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[Recent Court Case 2] The principle of good faith applies to ordinary wages.

2020.06.25

[Case No. Supreme Court decision 2015Da61415 dated June 25, 2020] 
 
The Supreme Court rendered a decision holding that where foreign language allowances paid on a monthly basis to international cabin crew based on foreign language abilities would be deemed ordinary wages, the claim for additional statutory allowances based on the foreign language allowances would be in violation of the principle of good faith and should not be permitted. 
 
The defendant paid the international cabin crew a certain amount of money called foreign language allowances every month based on language proficiency test scores and additional oral test results by establishing the levels of one to five. The plaintiffs were the defendant’s international flight attendants responsible for serving foreign customers. Thus the quality of the service to foreign customers could vary depending on the foreign language proficiency of the plaintiffs. The defendant was excluding the foreign language allowances in calculating the ordinary wages in paying the statutory allowances to the plaintiffs. The plaintiffs argued that the foreign language allowances were deemed the ordinary wages and the defendant must pay additional statutory allowances to the plaintiffs. 
 
The lower court found that the foreign language allowances should not be deemed the ordinary wages because the above facts do not support that the foreign language allowances relate to the evaluation of the value of the fixed work as provided by the crews. However, the Supreme Court found that the foreign language allowances, which was paid regularly and continuously in accordance with the wage agreement, should be deemed the ordinary wage because it would be difficult to conclude that the allowances were paid solely for motivation and encouragement purposes without relations to the evaluation of the value of work provided by the flight attendants. 
 
The defendant further argued that the principle of good faith should apply, and the Supreme Court found that the plaintiff’s claim for additional statutory allowances should not be granted because it would be in violation of the principle of good faith in view of the totality of the following circumstances:

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			1) The defendant had considerable debts even though the defendant signed a voluntary agreement with the creditors and went through a restructuring process under joint management with the creditors since 2010. 
			 
			2) The defendant never had any cumulative net profit in the positive number since its establishment, and the size of the net loss far exceeded the net profit even in the recent period. 
			 
			3) The defendant’s debt ratio was 600 to 700 percent and not meeting the goal set by the voluntary agreement, while the additional debt amount and ratio were expected to increase due to loans considering the lease fees used for bringing in new aircrafts. 
			 
			4) It was difficult to expect any short-term improvement in the profitability due to severe competition with low-cost carriers, while the interest coverage ratio for the whole period since 2008 was only about 60 percent. 
			 
			5) In December 2014, the defendant changed the rules of employment to reduce the bonus payment by obtaining consent of the majority of the employees by which the majority of the defendant’s employees made a decision considering the defendant’s financial condition.
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In the first half of 2019, the Supreme Court made a series of decisions overturning the lower courts’ decisions that recognized the employer’s argument based on the principle of good faith.1 However, some of the recent Supreme Court decisions showed the contrasting trend recognized the employer’s argument based on the principle of good faith. Specifically, the Supreme Court accepted the argument based on the principle of good faith in GM Korea case2 and Ssangyong Motors case3 but not in Doosan Heavy Industries & Construction case.4 There are a few more cases pending decisions at the Supreme Court with similar issues which will need to be followed.

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			Company Name
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			Case Number
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			Relevant Facts
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			Conclusion
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			GM Korea
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			Supreme Court decision 2015Da71917 dated July 9, 2020
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			- Cumulative net profit of KRW -800 billion from 2008 to 2014

- High debt ratio
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			Recognizing the principle of good faith 
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			Ssangyong Motors
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			Supreme Court decision 2017Da7170 dated July 9, 2020
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			- Additional payment of KRW 20 billion KRW

- Large loss until 2015

- Base salary freeze from 2009 and reduction of allowances
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			Recognizing the principle of good faith 
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			Doosan Heavy Industries & Construction
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			Supreme Court decision 2020Da220867 dated June 25, 2020
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			- Net profit loss in 2012, 2014, and 2015

- Expectation of increase in ordinary wage by 50%
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			Denying the principle of good faith
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1) See Supreme Court decision 2015Da207287 dated February 14, 2019, Supreme Court decision 2014Da27807 dated April 23, 2019, and Supreme Court decision 2016Da37167 dated April 23, 2019.

2) See Supreme Court decision 2015Da71917 dated July 9, 2020.

3) See Supreme Court decision 2017Da7170 dated July 9, 2020.

4) See Supreme Court decision 2020Da220867 dated June 25, 2020.
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