With the tentative wage agreement between labor and management at Samsung Electronics passing a membership vote on the 27th, the performance bonus plan, cited at about 40 trillion won, was effectively finalized. But the dispute over the bonuses is showing signs of spilling into a legal battle. Some shareholders are considering a suit to confirm invalidity, arguing that the special management performance bonus in the DS institutional sector agreed to by labor and management is not a mere wage issue but a distribution of company profits.
According to legal sources, the shareholder action group joined by some Samsung Electronics shareholders is preparing a suit to confirm invalidity over provisions related to performance bonuses in the tentative wage agreement reached by labor and management on the 20th. The tentative agreement was approved in a membership vote on the 27th with a 73.7% approval rate. A shareholder action group official said, "It looks like it will take about two weeks to complete the process of copying the shareholder register," and added, "As soon as the process is finished, we plan to file the complaint after mid-June."
The issue is whether to view the DS institutional sector special management performance bonus as wages and working conditions under labor law, or as a distribution of profits under the Commercial Act, which requires approval by the general meeting of shareholders.
◇Shareholder group says "performance bonuses are not wages but profit distribution… shareholder meeting approval needed"
The shareholder action group argues that this bonus agreement goes beyond the scope of a wage agreement that can be set solely through labor-management bargaining. If the structure is to share the company's profits with employees, it is a capital allocation issue directly tied to shareholder interests.
The group cites Article 462 of the Commercial Act. To distribute dividends from the company's profits, the board must prepare a final plan and the general meeting of shareholders must approve it, and the argument is that the current bonus likewise is, in substance, a distribution of company profits.
The shareholder action group views the defendants in the suit to confirm invalidity as Samsung Electronics, a party to the agreement, and the cross-company union. The target of the suit is the performance bonus portion of the tentative agreement reached by labor and management on the 20th. Although the injunction to stop bargaining filed by the DX institutional sector side was dismissed, the shareholder action group plans to separately contest the legal nature of the bonus agreement.
The shareholder action group is currently prioritizing the suit to confirm invalidity, which is the main action, over a separate injunction to suspend effect. That is because the performance bonus is scheduled to be paid next year, so there is little immediate practical benefit to seeking an injunction. However, if the company pushes ahead with payment procedures while the main suit is underway, the group plans to consider exercising the right to demand the maintenance of directors' unlawful acts.
Min Kyung-kwon, head of the shareholder action group, told ChosunBiz, "We view this matter as an expansion issue of the existing profit dividend structure." Min said, "It is a matter that requires new precedent in Korea, but we have secured foreign legislative examples and case law," and added, "We see it as a matter worth contesting even in a conservative court."
◇Legal community says "performance bonuses and profit dividends are separate… shareholders' standing to sue is uncertain"
However, within the legal community, the view prevails that the shareholder action group's argument is unlikely to be accepted as is. The reason is that employee performance bonuses and profit dividends to shareholders are legally different concepts.
Article 462 of the Commercial Act is, at its core, a provision that sets the funding source and procedures when a company pays dividends to shareholders. It is difficult to directly link performance bonuses paid to workers with the profit dividend procedures.
Attorney Lee Hyeong-jin of Barun Law, who has handled listed-company governance cases, said, "Case law treats wages and performance bonuses separately from the dividend procedures under the Commercial Act," and added, "The fact that the payment standards in wage negotiations are linked to the company's operating profit alone is unlikely to allow performance bonuses to be connected to dividend procedures, which have a different legal nature."
Attorney Kwon Hyuk-jun of YulChon, a former judge who has mainly handled corporations and capital market cases, viewed it in the same vein. Kwon said, "The profit dividends in Article 462 of the Commercial Act are dividends to shareholders according to certain procedures," and added, "They are a different concept from the performance bonuses set in this labor-management agreement, so it is hard to say the dividend procedures must be followed."
Standing to sue is also an issue. Because shareholders are not parties to the wage agreement, it is unclear whether they can directly contest the effect of the wage negotiations.
Lee said, "Even if a suit to confirm invalidity is filed, there is a possibility that shareholders will be deemed mere third parties with respect to the wage negotiations and thus lack standing," and added, "Because the wage negotiations do not create a direct legal relationship for shareholders, it will be difficult to recognize a protectable interest for declaratory relief."
◇Follow-up board resolutions could become the issue rather than the labor-management agreement
The legal community sees a possibility that any actual legal dispute could shift from the agreement itself to the follow-up procedures to pay the bonuses. While it is not easy to construct legal arguments to claim the invalidity of the wage negotiations, the board resolutions or treasury share disposal procedures to implement the agreement could become issues.
In particular, if the bonuses are executed not in cash but by delivering shares through the disposal of treasury stock, the issues could change. In that case, the procedures and substance of the board resolutions, the legality of the treasury share disposal, and whether shareholder interests are harmed could emerge as separate issues.
Lee said, "It is not easy to construct legal arguments to claim the wage agreement is invalid," and added, "Rather, the board resolutions and the like to implement the wage agreement could become key issues going forward." Lee also said, "If the bonuses are delivered in shares through the disposal of treasury stock, there is room for an issue as to whether shareholder interests are harmed from the perspective of directors' fiduciary duty to shareholders under the Commercial Act."
However, the mere fact that the bonuses are large does not automatically establish illegality. The bar is also considered high for procedures to block the execution of the bonuses in advance.
Lee said, "To exercise the right to demand the maintenance of unlawful acts, further proof is needed beyond the simple point that the payment amount is large," and added, "It must be shown, for example, that the amount clearly fell outside the bounds of the business judgment rule, that the decision-making method was markedly unreasonable, or that there were legal violations in the board resolutions or treasury share disposal procedures, for the claim to be meaningful."
Conversely, even if the court does not accept the shareholder action group's claims, listed companies may still face some burdens in the process of agreeing on performance bonuses. Because large-scale bonus payments or the use of treasury shares can conflict with shareholder interests, analysts say corporations will inevitably be more mindful of board review and explanations to shareholders during labor-management agreements going forward.