The government and the National Assembly are moving to clarify ordinary wages in law after a court decision involving Kia Motors.
Such moves stem from a need to establish clear criteria, as the current code on ordinary wages is blamed for the legal disputes over them.
Deputy Prime Minister and Minister of Strategy and Finance Kim Dong-yeon remarked on Friday, “I will seek a fast revision of the Labor Standards Act to clarify the legal scope of ordinary wages.”
Politicians of both the ruling and opposition parties say unmistakable standards on ordinary wages -- the basis for calculating overtime pay, compensation for unused paid leave and severance pay -- should be written into law.
In the Kia Motors case, the Seoul Central District Court ruled partially in favor of labor union on Thursday.
The court included regular bonuses in ordinary wages and ordered the automaker to pay 422.3 billion won ($376 million) of 1.092 trillion won the union had claimed for in back wages. It is no small sum.
The case had two big points of contention.
One is whether regular bonuses are part of ordinary wages, and the other is whether the covenant of good faith is implied.
The court rejected the good faith rule that the company argued should be applied. The management insisted that regular bonuses had been excluded from ordinary wages under mutual understanding and agreement, and that the union had gone against the principle of good faith by demanding payment of back wages.
The problem is that the good faith rule has been applied inconsistently from case to case.
Though the good faith principle was not accepted in the Kia Motors lawsuit, a recent similar case filed by Kumho Tire workers produced opposite results. The second-trial court accepted the good faith argument by Kumho Tire management, ruling against its union’s claim for unpaid allowances.
The criteria for courts to consider when deciding whether to accept good faith rule in ordinary wage litigation was established in 2013 by the Supreme Court in a case involving KB AutoTech, an automotive parts maker. The factor to consider is grave corporate difficulty or peril to corporate existence, but lower courts have made inconsistent decisions based on this guideline. The Supreme Court needs to clarify the standard further.
The judge panel on the Kia Motors case ruled, “It is not convincing to argue that additional expenditures will be a grave threat to the survival of the company, even though they are wages that it should have paid to workers as a matter of course.”
The court pointed out that the company had posted significant net profits from 2008 to 2015.
It is a correct judgment and, undoubtedly, workers’ rights should be strengthened. But there are criticisms that the court, citing the past performances of the company, ignored its difficult present situation and dim prospects.
Kia Motors saw its operating earnings plummet 44 percent year-on-year in the first half, largely due to reduced sales in China. It expects to report an operating loss in the third quarter if additional labor costs due to the ruling are reflected.
A total of 192 businesses were embroiled in ordinary wage litigations from the 2013 Supreme Court ruling on KB AutoTech to the end of June. Of them, 115 suits are still pending. If companies lose all 115 lawsuits, their combined back wages are estimated to reach as much as 38 trillion won. The impact of ordinary wage suits is far from small.
The nation seems to have reached a consensus that the scope of ordinary wages should be clarified.
However, this matter will cause conflicts of interest between labor and management, so in the process of legislating on ordinary wages, efforts are needed to collect sufficient opinions and adjust balance of interests.
It is also desirable to take this opportunity to modify unconventional wage systems characterized by small base pay packages supplemented by regular and irregular bonuses and all sorts of other allowances.