South Korea's Supreme Court has ruled that management performance bonuses paid by Hyundai Marine & Fire Insurance do not constitute wages paid as compensation for labor, meaning the company is not required to recalculate its retirement pension contributions.
According to legal circles on Thursday, the second division of the Supreme Court (presiding Justice Cheon Dae-yeop) on February 26 this year overturned a lower court's partial ruling in favor of the plaintiffs — approximately 400 current and former Hyundai Marine & Fire Insurance employees — who had filed a wage lawsuit against the company. The case was remanded to the Seoul High Court.
Hyundai Marine & Fire Insurance paid management performance bonuses from 2003 to 2018 when net profit exceeded a certain threshold. Whether bonuses were paid and their size were tied to net profit, and the payout rate varied each year. The workers argued that such performance bonuses effectively amounted to regularly paid wages and should be included in the "total annual wages" used as the basis for calculating retirement pension contributions. They filed a lawsuit in June 2019 demanding unpaid wages and additional retirement pension contributions.
The first and second courts ruled that Hyundai Marine's performance bonuses should be included in average wages. They determined that a practice had been established under which it was considered natural for bonuses to be paid once a year based on Hyundai Marine's business performance, creating an obligation to pay, and that the bonuses were closely related to the provision of labor.
However, the Supreme Court reversed the lower court rulings. The court determined it was difficult to conclude that Hyundai Marine had an obligation to pay performance bonuses on a continuous and regular basis based on labor practice. The court noted that employment rules and wage regulations did not stipulate provisions for performance bonuses, and that the specific details of the payout criteria had been changed multiple times, meaning the company could decide not to pay at any time depending on business conditions. The court explained that whether net profit — the basis for the bonuses — was generated depended not only on the provision of labor but also on factors such as the scale of equity and debt capital, market conditions, and management decisions, making it difficult to view the bonuses as compensation for labor. The fact that the actual payout rate fluctuated widely, ranging from 0% to 716.453% of the annual bonus base, also served as a basis for the ruling. The Supreme Court stated, "It is reasonable to view that the reason the defendant (Hyundai Marine) paid performance bonuses was not because they were the workers' share that should be paid as compensation for labor, but rather to boost morale, inspire motivation, and distribute or share profits from the perspective of employee welfare."