The Supreme Court ruled that if the contractual working hours agreed to by management and workers are far shorter than the actual hours worked, there is a strong likelihood the labor contract is invalid. As a result, Ulsan taxi drivers who filed suit are expected to receive additional wages beyond what the companies have already paid.
The Supreme Court's Second Division (presiding Justice Kwon Young-jun) on the 14th overturned a lower court ruling that dismissed the claims of taxi drivers and sent the case back to the Busan High Court in a wage claim suit filed by a person surnamed Park, who works as a taxi driver in Ulsan, and others against 18 taxi companies.
Park and others worked at 18 taxi companies from 2012 to 2019. They worked in a system where one taxi driver was assigned to one taxi and drove it every day. From the fares received (revenue), a set amount (fixed payment to the company) was paid to the taxi company, and the remaining amount (excess transport revenue) was kept by the drivers. In addition, the taxi companies paid drivers a fixed salary under headings such as base pay and allowances. This wage payment system is called the "fixed remittance system."
With the amendment to the Minimum Wage Act adding a special provision, as of 2009, "production-based wages" were excluded from the minimum wage applicable to taxi drivers. Previously, it was sufficient if the driver's wages—base pay plus excess transport revenue—exceeded the minimum wage, but under the amended law, the base pay itself must exceed the minimum wage.
The minimum wage rose annually, raising concerns that the fixed pay taxi companies paid drivers might violate the Minimum Wage Act. In response, labor and management generally and gradually reduced the contractual working hours. Contractual working hours are the working hours agreed to by the worker and the employer and specified in the labor contract.
Contractual working hours were set differently by each taxi company. Company A reduced them from 4 hours in 2004 to 2 hours 30 minutes in 2018, while Company B kept them at 2 hours from 2006 to 2016. Contractual working hours were generally in the 2–3 hour range.
Then, in April 2019, the Supreme Court's full bench ruled that reducing only the contractual working hours without any change in actual working conditions was an illegal evasion and thus invalid.
Park and others then sued, arguing that the reduction of contractual working hours applied to them was invalid. They said, "Because there are no records of clocking in and out that show the taxi drivers' actual working hours, the minimum wage and severance pay that the taxi companies must pay should be calculated based on '8 hours per day' of contractual working hours." They demanded that the companies pay the difference between the wages calculated on the basis of 8 hours a day and the fixed salary and severance pay already paid, plus delay damages.
The first trial ruled entirely against Park and the others. The first trial panel said, "In negotiating the reduction of contractual working hours, the companies sought to minimize increases in the fixed payment to the company while avoiding conflicts with the Minimum Wage Act, and the drivers sought to minimize increases in the fixed payment while maintaining excess transport revenue at roughly previous levels, leading to an agreement where both sides' interests aligned," adding, "It cannot be deemed illegal to the extent of denying its effect."
In the second trial, the court accepted the claim of one plaintiff but, for the remaining eight who appealed, ruled against them as in the first trial. The appellate panel said it appeared that one taxi company, when local governments recommended refraining from raising the fixed payment to the company amid the 2009 global financial crisis and a surge in oil prices, reached an agreement with drivers to reduce contractual working hours to curb increases in fixed pay.
By contrast, the Supreme Court found the labor-management agreement to reduce contractual working hours was likely invalid, saying it "can largely be seen as an illegal act to evade the application of the special provision of the Minimum Wage Act," and ruled it invalid.
Regarding one taxi company's contractual working hours of "2 hours per day," the court said, "It is difficult to assume setting contractual working hours under which a regular, non-temporary worker would be recognized as an ultra-short-hour worker (working fewer than 15 hours per week)," and deemed it invalid.
Following this ruling, the Busan High Court is expected to recalculate wages in light of the drivers' actual working patterns and order the taxi companies to pay.
A Supreme Court official explained, "If the contractual working hours are merely formal because they are set in a way that is grossly out of step with the actual working hours and unrealistic, or if the primary purpose was to evade the application of the Minimum Wage Act, then setting such contractual working hours must be deemed invalid under a new legal principle."