Ulsan court rules against plaintiffs on Wednesday; says shipyard earnings driven by market conditions, not workers

Companies including Hanwha Ocean and SK hynix have also prevailed in similar cases this year

An aerial view of HD Hyundai Heavy Industries' shipyard in Ulsan. [HD Hyundai]
An aerial view of HD Hyundai Heavy Industries' shipyard in Ulsan. [HD Hyundai]

Retired workers of HD Hyundai Heavy Industries lost a first-instance court ruling in their lawsuit seeking to have performance bonuses included in the calculation of their severance pay.

The court found that even though bonuses had been paid out annually, the volatile nature of a shipbuilder's earnings — driven largely by global market conditions — made it difficult to classify those payments as wages.

Courts have generally sided with companies in severance pay disputes over bonus inclusion. However, business circles are warning that such litigation could spread further as unions increasingly push to have bonus criteria written into formal agreements.

'Bonuses paid for 17 years — but not wages, court says'

The Ulsan District Court ruled against the plaintiffs on Wednesday in the severance pay lawsuit filed by retired HD Hyundai Heavy Industries workers. The retirees argued that the company had failed to factor in performance bonuses — paid out each year through labor-management agreements — when calculating their severance, and sought to have those bonuses included in the average wage base used for the computation.

The retirees contended that the bonuses should effectively be treated as wages, given that they had been paid every year. They argued the court should take into account that the bonuses had been paid without exception for 17 years through 2023, even though the criteria were not spelled out in the company's work rules. Average wages are calculated by totaling all wages paid over a set period and converting the sum to a daily figure; the higher the average wage — including any bonuses — the larger the severance payout.

HD Hyundai Heavy Industries rebuffed the claim by emphasizing the unique characteristics of the shipbuilding industry. Because shipbuilders take orders from domestic and foreign shipowners, the company argued, its earnings are shaped more by market conditions and exchange rates than by workers' individual contributions. The court agreed, finding that "the company's sales are not an indicator that rises in proportion to the quantity or quality of workers' labor." The retirees said they plan to appeal.

Hanwha Ocean, SK hynix among companies winning severance suits

Courts have broadly ruled in favor of companies in lawsuits by retirees seeking to have performance bonuses counted toward average wages. This year, the Supreme Court also ruled against retirees who had filed similar suits against Hanwha Ocean and SK hynix, finding that performance bonuses represent a distribution of business profits rather than compensation tied to how much work employees provided.

A Samsung Electronics case decided last January reignited the debate. The Supreme Court issued separate rulings on two types of Samsung Electronics incentives: it found that "performance incentives" — paid when excess profits are generated — do not constitute wages, but that "target incentives" — paid based on how well each business division meets its goals — do. The decisions showed that even bonuses from the same company can be treated differently depending on their nature.

Following those rulings, other Samsung Electronics retirees filed additional lawsuits, and former employees of Samsung SDS, Samsung C&T and Samsung E&A have since done the same. LG Uplus retirees recently began recruiting plaintiffs for a similar suit, signaling that the wave of litigation may be spreading to other industries.

Business groups fear fresh wave of severance suits as unions push to formalize bonus criteria

Business circles are warning that this type of lawsuit could multiply as labor-management disputes over performance bonuses intensify this year. If bonus payment criteria are formally codified — for example, as a fixed percentage of operating profit — legal disputes over whether those bonuses should factor into severance calculations could flare up again.

"If bonus payment criteria are specified numerically, as many unions are currently demanding, courts may recognize the wage character of bonuses on the grounds that they have been paid in a quantifiable manner — and precedents could shift," a legal industry official said.


klee@heraldcorp.com
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