April 20, 2024

• 

[THE INVESTOR] A Seoul Court is set to rule next week on whether Kia Motors has to pay higher wages to employees, a decision that could cost the nation’s second largest carmaker 3 trillion won (US$2.65 billion).

The Seoul Central District Court said it will give its verdict on the ordinary wage lawsuit filed by Kia factory workers -- demanding that their overtime and bonus payments be counted as part of ordinary wages -- at 10 a.m. on Aug. 31 . 

“Based on the materials received by each sides, we will make a careful decision,” said an official at the court, adding both parties have declined to settle. 

In 2011, over 27,000 Kia workers filed a lawsuit against Kia to count irregular bonuses, such as overtime and other incentives, as base salary. Three years later, 13 Kia union workers filed an additional representative suit demanding retroactive compensation to expand to all Kia employees. Higher ordinary wage -- which is the base calculation of benefits such as overtime and severance payments -- would increase total salary for workers, while increasing the wage burden for the firm. 

If the court rules against Kia, the carmaker has to shoulder about 3 trillion won, according to the carmaker, which includes retroactive compensation as well as increased benefits as a result of rise in the ordinary wage. The amount is equivalent to about two years of operating profit. 

“Due to the nature of the auto industry, overtime is common,” Kia Motors CEO Park Han-woo said earlier this week. “If the (bonuses) are included in the ordinary wage, the pay will increase by more than 50 percent for employees.” 

The decision will have overarching impact on other carmakers, specifically its bigger corporate sibling Hyundai, as their union workers will also ask for an increase in their wages. 

The result could also weigh heavily on other Korean firms that are facing similar lawsuits. The Korea Employers Federation projected the total expenditure for increased ordinary wages could reach 38.55 trillion won. 

Having already suffered its worst earnings since 2010, Kia is concerned the pending result could deal a further blow to the company.

The carmaker posted an operating profit of 787 billion won in the first half, down 44 percent from a year earlier, due to sales decline in its major markets the US and China.

By Ahn Sung-mi (sahn@heraldcorp.com)