Seoul Metro retirees to receive higher severance pay after Supreme Court rules employment-condition bonuses count as ordinary wages

By Yang Geun-hyuk, The Herald Business

Retired workers of Seoul Metro have won a final court victory in their lawsuit demanding that regular bonuses be included in ordinary wages, triggering recalculations of various allowances and severance pay.

The case has become a landmark example of the Supreme Court reaffirming that conditional bonuses — those paid only to employees who remain on the payroll on a designated date — qualify as ordinary wages. Legal experts say the new standard is now being applied in a string of similar cases, significantly increasing the financial burden on employers. The standard was established after the Supreme Court's en banc ruling in December 2024 abolished the long-standing "fixed-payment" requirement for ordinary wages.

The Supreme Court's Second Division, presided over by Justice Eom Sang-pil, on May 14 upheld a lower court ruling ordering Seoul Metro to pay a combined total of more than 500 million won (approximately $360,000) to 154 former employees — salaried workers, pay-grade workers and contracted security personnel — who had filed a wage claim against the company.

The court held that "an employee's continued employment is a natural prerequisite for providing the agreed-upon labor under a contract," and that "resignation merely terminates the employment relationship and is conceptually unrelated to the consideration for contracted labor." It further ruled that "the mere fact that a condition requiring employment at a specific payment date is attached to a wage does not negate that wage's character as consideration for contracted labor, nor its status as ordinary wages."

The court also upheld the lower court's finding that long-service allowances, meal subsidies, work-support allowances, position-performance pay and seniority allowances all constitute ordinary wages. It additionally ruled that unused annual leave carried over from 2016 into 2017 must be included in the average wage used to calculate severance pay.

The plaintiffs were workers who had been employed by Seoul Metro — the successor to Seoul Metro Corp. — and retired at the end of 2017. They filed the lawsuit in September 2018, arguing that Seoul Metro had excluded employment-conditional regular bonuses from ordinary wages when calculating various allowances, and had then used those understated allowances as the basis for severance pay, resulting in underpayment.

The central issue was the "active-employment condition" attached to the regular bonus. Seoul Metro argued the bonus did not qualify as ordinary wages because its internal rules stipulated that bonuses were paid only to employees currently on the payroll on the payment date.

According to court records, the workers had received interim severance settlements as of Dec. 31, 2015 and Dec. 31, 2016, respectively, before their retirement. Seoul Metro then paid out the final year of severance — covering the period ending Dec. 31, 2017 — after they left. The regular bonus had been excluded from wages and was not factored into the severance calculation. Under Seoul Metro's internal pay regulations, the regular bonus equals 200 percent of monthly base pay, disbursed in 10 installments from January through October each year.

In July 2020, the first-instance court issued a partial ruling in favor of the plaintiffs but found that the regular bonus did not constitute ordinary wages, agreeing with Seoul Metro that it was paid only to employees on the payroll on the payment date. The first-instance court ordered Seoul Metro to pay a combined total of more than 300 million won (approximately $216,000).

The appellate court reversed that finding in December 2021, ruling that the regular bonus also qualified as ordinary wages and raising the total amount owed to more than 500 million won. The court noted that the bonus — equivalent to 200 percent of base pay — had been paid regularly and continuously, and that it was compensation for work performed regardless of any separate performance evaluation. It also found that the requirement to be employed on the payment date reflected the proportional nature of the pay rather than a restriction on eligibility.

The case reached the Supreme Court in 2022. While the appeal was pending, the Supreme Court issued its landmark en banc ruling on Dec. 19, 2024, overhauling the criteria for recognizing ordinary wages and holding that conditional regular bonuses tied to employment status must be included in ordinary wages.

Until that ruling, ordinary wage status had been determined by three criteria: regularity, uniformity and fixed payment. The fixed-payment requirement held that a wage must be guaranteed regardless of any additional conditions once the agreed-upon labor was provided. That standard had effectively disqualified regular bonuses paid only to current employees, on the grounds that they lacked the fixed-payment element.

In the December 2024 en banc ruling, presided over by Justice Oh Kyung-mi, the Supreme Court found no legal basis for treating fixed payment as a requirement for ordinary wages and overturned the precedent in cases brought by current and former workers of Hanwha Life Insurance and Hyundai Motor Co.

The Seoul Metro ruling follows that en banc precedent and stands as a leading example of the new ordinary-wage standard being applied in actual wage litigation involving employment-conditional regular bonuses. Legal circles expect the ruling to affect ordinary-wage disputes not only at public institutions but also at private companies.

In a separate case decided last month, the Supreme Court's First Division, presided over by Justice Shin Suk-hee, similarly recognized employment-conditional base bonuses as ordinary wages in an appeal filed by retired workers of Korea Hydro & Nuclear Power against their former employer. The court ruled that "the employment condition attached to the base bonus defines who is eligible for payment; it cannot be construed as causing an employee to forfeit or be stripped of wages already determined to be payable, simply because they are no longer employed at a specific point in time."