On January 23, 2014, the Ministry of Employment and Labor (“MOEL”) announced its plans to amend the Labor Standards Act and the relevant regulations during the first half of the year and released a guideline on ordinary wages for management and labor (“Guideline”) based on the en banc Supreme Court decisions of December 18, 2013 (“Decision”), in order to prevent unnecessary confusion or conflict regarding the differences between the Decision and the previous ordinary wage calculation guidelines promulgated by the MOEL.

  1. Overview of the Guideline

The Guideline includes in its scope of ordinary wages (i) wages paid in connection with labor provided pursuant to an agreement during contracted working hours, (ii) wages paid at regular periods, including periods exceeding one months, (iii) wages paid to all employees that fulfill specific conditions or standards, even if such wages are not paid to all employees and (iv) wages that are paid with certainty and conclusively without any additional condition to employees fulfilling the contracted working hours, even if the employment is terminated on the following day.

In addition, the Guideline provides that (1) any agreement between the employees (including the labor union) and the employer to exclude wages that is considered an ordinary wage from calculation of ordinary wages is in violation of the Labor Standards Act and therefore invalid, but that (2) with respect to regular bonuses, claim for retroactive payment of additional wages are not permitted by application of principle of trust and good faith if there had been an agreement between the employees and the employer to exclude regular bonuses from ordinary wages and such retroactive payment would cause significant managerial difficulties. The Guideline further provides that such agreement between the employees and the employer to exclude regular bonuses from ordinary wages may include not only explicit agreements such as collective bargaining agreements but also implicit agreements or customary practices.

  1. Period of Application of the Principle of Trust and Good Faith

The Guideline also provides that the principle of trust and good faith cannot be applied to bar claims for retroactive payment of additional wages to agreements that are made following the Decision, specifying that such principle will not apply (1) in case there is a collective bargaining agreements, new agreements made after December 18, 2013 and (2) in case there is an implicit agreement or customary practice, the date on which regular wage adjustments are made for that place of employment.

  1. Wages Conditioned on Employment on Payment Date or Number of Days of Employment

The Guideline considers regular bonuses that are paid only to employees who are employed on the date of payment to be a wage that is paid without stability (i.e., on a fixed basis) and therefore not ordinary wages, citing Busan High Court decision number 2012Na7816 rendered on January 8, 2014. However, the Supreme Court has not yet rendered an explicit decision on whether regular bonuses paid only to employees who are employed on the date of payment should not be considered ordinary wages; as such, this determination may depend on future Supreme Court decisions.