Recent Supreme Court Rulings on ordinary wages and its impact

On December 19, 2024, the Supreme Court issued new rulings where it excluded “payment on fixed basis” or “fixedness” as one of the criteria for determining ordinary wages.

This overturns established precedent dating back to December 18, 2013 (Case No. 2012Da89399), where the Supreme Court ruled that certain bonus payments that are paid only to employees employed as of specific payment date, etc. do not qualify as ordinary wages because such payments cannot be deemed to be paid “as consideration for the employees’ prescribed work” and “on a fixed basis”. The Supreme Court further upheld this ruling in another court case on September 26, 2017. However, these prior cases have now been overturned by the 2024 Supreme Court Rulings.

Therefore, ordinary wages now refer to payments that are paid regularly and uniformly as compensation for the employee’s prescribed work. In other words, certain bonus payments that are paid regularly and uniformly, regardless of the conditions attached thereto or possibility of their fulfillment, will qualify as ordinary wages.

More specifically:

(1) Certain bonus payments conditioned on continued employment should no longer be excluded from ordinary wages.

(2) Certain bonus payments conditioned on a certain number of working days should no longer be excluded from ordinary wages if such number of working days is within the normal number of working days of the employee’s prescribed work. However, if such number of working days is in excess of the normal number of working days of the employee’s prescribed work, it should remain excluded from ordinary wages.

(3) Even under the new criteria for determining ordinary wages, performance bonuses which depend on specific work performance or evaluations generally do not qualify as ordinary wages. However, if there is a minimum amount paid as performance bonus regardless of the employee’s actual performance, then such an amount should be included as ordinary wages.

The 2024 Supreme Court Rulings drastically change the concept of ordinary wages from the established precedents, and are expected to cause great confusion in the wage system, labor-management agreements, and practices that were formed based on such precedents from 2013. Accordingly, depending on current practices, the economic burden on each workplace may increase significantly, and this may necessitate a major reorganization of the wage system.

In consideration of these points, businesses should assess the potential impact of the 2024 Supreme Court Rulings and, if necessary, incorporate any relevant changes into their current wage system. Seeking professional advice from experts will be crucial to understand and address the impact of the 2024 Supreme Court Rulings.