The Supreme Court will rule on the 29th on whether management performance bonuses paid to employees can be included in the average wage that serves as the basis for calculating severance pay.
The Supreme Court's Second Division (presiding Justice Oh Kyung-mi) will hand down a ruling in the final appeal in a severance pay lawsuit filed by 15 people, including a person surnamed Lee, against Samsung Electronics. In this case, the plaintiffs filed suit in June 2019 seeking unpaid severance pay in the 200 million won range, arguing that the company calculated and paid severance by excluding performance bonuses (incentives) paid upon achieving targets and performance from the average wage.
Average wage is the amount calculated as a daily rate based on the total wages paid during the three months before retirement, and based on this, severance pay is calculated as 30 days' average wage for each year of service. The amount of severance pay can vary depending on the scope of items included in the average wage.
The first trial found that incentives paid based on performance are not included in the average wage. It cited as grounds that it is difficult to view the labor provided by employees as directly related to the company's performance and that the eligible recipients and conditions were not predetermined.
The first trial court viewed incentives as being distributed "not so much based on an assessment of the quantity or quality of the labor provided by employees as on an assessment of overall management performance and allocating a portion of the resulting gains." It also said, "Although payout rates are set to calculate the target incentive, there are no rules specifying which payout rate applies to which worker, and it appears that broad discretion is instead given to management."
The appellate court also upheld the first trial's judgment, saying it is difficult to regard management performance bonuses as wages ordinarily paid. The appellate panel said, "If the (performance bonus) item is treated as wages and included in the average wage, even the same worker would see a large swing in average wage depending on the time of retirement during the year, which runs counter to the purpose of the severance system to guarantee workers' livelihoods based on a living wage."
The plaintiffs argued that, as with including bonuses in severance calculations, management performance bonuses could be averaged by dividing the total amount received in the year before the retirement date by 12. But the appellate court held, "Bonuses whose amounts and payment dates are fixed and are paid regularly can be included in the average wage based on the amounts received over a year, but management performance bonuses vary in whether they are paid and in the amounts, and the payment periods also differ, so they cannot be viewed as bonuses paid regularly regardless of evaluation."
It is known that the Supreme Court is handling many severance lawsuits with claims similar to this case, drawing attention to the Supreme Court's decision. Because a conclusion that management performance bonuses are included in the average wage could affect the overall standards for severance calculations, both corporations and labor are watching the outcome.