Recent Supreme Court decision determining whether employees were engaged in managerial or supervisory work

At a glance

• The Supreme Court ruled that employees cannot be classified as managerial or supervisory solely based on receiving a responsibility allowance.
• The court emphasised that the specific duties performed by the employees and the degree of supervision they received should be considered.
• The court’s decision contradicts common practice, where employees performing managerial duties or receiving special allowances are often exempted from certain labor law provisions.
• Companies must consider this ruling when operating systems related to Managerial or Supervisory Employees under the Labor Standards Act (LSA).

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This article has been reproduced with the permission of the authors Weon Jung Kim, Ki Young Kim, Paul Cho, Yong Jae Jung and Hoin Lee at Kim & Chang.

Under the LSA, an employee who is engaged in managerial or supervisory work (Managerial or Supervisory Employee) is not subject to application of the 52-hour work week limit, overtime and holiday allowances, or provisions regarding rest periods and holidays. Nevertheless, there is no provision in the LSA which defines a Managerial or Supervisory Employee. Recently, however, the Supreme Court rendered a decision that clarifies the criteria for determining whether an employee constitutes a Managerial or Supervisory Employee under the LSA.

In this case, a company’s remuneration policy stated that recipients of a responsibility allowance would be limited to those persons who are manager-level employees, such as a general manager, a manager, a branch manager, or a team leader who is in charge of a department. The policy also stipulated that the company does not separately provide overtime allowances to those who receive such responsibility allowance. As a result, the lower court ruled that the company was not required to pay an overtime allowance to those employees who also received the responsibility allowance.

Notwithstanding, the Supreme Court reversed and remanded a relevant portion of the lower court’s decision, opining that, despite the company’s remuneration policy, overtime allowances should be paid to employees who do not constitute a Managerial or Supervisory Employee under the LSA. 

Key factors relied on by the Supreme Court included the following:

• the employees in question performed work that included working-level duties;
• the total number of the company’s employees was only 12, making it difficult to classify eight of them as Managerial or Supervisory Employees; and
• in the event of overtime work, the employees were required to obtain approval from their supervisor who had the authority to grant overtime work, and submit an overtime work list before the end of the work day.

In this regard, the Supreme Court held that the employees could not be categorised as Managerial or Supervisory Employees under the LSA solely based on their entitlement to a responsibility allowance, which was granted based on the company’s policy for managerial-level employees, without considering the specific duties they performed and the degree of supervision they received from their supervisors.

Accordingly, this Supreme Court decision unequivocally affirms the Court’s stance that whether an employee is deemed to be engaged in managerial or supervisory work (which would exempt the employee from certain provisions of the LSA) should be strictly reviewed and determined by thoroughly examining the substantive and specific form and manner of how the employee performs their work. Additionally, the level of supervision the employee receives from those they report to, rather than placing too much emphasis on one’s managerial position or receiving a special allowance based on such managerial role.

It is not uncommon in Korea where employees who perform managerial duties or receive special allowances based on their managerial role are often treated in a manner inconsistent with the Supreme Court decision. This includes situations where companies fail to comply with the 52-hour work week limit or fail to provide overtime allowances simply on the basis that such employees seem to fall within the category of Managerial or Supervisory Employees under Article 63 of the LSA.

Therefore, this Supreme Court decision will serve as an important precedent for determining whether a company meets certain criteria set forth in labour-related laws including the LSA based on 'substance' rather than 'form.' Going forward, companies will need to keep this decision in mind when operating a system related to Managerial or Supervisory Employees under the LSA.