landmark wage ruling

Hyundai Motor Co. and its sister company Kia Motors Corp. are scrambling to come up with an effective legal strategy in ongoing court cases with their unions over wage guidelines that are likely to have far-reaching implications for the entire business community.

The two Hyundai Motor Group flagship companies are in the middle of two legal battles over how much bonus payments should be counted as ordinary wages. The factor became all important after the Supreme Court ruled on Wednesday that bonuses should be viewed as part of a worker's standard wages if given on a regular, uniform and periodic basis. Under a system in which overtime, holiday shifts and severance pays are all tied to the ordinary wage, the ruling is likely to make companies shoulder trillions of won in increased salary payments.

The country's business community said this in effect will hurt investment, hiring and the overall economy that has just started to show signs of recovery.

Hyundai, South Korea's second-largest chaebol or family-run conglomerate, said if it loses the cases, it will have to come up with 13.2 trillion won (US$12.4 billion).

"Everyone from the government to other companies and the unions are watching the legal proceedings with keen interests because of what it can mean for the business sector in general," a Hyundai source said.

Hyundai's union took legal action in March asking the management to include bonuses, transportation and vacation stipends as part of ordinary pay. Kia workers started a similar lawsuit in 2011 that demands seven types of irregular bonuses be counted as standard pay. Union officials said that while they initially did not include regular bonuses in their demand, the Supreme Court ruling has caused them to rethink their position.

Corporate analysts familiar with the automotive companies said the unions in the past had not included bonuses in their pay raise negotiations with the management, mostly because the government-issued administrative ordinance hitherto said companies should not include bonuses as part of the ordinary wage.

"To some extent, unions in the past accepted the view that bonuses are not part of the ordinary wage," the analyst, who declined to be identified, said.

He said both Hyundai and Kia are expected to argue that if they lose the case, it will effectively cripple the companies.

On the other hand, unionists have countered that management's estimate of additional outlays are greatly exaggerated and that the courts should uphold the right of workers to be paid their fair due.

The definitive ruling, meanwhile, is expected to weigh heavily on GM Korea Co., the South Korean unit of U.S. automaker General Motors Co.

The company is locked in more than 10 legal battles, including a class action suit taken by over 1,000 employees, who have called on management to adjust overtime pay and other work-related allowances by calculating regular bonuses as part of the ordinary wages.

"If the company loses these cases outright, it may have to pay up to come up with 1 trillion won in extra outlays, while if the courts takes the side of workers and permits retroactive compensation for the last three years, it will need hundreds of thousands of won," an executive said.

Reflecting such concerns, the company set aside 800 billion won in the reserve fund for possible compensation in 2012.

The ruling has come at a bad time because GM announced it would stop selling Chevrolet brand cars in Europe from 2016 onwards.

Because most Chevrolet cars sold in Europe are made in South Korea, this has raised concerns that the company may downsize its operations here. The company has hinted that it will accept voluntary early retirement in the first quarter of next year.

In addition, the Supreme Court's stance could affect an investment pledge made in May by Daniel Akerson, then chairman of GM. The chief executive did not directly tie wage issues with plans to invest up to $8 billion in South Korea, yet many here have said the latest ruling has poured cold water on the move.