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

At a glance

• Under the Korean Labour Standards Act (LSA), managerial or supervisory employees are exempt from the 52-hour workweek limit, overtime, and holiday allowances.
• The Supreme Court defines managerial or supervisory employees based on their authority and discretion in decision-making, not just their job title.
• A recent Supreme Court decision emphasised that the substance of an employee’s duties, not their title or allowances, determines their status under the LSA.
• Companies often misclassify employees as managerial based on responsibility allowances, leading to disputes over unpaid overtime.
• The Supreme Court ruled that employees performing working-level duties and requiring supervisor approval for overtime cannot be classified as managerial solely based on receiving responsibility allowances.

This article has been reproduced with the permission of the authors Hyun Jae Park and Shin Hyeong Park at Kim & Chang.

Under the LSA, an employee who is engaged in managerial or supervisory work (Managerial or Supervisory Employee) is not subject to the application of the 52-hour workweek limit, overtime and holiday allowances, as well as provisions regarding rest periods and holidays.

Although the LSA does not specifically define the meaning of 'Managerial or Supervisory Employee,' the Supreme Court has held that a "Managerial or Supervisory Employee shall have the authority to make decisions, from the same position as the employer, on factors that materially affect other employees, such as hiring or working conditions, and shall have discretion in terms of attendance or method of work”. Since this decision in 1989, the lower courts have confirmed that an employee’s status as a Managerial or Supervisory Employee should be determined based on the substance of an employee’s position, rather than the form.

The Supreme Court recently rendered a decision affirming that whether or not an employee is a Managerial or Supervisory Employee under the LSA depends on the substance, not the form.

Many companies have paid 'responsibility allowance' to employees in certain positions and titles, and regarded them as Managerial and Supervisory Employees under the LSA. This case concerned the payment of 'responsibility allowance,' instead of 'overtime allowance,' to employees in certain positions.

In this case, a company’s remuneration policy stated that the recipients of a responsibility allowance would be limited to those who are managerial-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. The employees in this case filed a lawsuit against the company, seeking an amount equivalent to unpaid wages. The issue concerned a claim for payment of overtime allowances by employees who received responsibility allowances. Based on the above mentioned policy, 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 Managerial or Supervisory Employees 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 or not 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 in addition to the level of supervision the employee receives from those they report to, rather than placing too much emphasis on managerial position or the receipt of a special allowance based on such managerial role.

In Korea, cases can arise where employees who perform managerial duties or receive special allowances based on their managerial role are treated in a manner inconsistent with the aforementioned Supreme Court decision. This includes situations where companies fail to comply with the 52-hour workweek 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 labor-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.