Samsung's 7-Year Legal Battle Redefines What Counts as Wages

15 former employees. 7 years of legal battles. One Supreme Court ruling that could change how South Korea's biggest companies calculate worker compensation.

On January 29, South Korea's Supreme Court delivered a verdict that Samsung Electronics had been dreading: the tech giant must include certain bonuses when calculating severance pay for employees. The decision marks the end of a protracted legal fight that began when former Samsung workers sued the company for shortchanging their severance payments.

The Heart of the Dispute

The case centered on a seemingly simple question: what counts as "wages" when determining severance pay? Samsung had been calculating severance based solely on base salaries, excluding the various performance bonuses that formed a significant portion of employee compensation. The plaintiffs argued this was unfair—if they earned it through their work, it should count toward their final payout.

The Supreme Court made a crucial distinction between two types of bonuses. "Target incentives," which are tied to specific project and departmental performance, were deemed directly related to work and must be included in wage calculations. However, "performance incentives"—bonuses distributed from 20% of each department's profits—were ruled as having no direct correlation to individual labor provision.

Why This Took Seven Years

The lengthy legal process reflects a deeper complexity in South Korean corporate culture. Unlike simple hourly wages, compensation packages at major chaebols like Samsung are intricate webs of base pay, allowances, performance bonuses, and profit-sharing schemes. Drawing the line between "wages" and "benefits" isn't just a legal exercise—it's a fundamental question about the nature of work itself.

For Samsung, this wasn't just about 15 employees. The company likely knew that any precedent set here would ripple across its entire workforce and potentially influence other major corporations. The stakes were enormous: millions of current and former employees could potentially claim additional severance pay.

Corporate Korea's Nervous Response

The ruling has sent shockwaves through South Korea's corporate landscape. Companies like Hyundai, LG, and SK operate similar compensation structures, and they're now scrambling to assess their exposure. If bonuses count toward severance calculations, they also affect overtime pay, vacation allowances, and other wage-based benefits.

One HR executive at a major conglomerate, speaking on condition of anonymity, admitted: "We're reviewing seven years of severance payments to see if we need to make additional payouts. The financial implications could be substantial."

Winners and Losers

For employees, the ruling appears to be a clear victory. Higher severance payments mean better financial security when leaving jobs. But the reality may be more nuanced. Companies might respond by restructuring compensation packages, potentially reducing bonus components in favor of other benefits that don't count toward severance calculations.

There's also the question of timing. The court sent the case back to a lower court for retrial, meaning the specific employees involved still don't have their final resolution. And the ruling only applies to certain types of bonuses—the distinction between "target" and "performance" incentives will likely spawn new legal challenges.

The Broader Labor Landscape

This case arrives at a pivotal moment for South Korean labor relations. The country has been grappling with growing inequality and changing work patterns, particularly as younger generations demand more transparent and equitable compensation structures. The traditional model of lifetime employment with complex, opaque pay systems is increasingly under pressure.

For multinational companies operating in South Korea, the ruling adds another layer of compliance complexity. Foreign firms will need to carefully structure their compensation packages to avoid similar legal challenges while remaining competitive in attracting talent.