CONTENTS
- 1. Wage Litigation | A Case Concerning Delay Damages on Interim-Settlement Severance Pay
- - The Lower Court's Determination
- 2. Wage Litigation | The Supreme Court's Determination
- - The Scope of Application of Article 37 of the Labor Standards Act
- - The Difference Between Ordinary Severance Pay and Interim-Settlement Payments
- 3. A Summary of the Scope of Liability for Delay Damages
- 4. Wage Litigation | The Significance of the Judgment and Matters Companies Should Review
- - The Significance of the Judgment
- - Matters Companies Should Review
- 5. Wage Litigation | The Assistance of the Corporate Legal Group
- - The Assistance of the Corporate Legal Group
1. Wage Litigation | A Case Concerning Delay Damages on Interim-Settlement Severance Pay
This wage litigation case concerned whether the 20% annual delay interest rate under the Labor Standards Act applies even when interim-settlement severance pay received by an employee during the period of employment is paid late.
The employees argued that the company had failed to pay the interim-settlement severance pay on time, and they claimed delay damages.
In particular, they argued that, under Article 37(1) of the former Labor Standards Act and Article 17 of its Enforcement Decree, an employer that exceeds the payment deadline must bear delay interest at an annual rate of 20%.
The company, on the other hand, argued, on the ground that interim-settlement severance pay, unlike ordinary severance pay, is not a payment made on the premise of the termination of the employment relationship, that it is not subject to the 20% annual delay interest rate provision under the Labor Standards Act.
The Lower Court's Determination
In this wage litigation, the lower court accepted the company's argument.
The lower court took into account that the framework of Article 36 of the former Labor Standards Act and the Employee Retirement Benefit Security Act is fundamentally operated on the premise of a situation involving the termination of the employment relationship, such as an employee's retirement or death.
It also considered that interim settlement of severance pay is a system that, under Article 8(2) of the Employee Retirement Benefit Security Act, is exceptionally permitted during the period of employment when certain grounds exist.
Accordingly, the lower court held that Article 37(1) of the former Labor Standards Act does not apply to interim-settlement severance pay disbursed during the period of employment.
2. Wage Litigation | The Supreme Court's Determination
The Supreme Court likewise upheld the lower court's determination.
In its judgment on this wage litigation, the Supreme Court examined in detail the scope of application of the 20% annual delay interest rate provision under the Labor Standards Act and the legal nature of interim settlement of severance pay.
In particular, it emphasized the structural difference between ordinary severance pay and interim-settlement payments disbursed during the period of employment, and it presented the existence of a statutory liquidation obligation as a key criterion for its determination.
The Scope of Application of Article 37 of the Labor Standards Act
Article 37(1) of the former Labor Standards Act (prior to its amendment by Act No. 20520 on October 22, 2024) provides as follows.
“Where an employer fails to pay all or part of the wages payable under Article 36 and the benefits under subparagraph 5 of Article 2 of the Employee Retirement Benefit Security Act within 14 days from the date on which the grounds for payment arose, the employer shall pay delay interest at an annual rate of 20 percent for the number of days of delay from the following day until the date of payment.”
In addition, Article 17 of the former Enforcement Decree of the Labor Standards Act (prior to its amendment by Presidential Decree No. 35436 on April 8, 2025) set this delay interest rate at 20% per annum.
The Supreme Court found that the above provisions are fundamentally structured on the premise of a liquidation obligation arising after the termination of the employment relationship.
That is, it emphasized that the purpose of these provisions is to impose an economic sanction where, after the employment relationship has terminated through the employee's retirement or death, the employer fails to pay wages or severance pay.
The Difference Between Ordinary Severance Pay and Interim-Settlement Payments
“It is difficult to conclude that interim-settlement severance pay paid before an employee's retirement under Article 8(2) of the Employee Retirement Benefit Security Act constitutes a lump-sum payment made through a retirement benefit scheme that falls within the scope of application of Article 37(1) of the former Labor Standards Act.”
In Supreme Court, Decision of March 12, 2026, 2025 Da 214123, the Court held that interim-settlement severance pay disbursed during the period of employment is difficult to treat in the same manner as ordinary severance pay.
The Supreme Court attached importance to the fact that, whereas ordinary severance pay is a sum paid after the termination of the employment relationship, interim settlement is a system under which payment is made exceptionally during the period of employment when certain grounds exist, pursuant to Article 8(2) of the Employee Retirement Benefit Security Act.
It also took into account that, while ordinary severance pay is subject to a 14-day liquidation obligation under Article 36 of the former Labor Standards Act, no equivalent payment-deadline provision exists for interim-settlement severance pay.
