Former SK hynix employees lost their final appeal in a lawsuit seeking to have management performance bonuses received during employment reflected in their severance pay. The Supreme Court found that management performance bonuses do not constitute wages as compensation for labor. SK hynix is relieved of the burden of paying additional severance to retirees.
The Supreme Court's First Division (Presiding Justice Ma Yong-ju) on the 12th upheld the lower court's ruling that management performance bonuses are not wages forming the basis for calculating average wages in a severance claim lawsuit filed by two former SK hynix employees against the company, and dismissed the plaintiffs' appeal.
Plaintiff A is a former production worker at SK hynix, and plaintiff B is a former technical office worker at SK hynix. Since 1999, SK hynix has reached yearly agreements with the production workers' union on whether to pay management performance bonuses and on the standards and payout rates.
Since 2007, management performance bonuses have been paid under the names "Productivity Incentive" and "Profit Sharing." The productivity incentive was calculated by multiplying the base amount for bonus payments by a payout rate set according to whether and to what extent targets were met, such as production volume target achievement rates and average selling prices compared with market prices.
Profit sharing either set different payout rates by operating profit bands or distributed an amount corresponding to a fixed percentage of EVA (economic value added, the amount obtained by subtracting capital expense from after-tax operating profit).
Severance pay is calculated based on the average wage, which is the aggregates of wages paid during the three months prior to retirement divided by the total number of days. An employee receives severance pay equal to at least 30 days of average wages for every year of service. If the average wage increases, severance pay also increases.
SK hynix determined that management performance bonuses do not qualify as wages, excluded them from average wages, and paid the plaintiffs their severance. The plaintiffs claimed that management performance bonuses also qualify as wages and demanded additional severance from the company.
The Supreme Court found it difficult to conclude that SK hynix was obligated to pay management performance bonuses under work rules, collective agreements, or labor practices, and therefore determined they cannot be recognized as compensation for labor. It particularly held that management performance bonuses tied to operating profit are "hard to regard as directly or closely related to the provision of labor," and thus are not wages.
A Supreme Court official explained, "We determined that management performance bonuses that use management performance—such as whether and to what extent operating profit or EVA occurs, which is more heavily influenced by other factors difficult for workers to control—as the payment standard are hard to regard as compensation for labor."
Earlier, on the 29th, the Supreme Court ruled in a similar lawsuit filed by former Samsung Electronics employees that while a "target incentive" is a wage and must be reflected in severance pay, a "performance incentive" is not and therefore must not be included when calculating severance. It found that a target incentive is designed to allow workers to manage target achievement by improving the quantity and quality of their labor, and thus can be considered a wage as compensation for labor. However, it determined that performance incentives are more heavily influenced by factors difficult for workers to control, such as the scale of capital invested by the company, market conditions, and management decisions.
On the same day, in a lawsuit filed by former employees of Seoul Guarantee Insurance Company, the Supreme Court ruled that a "special performance bonus" must not be included in severance calculations. It found the bonus was not a wage because it was "money with the nature of distributing management performance—namely, the realization of 'current net profit'—rather than compensation for labor."