Hyundai Motor triumphant in base pay lawsuit

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Hyundai Motor triumphant in base pay lawsuit

While the exact definition of base salary remains a hot potato in Korean industry and labor relations, a Seoul court ruled in favor of management in a lawsuit on the issue filed by Hyundai Motor Group employees.

Employees had demanded that the automotive group cough up additional payments if bonuses and regular vacation pay was included in the definition of their base salaries.

The ruling is considered a victory for Hyundai Motor and it was a stark contrast to a case in December 2013 in which the Supreme Court ruled in favor of employees in a similar suit, which rang alarm bells throughout the business community.

In the case ruled on Friday, 23 unionized workers of Hyundai Motor Group made separate claims related to the definition of base pay, each demanding money from the company. The Seoul Central District Court only acknowledged two.

As a result, one employee of the former Hyundai Auto Service will be receiving 3.8 million won ($3,500) and another was awarded 220,000 won.

The two plaintiffs’ case involved the merger of Hyundai Auto Service into Hyundai Motor Group in 1999. At the time, Hyundai Auto Service did not have a regulation that prevented employees from receiving annual bonuses if they had worked less than 15 days. The court ruled that the fact the employees received bonuses meant that bonuses were regularly handed out. Therefore, they should be considered part of the base salary.

The court, on the other hand, did not acknowledge a similar suit by employees of Hyundai Precision, today’s Hyundai Mobis. That company did have a regulation denying workers bonuses if they worked only a few days.

Those bonuses were ruled as irregular and not part of the base salary.

The labor union had selected 23 union workers representing different situations involving base salaries. The two former employees of Hyundai Auto Service represent 5,700 employees.

This is only 8.7 percent of the total number of the automotive group’s unionized workers.

The judge presiding over the case ordered Hyundai Motor Group to pay 275.6 billion won to the unionized workers in the same situation as the two plaintiffs.

Hyundai Motor welcomed the decision, saying it will play a positive role in defining its pay system.

“The court ruling has great meaning in the sense that it has set a standard in an early settlement on the base wage debate,” the automaker said in a statement. “We plan to focus our strength in establishing an advanced wage system that will raise our global competitiveness and shift away from the inefficient seniority-based pay system.”

The Federation of Korean Industries, the nation’s biggest lobbying group, also welcomed the court’s decision.

“The ruling by the Seoul court clarified the conditions for the term ‘regular’ [bonus],” said Lee Cheol-haeng, a team leader on the employment, labor and management team at FKI. “We expect this to resolve the spread of potential lawsuits that could have resulted from inconsistent rulings of lower courts.”

But Lee added that as the court partially acknowledged bonuses as part of the base wage, it could spark new strife between labor and management.

The union said it wasn’t too pleased that only the two former Hyundai Service union members’ requests were accepted.

The court decision has prevented the group from facing its worst nightmare.

If all 23 complaints were accepted by the court, Hyundai Motor Group could have been faced with huge payouts - 80 million won for every employee.

The fact that the court only acknowledged 5 percent of the requested amount dramatically reduces the financial burden on the group.

If the court accepted all 23 requests, the automotive group would have had to pay an estimated 5 trillion won instead of the 275.6 billion won.

Additionally, it could have ended up with an additional 1 trillion won in extra labor costs per year.

The base salary issue has been a hot potato since December 2013 when the Supreme Court concluded that bonuses and other regular payments should be included in base salaries, a move long demanded by the union community. It was the first ruling regarding the issue. In October 2014, a Busan court ruled in favor of unionized workers at Renault Samsung, saying that bonuses were regular payments.

Companies use base salaries to calculate overtime, bonuses, severance and retirement payments. Widening the definition of base salary would cost every company huge amounts.

After the 2013 court ruling, companies have complained that increased labor costs have been affecting their performances.

During a press conference Monday, Lee Yoo-il, Ssangyong Motors CEO, said the automaker would have already generated net profit if it wasn’t hit with increased labor costs resulting from the increased base salary definition.


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