Supreme Court overrules previous decision on ordinary wage through en banc decisions

At a glance

• On 19 December 2024, the Supreme Court overruled its 2013 decision on ordinary wage by eliminating the 'fixed' element requirement.
• The 2013 decision required wage items to be 'fixed' to be considered ordinary wage, meaning they had to be paid regardless of specific conditions.
• Ordinary wage is now defined as "compensation for prescribed labour that is paid on a regular and uniform basis," without the 'fixed' element.
• The new principles apply from 19 December 2024 onwards and retroactively to ongoing cases disputing the scope of ordinary wage.

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

On 19 December 2024, the Supreme Court issued two en banc decisions and overruled its previous decision on ordinary wage (notably the 18 December 2013 en banc decision) by nullifying the 'fixed' element of the requirement of ordinary wage.

The 2013 Supreme Court decision held that wage items that are paid to employees only if the employee is employed at a particular time is not ordinary wage because it is not compensation for 'prescribed labour' and does not meet the 'fixed' requirement for ordinary wage. This has been considered a well-established court precedent on this issue, but the Supreme Court today overruled its position and presented a new basis for determining which wage items should be included in ordinary wage.

Key elements of en banc decisions

The 2013 Supreme Court decision had presented the 'fixed' element as a key requirement in determining what should be included in ordinary wage. Today’s decisions eliminated the 'fixed' element and re-established the definition of ordinary wage as "compensation for prescribed labour that is paid on regular and uniform basis” The following factors were considered by the Supreme Court in reaching this conclusion:

• there is no statutory basis for this 'fixed' element and requiring this concept (which determines whether payment should be made and whether the payment should be predetermined) to be a part of the definition of ordinary wage unfairly reduces the scope of ordinary wage;
• the 'fixed' element can be imposed on any wage item as a condition of payment, and this will allow such wage item to be easily excluded from ordinary wage which in turn will hinder the mandatory applicability of ordinary wage;
• further, the 'fixed' element reduces the scope of ordinary wage and this results in insufficient compensation for overtime, nighttime and holiday work, which contradicts with the policy goal of the Labour Standards Act in reducing overtime work;
• ordinary wage is a concept that reflects the value of prescribed labour and should reflect the value of prescribed labour in its entirety (irrespective of the actual labour provided). The previous court precedent took the position that the 'fixed' requirement will not be satisfied if the determination of whether the wage item will be paid is tied to the satisfaction of a particular condition. This means that elements of actual labour would influence the ordinary wage concept, and this is not an appropriate conclusion; and
• ordinary wage should be determined prior to the work provided but the previous precedent was problematic in that the determination of whether a wage item should be ordinary wage was determined on the basis of whether it was paid or whether confirmation of payment was made.

That said, the Supreme Court also emphasised legal stability and protecting the trust of numerous legal relations formed based on the previous precedent and held that it would be reasonable to apply the new legal principles to the calculation of ordinary wage only after the 19 December decisions. It also held that the new legal principles should be applied retroactively to cases that are currently being reviewed by the court and in which the scope of ordinary wage is being disputed.

Based on these principles, the Supreme Court held that employees that provide prescribed labour in its entirety will not be denied the inclusion of relevant wage items in ordinary wage merely because there are certain conditions attached to the payment of such wage items (eg condition that the employee must be employed on the day of payment or that the employee must work a minimum number of days during the prescribed working days to receive the wage item).

Impact of Supreme Court en banc decisions

Employers that have the payment of certain wage items conditioned on the employee being employed on the day of payment or on the employee having to work a minimum number of days will have to review and improve its salary system and / or prepare for potential disputes. Unions will also take a keen interest on the development of these issues.