The South Korean Curse: Kia Loses Landmark Wage Dispute With Employees

Seoul Central District Court ruled against Kia Motors on Thursday, ordering the automaker to pay around 420 billion won, or $374 million, in unpaid wages. Kia employees first filed an initial lawsuit in 2011, claiming a 659 billion won wage disparity, following it up with an additional suit in 2014.

However, the automaker claims the final cost will be closer to 1 trillion won, or about $890 million, and could result in a third-quarter operating loss. Interestingly, this is roughly the same amount workers demanded over their six-year legal dispute (after interest).

“The current operational situation is such that the ruling amount is [difficult] to bear,” Kia said in a statement.

Kia will appeal the court decision at the earliest possible date.

According to Reuters, labor representatives claim the court vindicated the protesting workforce after Kia attempted to frame them as greedy troublemakers attempting to cripple Korea’s automotive industry.

“The ruling today confirmed that … the union can aid the company’s development,” a spokesperson for the workers’ union told reporters.

The workers say regular bonuses should be included as part of a base pay used to calculate overtime, compensation for unused annual leave, severance pay, and other payments.

Executives at Kia — and by extension, Hyundai Motor Group — are concerned that the court’s ruling could result in negative implications if it sparks other wage claims within the industry. “As a company which outputs more than one-third of [its] local production, Kia Motors’ wage conditions and operational crisis will spread to other automakers and suppliers, adding more pressure to the crisis in South Korea’s auto industry,” the automaker said in a statement.

Second-quarter operating profits dipped 48 percent from last year, but analysts were expecting Kia Motors to bounce back somewhat in the third quarter — despite a fairly grim financial outlook at the start of the year. The automaker is less convinced this will be the case after the court ruling. Company shares fell 3.5 percent after news broke, while Hyundai’s share price fell by 1.8 percent.

Recent political tensions between South Korea and China have also hurt the Pacific automotive industry. China has enacted numerous boycotts on goods coming from the country after South Korea’s decision to deploy a U.S. missile defense system to protect itself from a potential nuclear strike from North Korea.

Hyundai Motor Group, which includes Kia, saw Chinese sales fall by 64 percent between April and July.