3. A Summary of the Scope of Liability for Delay Damages
The Supreme Court focused its examination on whether the ‘statutory liquidation obligation,’ which is the premise for the application of Article 37(1) of the former Labor Standards Act, is also recognized for interim-settlement severance pay.
Article 36 and Article 37 of the former Labor Standards Act are provisions premised on the payment of wages and severance pay after the termination of the employment relationship, and the Supreme Court held that interim-settlement severance pay disbursed during the period of employment is difficult to treat as having the same structure.
In particular, it attached importance to the fact that, while for ordinary severance pay there exists a statutory liquidation obligation requiring the employer to pay the severance pay within a certain period after the employee's retirement, no equivalent payment-deadline provision is separately provided for interim-settlement severance pay.
Ultimately, the Supreme Court held that interim-settlement severance pay is difficult to regard as having the same legal structure as ordinary severance pay paid after the termination of the employment relationship, and that, accordingly, the 20% annual delay interest rate under Article 37(1) of the former Labor Standards Act and Article 17 of its Enforcement Decree likewise does not apply.
4. Wage Litigation | The Significance of the Judgment and Matters Companies Should Review
This judgment on the wage litigation limited the application of the 20% annual delay interest rate to interim-settlement severance pay, but it also shows that the risks in a company's severance pay administration cannot be said to disappear entirely.
In practice, the interim-settlement approval procedure, the circumstances of payment, the manner in which internal regulations are operated, and similar matters are often reviewed together in the course of a dispute.
Therefore, from a company's perspective, it is necessary to review both the payment structure and the internal management system together.
The Significance of the Judgment
The Supreme Court attached importance to the fact that interim-settlement severance pay, unlike ordinary severance pay, is a sum paid exceptionally during the period of employment.
In particular, it based its determination on the key ground that, while ordinary severance pay is subject to a 14-day liquidation obligation under Article 36 of the former Labor Standards Act, no equivalent payment-deadline provision separately exists for interim-settlement severance pay.
Therefore, the Supreme Court's judgment on this wage litigation is significant in that it more clearly established that the same special delay interest rate framework does not apply to every delay in the payment of severance pay.
Matters Companies Should Review
Because interim settlement of severance pay is a system operated on the premise of an agreement between the employer and the employee, in actual disputes there is a high likelihood that the circumstances of payment and the manner of internal operation themselves will become the key issues.
Review Item | Key Content |
|---|---|
Interim-Settlement Approval Procedure | Organizing approval criteria, the authorization structure, and processing methods |
Payment Schedule Management | Managing scheduled payment dates and grounds for withholding payment |
Rules of Employment and Internal Company Rules | Clarifying interim-settlement procedures and criteria |
Management of Supporting Evidence | Retaining application forms, settlement agreements, and authorization records |
In particular, where the interim-settlement approval criteria are operated differently across departments, or where the process of changing payment schedules is not documented, the circumstances of payment themselves may become the subject of wage litigation.
In addition, where the grounds for withholding payment or the internal approval process are not clearly recorded, the company's explanatory framework may become unclear.
Therefore, rather than handling interim settlement in the same manner as ordinary severance pay, a company should operate it on the basis of a separate approval structure and payment management system.
5. Wage Litigation | The Assistance of the Corporate Legal Group
Wage litigation often involves not only issues of unpaid wages or severance pay but also a variety of issues, including the operation of the rules of employment, the interpretation of the wage system, the scope of delay damages, and internal approval procedures.
In particular, where a system that differs from the ordinary wage and severance pay structure is at issue, as with interim settlement of severance pay, there is a high likelihood that the circumstances of payment, internal operating standards, and the internal company rules framework will be reviewed together.
Therefore, a company should review not only its response after a dispute actually arises but also the overall structure of its internal wage and severance pay administration.
The Corporate Legal Group of Daeryun Law Firm LLP responds to companies' wage litigation and labor risks through the collaboration of corporate attorneys, labor attorneys, certified labor affairs consultants, and certified public accountants.
The Assistance of the Corporate Legal Group
Area of Response | Scope of Assistance |
|---|---|
Response to Wage and Severance Pay Disputes | Reviewing issues related to unpaid wages, severance pay, and delay damages, and organizing the litigation response structure |
Review of the Rules of Employment and Internal Company Rules | Reviewing the alignment of regulations, including the wage system, interim-settlement procedures, and internal approval criteria |
Labor Risk Analysis | Examining risks related to payment procedures, operating methods, and the internal management system |
Organization of Supporting Evidence and Response Systems | Reviewing the supporting-evidence framework, including payment records, authorization records, settlement agreements, and internal consultation materials |
If you need a legal review regarding wage litigation, such as interim settlement of severance pay, delay damages, or the operation of the wage system, we invite you to review a course of action suited to your situation through a consultation with a 🔗corporate attorney.
