Asia-Pacific employment law bulletin 2025

South Korea

In 2024, we continued to see many Korean companies struggle due to a combination of factors, including high interest rates, inflation, sluggish domestic demand and a trade deficit with China. These factors led many companies to carry out downsizings or, in some cases, to office or factory closures. In the pharmaceutical industry, in particular, we saw companies providing record high levels of separation packages to their employees in order to achieve the desired level of workforce reduction.

Supreme Court decision concerning overtime compensation and compensation for unused annual leave

In December 2024, the Supreme Court of Korea issued a decision that broadened the definition of ‘ordinary wage’ (Decision), which is the measuring stick for what is included when calculating overtime compensation and compensation for unused annual leave.

By way of background, in its 2013 decision, the Supreme Court defined ordinary wage as any payment for prescribed labour that is paid on a ‘regular, uniform and fixed basis’. Furthermore, in 2013, the Court found that if there was a condition to receiving a bonus that the employee is employed on the payment day, then such bonus could not be considered ‘fixed’ because no one can know for sure whether an employee will still be employed on the payment day in the future (e.g., the employee may resign before payment date or be terminated for other reasons). Based on the 2013 ruling, companies that paid a bonus with such condition did not need to include the bonus when calculating overtime pay and compensation for unused leave. 

However, in the Decision, the ‘fixed’ element was removed, making the definition of ordinary wage as ‘compensation for prescribed labour that is paid on a regular and uniform basis’. The following factors were considered by the Supreme Court in reaching this conclusion:

• There is no statutory basis for this ‘fixed’ element and requiring this concept (which determines whether payment should be made and whether the payment should be predetermined) to be a part of the definition of ordinary wage unfairly reduces the scope of ordinary wage;
• The ‘fixed’ element can be imposed on any wage item as a condition of payment, and this will allow such wage item to be easily excluded from ordinary wage which in turn will hinder the mandatory applicability of ordinary wage;
• Furthermore, the ‘fixed’ element reduces the scope of ordinary wage and this results in insufficient compensation for overtime, nighttime and holiday work, which contradicts with the policy goal of the Labour Standards Act in reducing overtime work;
• Ordinary wage is a concept that reflects the value of prescribed labour and should reflect the value of prescribed labour in its entirety (irrespective of the actual labour provided). The previous court precedent took the position that the ‘fixed’ requirement will not be satisfied if the determination of whether the wage item will be paid is tied to the satisfaction of a particular condition. This means that elements of actual labour would influence the ordinary wage concept and this is not an appropriate conclusion; and
• Ordinary wage should be determined prior to the work provided but the previous precedent was problematic in that the determination of whether a wage item should be ordinary wage was determined on the basis of whether it was paid or whether confirmation of payment was made.

Employers that have the payment of certain wage items conditioned on the employee being employed on the day of payment or on the employee having to work a minimum number of days will have to review and improve their salary system and/or prepare for potential disputes. Unions will also take a keen interest on the development of these issues.

Contributors: Matthew Jones, Cho Beom Kon and Yehjin Jo - Kim & Chang