"Performance Bonuses Are Not Regular Wages or Part of Severance Pay Calculation"... Supreme Court Overturns and Remands Hyundai Marine & Fire Insurance Employee Lawsuit

Wage Status Denied Despite 16 Years of Payment
Emphasis on "Company Discretion and Changing Criteria"
Lower Court Rulings Overturned
Neither Labor Practice nor Remuneration for Work Recognized
Judged to Be "Profit Sharing and Welfare i

The Supreme Court has ruled that 'management performance bonuses' provided by a company cannot be included in the calculation of severance pay. The reasoning is that, even if such bonuses have been paid for 16 years, if the company has broad discretion and the criteria change each year, it is difficult to consider these bonuses as 'regular wages' equivalent to monthly salary.

According to the legal community on April 8, the Supreme Court's Second Division (Presiding Justice Cheon Dae-yeop) overturned a lower court decision that partially favored 411 current and former employees of Hyundai Marine & Fire Insurance in their lawsuit against the company for severance pay and remanded the case to the appellate court.

The main issue in this case was whether performance bonuses, paid in connection with management performance such as net income, constitute 'wages' under the Labor Standards Act, and further, whether they can be included in the average wage that serves as the basis for calculating severance pay.

Since 2003, Hyundai Marine & Fire Insurance has paid management performance bonuses of up to 716% of the base salary for 16 years whenever net income exceeded a certain threshold. However, since 2009, the company has unilaterally set the payment criteria.

The first and second instance courts recognized the wage nature of these performance bonuses. They determined that the long-term, repeated payments established a labor custom, and the purpose of the payments—to boost work motivation—was closely connected to the provision of labor, so the bonuses were essentially considered as 'compensation for work.'

However, the Supreme Court reached a different conclusion. The panel stated, "These management performance bonuses are more about distributing profits to boost employee morale or provide welfare rather than being compensation for work," thus denying their wage nature.

The court specifically cited several grounds: ▲ the criteria for paying the bonuses change every year; ▲ the very payment of the bonuses can vary depending on the company's management situation; and ▲ the payment criteria explicitly state that the bonuses are "paid only for the relevant year." Based on this structure, the court found it difficult to conclude that a 'labor custom' had been established obliging the employer to pay the bonuses continuously and regularly.

The Supreme Court also pointed out that the calculation criteria for the bonuses—namely, net income—are heavily influenced by external factors such as market conditions and capital size. Therefore, these bonuses are considered closer to 'profit sharing' among company members, rather than wages paid directly in return for individual employees' work.

This content was produced with the assistance of AI translation services.