The Supreme Court ruled that the management performance bonus paid by Hyundai Marine & Fire Insurance to workers should not be included in the base amount for calculating severance pay. The court said it is hard to view the bonus as wages, which are compensation for labor.
The Supreme Court's Second Division, led by Justice Chun Dae-yup, said on Mar. 8 that on Feb. 26 it overturned all portions of the lower court ruling that had gone against the company in an appeal filed by 411 current and former employees of Hyundai Marine & Fire Insurance seeking severance pay, and sent the case back to the Seoul High Court.
In June 2002, Hyundai Marine & Fire Insurance paid employees an amount equal to 100% of their base monthly salary as the 2001 management performance bonus. Over the 18 years through 2019, it paid management performance bonuses every year except for three years—2002, 2005, and 2006.
Hyundai Marine & Fire Insurance excluded the management performance bonus from the "annual total wages" when calculating severance pensions and paid the contributions accordingly. The workers who filed suit argued that the management performance bonus is included in the average wage under the Labor Standards Act, so the company should pay additional severance pension contributions.
In response, Hyundai Marine & Fire Insurance argued that the management performance bonus was paid as a reward to encourage and motivate employees, not as compensation for labor, and therefore does not constitute wages.
The first trial ruled that Hyundai Marine & Fire Insurance must make additional payments to the plaintiffs' severance pension accounts to reflect the management performance bonus. The first trial panel said, "The management performance bonus, due to labor practices and the like, imposes a duty on the employer to pay and has the character of wages paid as compensation for labor." The second trial upheld the first trial's decision.
The Supreme Court found that the management performance bonus paid by Hyundai Marine & Fire Insurance to workers is not wages, so the company does not need to make additional payments to the severance pension accounts.
The Supreme Court said, "Net income for the term, which determines whether and how much of the management performance bonus is paid, is more heavily influenced by capital, expense, market conditions, and management judgment, which are not closely related to the provision of labor," adding, "Hyundai Marine & Fire Insurance's payment of the management performance bonus is not compensation for labor but is intended to boost employee morale and provide welfare."