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By Bloomberg

A South Korean court ordered Hyundai Motor Co. to include regular bonuses as part of base wages for some employees, a move that will increase the carmaker’s annual labor cost from this year. Shares fell.

Today’s ruling by Seoul Central District Court will affect 8.7 percent of Hyundai’s employees in South Korea, which must now count regular bi-monthly bonuses as part of workers’ base salary. Hyundai should also pay three years of retroactive pay because doing so won’t jeopardize the company’s financial stability, according to the court ruling.

A higher base salary magnifies overall wage costs because it’s used to calculate everything from overtime payments to annual raises. The court decision will affect Hyundai’s affiliates including Kia Motors Corp. and Hyundai Mobis Co. that face similar lawsuits on bonus pay.

“Hyundai may have dodged the worst-case scenario but affiliates like Kia may not be so lucky,” said Lee Sang Hyun, an analyst at IBK Investment & Securities Co. “There are concerns that this partial ruling could trigger labor issues as workers resist the results that only benefit some of the employees.”

Hyundai fell 2 percent to 171,000 won at the close in Seoul trading, its biggest decline since Jan. 6. This compares with the benchmark Kospi’s 1.4 percent decline. Kia fell 1 percent and Mobis dropped 1.9 percent.

Contractual Rights

About 5,700 Hyundai Motor workers in South Korea will be able to include their regular bi-monthly bonuses in base pay, according to Hyundai Motor union spokesman Hwang Ki Tae. The right was denied to other workers because of a term in their contracts that regular bonuses will not be paid to workers who work fewer than 15 days of the month.

Hyundai would have had to pay an extra 500 billion won ($460 million) this year in wages had the court applied the ruling to all of the workers, according to the median estimate of four analysts surveyed by Bloomberg News.

The labor union will consider appealing the decision and negotiate with Hyundai on what should be considered as base pay, union leader Lee Kyung Hoon said today. The goal is to come to a decision by end of March, Lee said.

Hyundai expects today’s verdict to have a positive impact on future wage negotiations and will focus on improving its wage system, the company said in an e-mailed statement.

Retroactive Pay

The lawsuit was filed in March 2013 by 23 union workers who argued that the company had “miscalculated base wage” and had omitted payment including regular bonuses, holiday bonuses, and fuel expenses from the basic salary, according to a copy of the complaint obtained by Bloomberg News. Workers also demanded they be paid the three years of retroactive payment.

What constitutes as base pay has been at the heart of annual wage negotiations in South Korea last year after the Supreme Court in December 2013 sided with car-parts maker KB AutoTech Co.’s employees, who had sued their employer in July 2010 to have the bonuses counted in the regular wage.

The Supreme Court left it up to companies and their unions to carry out specifics of the ruling, although it rejected workers’ claims that seasonal allowances and welfare benefits should also be included in base salaries. It also said workers don’t have to be retroactively compensated if a company can prove the amount will pose a major threat to its business.

The decision to include bonuses to base pay could translate into at least 13.75 trillion won ($12.7 billion) in added annual labor costs for Korean companies, according to December 2013 estimates by the Korea Employers Federation.

Of the five carmakers that produce vehicles in South Korea, GM Korea Co. and Ssangyong Motor Co. have agreed to include some regular bonuses as base pay this year. Renault Samsung Motors Co. said it will appeal a court ruling in October that was in favor of the workers.