Retirees of Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering) sued, saying the management performance bonus they received while employed should be reflected in their severance pay, but they ultimately lost. The Supreme Court found that Hanwha Ocean’s management performance bonus is not wages, which are compensation for labor.

The Supreme Court’s Second Division (presiding Justice Eom Sang-pil) on the 12th upheld the lower court ruling against 972 current and former Hanwha Ocean employees who had filed a lawsuit against the company for severance pay.

Hanwha Ocean paid performance bonuses (management performance bonuses) under the name “profit-sharing bonus” from 2001 to 2014, and under the name “management evaluation-linked performance compensation” from 2018 to 2020.

The 972 people who sued Hanwha Ocean were production workers who either received an interim settlement of severance while still employed or received severance after leaving. When paying severance to them, Hanwha Ocean excluded the management performance bonus from the average wage.

Average wage is the amount obtained by dividing the aggregates of wages paid over the three months before retirement by the total number of days. A company must pay severance equal to at least 30 days of average wage for each year of an employee’s service. If the average wage increases, severance also increases.

The plaintiffs filed suit in Dec. 2021, saying Hanwha Ocean should include management performance bonuses, such as the profit-sharing bonus and the management evaluation-linked performance compensation, in the average wage when paying severance.

In the first trial, the court sided with management, saying the management performance bonuses paid by Hanwha Ocean did not constitute compensation for labor. It found that because Hanwha Ocean’s management performance bonuses are allocated depending on whether operating profit or net profit occurs and on their size, they are a distribution of business profits and cannot be seen as directly related to the provision of labor. The second trial maintained this ruling.

The Supreme Court also accepted the lower court’s view. The court said, “The performance indicators for (Hanwha Ocean’s) management performance bonus use financial statements such as operating profit and ordinary profit as performance indicators,” and noted, “Even considering that the payment rate is differentially determined according to achievement against targets, it is difficult to see a direct and close connection with the provision of labor.”

At the same time, the Supreme Court reaffirmed the established legal principle that for money or valuables paid by an employer to a worker to constitute wages, the occurrence of the payment obligation must be directly and closely related to the provision of labor.

Under this principle, the Supreme Court ruled in Jan. that some performance bonuses in the Samsung Electronics severance case should be regarded as wages.
Source: ChosunBiz