regular bonuses are included in ordinary wages, continuous increases in labor costs are inevitable," adding, "It is necessary to simplify the current complex wage system by first reaching labor-management agreements to include regular bonuses in the base salary and reorganize performance bonuses reflecting results."
Kang Seok-gu, head of the Research Division at the Korea Chamber of Commerce and Industry, also added, "This ruling calls for serious consideration of fundamental improvements to change the seniority-based wage system to a job-based pay system."
Moreover, companies must also be mindful of potential labor-management conflicts arising during next year's wage system reform process. A manufacturing company official said, "Labor union struggles were the biggest issue this year, but next year has become even more unpredictable."
Meanwhile, the day before, the Supreme Court ruled in the final appeal of a wage claim lawsuit filed by current and former employees of Hanwha Life Insurance and Hyundai Motor Company against their companies, stating that 'conditional bonuses' must be reflected in ordinary wages. Previously, if a worker on leave did not meet the required working days and thus did not receive the annual bonus, the entire bonus was excluded from ordinary wages. However, according to this ruling, bonuses are calculated based on the actual working days and added to ordinary wages, which then serve as the basis for calculating holiday and night shift allowances, severance pay, and other benefits.
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