Kia’s loss in basic wage suit may set a precedent

Kia Motors was ordered to pay workers some 400 billion won ($355.6 million) in compensation denied to them for three years.

Kia’s union sued the company in October 2011, claiming workers’ regular bonuses should be included in the so-called basic wage, which is used to calculate overtime payment, severance and other benefits.

The union demanded the company make up unpaid amounts from Aug. 2008 to Oct. 2011 worth 686.9 billion won. Adding 10 percent interest on those amounts, the demand of Kia came to around 1.1 trillion won.

If the court ruled in accordance with the claim by the union, Kia would have had to pay more than three trillion won including the period since Nov. 2011.

The Seoul Central District Court ruled Thursday that regular bonuses should be added to the basic wage, although it slashed the amount that Kia must cough up to 422 billion won for the three-year period. The company expects the total payment will amount to approximately one trillion won.

Before the ruling Thursday, Kia said the union’s claim went against the “principle of good faith,” given the current situation of the company. In the first six months of this year, operating profit plummeted 44 percent from a year before, the worst performance since 2010. The company is struggling in China, where customers are being encouraged to boycott Korean goods due to Seoul’s decision to deploy a U.S. anti-missile system.

The court rejected the “good faith” argument, saying that the company has enjoyed solid performance in previous years.

The company said in a statement that the decision was difficult to accept and that it will appeal.

“It’s difficult for the company to cope even with the ruled amount given the current condition,” said Kia in a statement. “The company has to set aside that one trillion won immediately and, given its operating profit from the first and second quarter - 786.8 billion and 404.0 billion won - it seems inevitable that the company will be in the red in the third quarter.”

The Korea Automobile Manufacturers Association, which represents Korean automakers, said in a statement that Korean automakers are already burdened with high labor costs compared to other countries. It said the decision will deal a further blow to the industry’s competitiveness.

“The local car industry is in a pinch and the decision will force the companies to bear an unexpected cost,” said Bae Sang-geun, a director at the Federation of Korean Industries, which represents conglomerates in Korea.

Thursday’s ruling has raised worries from companies across the board.

The Korea Chamber of Commerce and Industry criticized lawsuits over wages in general, saying they destroy the trust between management and labor and called on the government to take a legislative measure to clearly define the scope of auto workers’ wages.

Thursday’s ruling will have a domino effect on other companies who are involved in a similar lawsuit, analysts say.

Right now, conglomerates such as GM Korea, Hyundai Heavy Industries and Samsung Heavy Industries are in similar litigation with their unions.

According to the Ministry of Employment and Labor, a total of 192 companies are involved in similar cases. The Korea Economic Research Institute speculated the losses of 25 companies in such cases could reach 8.3 trillion won.

“We can expect this ruling will have a serious impact with more than 115 companies nationwide caught up in similar lawsuits,” said Ahn Geun-bae, the head of the trade policy support division at the Korea International Trade Association.

Kia’s union welcomed the ruling and called it a milestone in protecting workers’ rights.

“The court has ruled that the demand by the union is not unjustified,” said Kim Seong-rak, head of Kia’s union.

“We started the litigation after working conditions failed to improve due to continuous miscalculation in wages.

“I hope today’s decision set a precedent to resolve other labor-management disputes,” Kim added.

Some civic groups in Korea even called Thursday’s ruling a message to conglomerates that they should return the profits they earn to their hard-working laborers. Others said the rise in workers’ wages would give them more to spend and save, eventually re-vitalizing a sluggish local economy.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]