South Korea's Supreme Court has ruled that performance bonuses paid by LX Glass (formerly Hankuk Glass Industries) cannot be considered wages given as compensation for labor. The court found that net income, the basis for calculating the bonuses, has no close connection to the provision of labor.
According to legal circles on the 22nd, the Supreme Court's First Division (presiding Justice Shin Sook-hee) recently overturned a lower court ruling that had recognized performance bonuses as wages in a lawsuit filed by 36 employees including Mr. Kang against the company, remanding the case to Seoul High Court.
Under its collective bargaining agreement, LX Glass paid performance bonuses to employees on a tiered basis when net income exceeded 3 billion won. However, when calculating pension contributions for employees enrolled in defined contribution (DC) retirement plans, the company excluded performance bonuses from total annual wages. Employees filed suit demanding additional contributions to their pension accounts, arguing the bonuses constituted wages. They also sought inclusion of conditional bonuses and company-paid health insurance premiums in ordinary wages.
Both the first and second instance courts ruled in favor of the employees, recognizing all conditional bonuses, company-paid health insurance premiums, and performance bonuses as compensation for labor. The appellate court determined that since payment recipients and conditions were established by tier of net income under the collective bargaining agreement, LX Glass had a payment obligation, making the bonuses wages paid as compensation for labor.
However, the Supreme Court reversed the lower court ruling. It determined that because the performance bonuses do not constitute compensation for labor, they cannot serve as a basis for calculating retirement pension contributions. The court found that net income, the criterion for the bonuses, has no close connection to the provision of labor and is affected by various factors beyond workers' control.
"Net income is structurally determined not only by workers' provision of labor but also by other factors including the company's capital, expenditure scale, market conditions, and management decisions," the Supreme Court stated. "It is difficult to view this as closely related to the provision of labor."
