SEOUL South Korean businesses may face an increase in labor costs after the country's Supreme Court ruled on Wednesday that fixed bonuses should be included in the calculation of regular wages.
The decision could affect a series of other lawsuits filed by workers at major manufacturers like Hyundai Motor (005380.KS) and General Motors (GM.N), which demand changes to their wage schemes.
"We acknowledge that the ruling will have a significant impact on South Korea's labor relations and business activities," said Chief Justice Yang Sung-tae, expressing hopes that the decision would help resolve other legal disputes regarding so-called "ordinary wages".
He said ordinary wages referred to a fixed sum paid periodically and uniformly, and therefore regular bonuses should be recognized as part of ordinary wages.
The ruling threatens to increase various statutory benefits, such as overtime allowance and severance pay, which are adjusted in proportion to ordinary wages, and will cost Korean businesses 13.8 trillion Korean won in the first year, and 8.9 trillion won annually after that, according to a business lobby group.
The Korea Employers Federation raised concerns that the latest decision would cause confusion in future annual wage talks between businesses and labor unions.
The court ruled, however, that other bonuses such as a summer vacation allowance do not qualify as regular wages, which helped send Hyundai Motor shares briefly higher before the closed nearly flat.
Some workers at automakers and shipbuilders, which rely heavily on overtime work, have already lodged separate lawsuits related to ordinary wages, demanding changes in their wage plans. About 150 cases have been filed regarding ordinary wages as of the end of September, according to estimates by labor organizations.
"It certainly is a negative news as it means unexpected expenses for Hyundai and Kia, hurting future profits," said Song Sun-jae, an analyst at Hana Daetoo Securities.
GM chief executive Dan Akerson told South Korean President Park Geun-hye in August that the ongoing wage case was a major barrier to maintaining operations in South Korea, according to media reports.
GM expects its South Korean production to fall by as much as 20 percent by 2015 after which it plans to stop selling Chevrolet cars in Europe, one of the key destinations for South Korea-made cars.
($1 = 1051.6000 Korean won)
(Reporting by Hyunjoo Jin and Joyce Lee; Additional reporting by Jungmin Jang; Editing by Matt Driskill and Jeremy Laurence)