Employment Contracts, Annual Salary Contracts, and the Labor Standards Act… Which Prevails for Workers?
The Law Comes Before Signed Documents — The True Priority of Working Conditions Examined Through the 2026 Minimum Wage and Recent Supreme Court Precedents

Signing a Contract Does Not Make Everything Valid

Going through the process of signing an employment contract upon joining a company and renewing an annual salary contract every year naturally fosters the perception that "the document I signed is the law." However, the exact opposite principle operates in South Korea's labor law system. Article 3 of the Labor Standards Act specifies that the working conditions set by the Act are minimum standards, while Article 4 stipulates the principle that working conditions should be determined by workers and employers on an equal footing and according to their free will. In other words, while employment contracts and annual salary contracts are the products of agreement between parties, the moment such agreements fall below the statutory minimums, those specific parts lose force regardless of whether the worker signed them. This is not intended to arbitrarily neutralize employment contracts, but rather serves as a device to account for the disparity in bargaining power between employers and workers and legally block situations where workers are induced to accept disadvantageous conditions.

The Minimum Line Set by the Labor Standards Act Cannot Be Lowered Even by Contract

The provision that most directly regulates this principle is Article 15 of the Labor Standards Act. Paragraph 1 stipulates that employment contracts providing working conditions falling short of the standards set by the Act shall be null and void only to that extent, and Paragraph 2 prescribes that the parts rendered null and void shall be governed by the standards set by the Act. Rather than the entire employment contract breaking down, the clauses falling short of legal standards are excised, and statutory standards automatically fill those spots. Article 6, Paragraph 3 of the Minimum Wage Act follows the same structure, specifying that parts of an employment contract stipulating wages falling short of the minimum wage shall be void, and those parts shall be deemed to have stipulated the payment of the minimum wage amount.

The minimum wage applicable for 2026 was finalized by the Ministry of Employment and Labor through a notice (No. 2025-47) on August 5, 2025, at 10,320 won per hour. This represents an increase of 290 won, or 2.9%, compared to the 10,300 won in 2025, and based on a 40-hour work week, the monthly converted amount is 2,156,880 won based on 209 hours. This decision is also significant in that it was reached through labor-management agreement for the first time in 17 years since 2008. If any employment contract or annual salary contract states a lower hourly or monthly wage and a worker signs that document, the wage clause is automatically voided to that extent, and the 2026 minimum wage standard applies instead. The core point is that whether the worker consented does not alter this conclusion.

Employment Contracts, Rules of Employment, Collective Agreements… The Hierarchy Among Documents

The employment contract is not the only document regulating working conditions. In practice, it is common to explain the hierarchy of normative force by placing the Constitution at the top, followed below by mandatory regulations such as the Labor Standards Act, collective agreements, rules of employment, and employment contracts, in that order. Article 97 of the Labor Standards Act prescribes that employment contracts setting working conditions falling short of the standards set in the rules of employment shall be void with respect to such parts, and the parts which have become null and void shall be governed by the standards provided in the rules of employment. Article 33 of the Trade Union and Labor Relations Adjustment Act similarly applies a comparable structure between collective agreements, rules of employment, and employment contracts.

However, this hierarchy does not operate only in a unilateral direction. A contrary interpretation of Article 97 of the Labor Standards Act leads to the conclusion that individual employment contract provisions setting working conditions more favorable than those set in the rules of employment are valid and take precedence over the rules of employment. This is commonly referred to as the Principle of Priority for Favorable Conditions. In fact, the Supreme Court has ruled that even if rules of employment modified to the disadvantage of workers receive collective consent from labor unions or similar bodies, they cannot be regarded as having overriding force over existing individual employment contract provisions that establish more favorable working conditions (refer to Supreme Court Decision 2018Da200709 delivered on November 14, 2019, etc.). To summarize, higher-level norms serve as a baseline preventing lower-level norms from setting inferior conditions, but if a lower-level document like an employment contract contains more favorable conditions for the worker, those parts remain in effect. However, similar to cases where collective agreements undergo revision and end up setting conditions lower than individual employment contracts, whether the principle of priority for favorable conditions can be mechanically applied in the same manner to all document combinations remains an area lacking established precedents and subject to differing views. Because such borderline cases can yield different conclusions depending on the presence of a collective agreement at the workplace or the background of its revision, workplaces with labor unions are advised to separately verify the relationship between collective agreements and employment contracts for safety.

The Annual Salary Contract is a Separate Agreement Specifying and Modifying Wage Conditions

An annual salary contract is a document utilized in practice to separately address only a single working condition—wages—rather than the entire employment contract. This serves to reduce the inconvenience of rewriting the entire employment contract every year when salaries change; if wages are already specified in the employment contract, renewing the employment contract without a separate annual salary contract is sufficient. Whichever method is chosen, the legal character remains the same. The wage conditions contained in an annual salary contract also cannot bypass the higher-level mandatory regulation known as the Labor Standards Act, and contents violating this are void only in that part, exactly like clauses in an employment contract, and are replaced by statutory standards.

A representative case is an agreement to calculate and pay severance pay in advance by including it in monthly salaries or annual salaries. Through a Full Bench decision, the Supreme Court determined that agreements to include severance pay within monthly salaries paid every month or daily wages paid every day and pay them accordingly violate mandatory regulations and are null and void in principle (Supreme Court Full Bench Decision 2007Da90760 delivered on May 20, 2010). This means that even if the worker agreed by signing, a separate claim for severance pay remains fully intact at the time of actual retirement. However, it must also be noted that amounts categorized as severance pay already paid are treated as payments without legal cause, meaning employers may seek return as unjust enrichment. Since exceptional requirements—such as severance pay amounts being clearly distinguished from wages and not being disadvantageous to the worker—may leave room for different judgments, specific matters require individual verification.

Laws That Cannot Be Evaded by Contract: The Example Demonstrated by the 2024 Ordinary Wage Ruling

The principle that annual salary contracts and wage regulations cannot supersede the mandatory norms of the Labor Standards Act was most recently and prominently demonstrated by the Supreme Court Full Bench rulings concerning ordinary wages. Through two Full Bench decisions (2020Da247190, 2023Da302838) on December 19, 2024, the Supreme Court abolished the concept of fixity, which had long served as a core requirement in determining ordinary wages, and redefined ordinary wages as wages determined to be paid regularly and uniformly as consideration for contracted work.

Up to that point, the wage regulations or annual salary contracts of many companies had attached tenure conditions—such as restricting regular bonuses only to workers currently employed as of the payment date—to exclude them from ordinary wage calculations, but it is now no longer possible to deny ordinary wage status based solely on such methods. This is because workers who fully provided their contracted work would have fulfilled those conditions anyway.

Subsequently, in the so-called SeAH Besteel case ruling (2019Da204876) on January 23, 2025, the Supreme Court separately ruled that tenure conditions attached to regular bonuses are valid in principle; however, because the concept of ordinary wages itself has been redefined independently of tenure conditions, practice is flowing toward including regular bonuses in ordinary wages even if tenure conditions are attached. No matter what phrasing a company inserts into an annual salary contract or wage regulations, ordinary wage status cannot be excluded by that wording alone. Essentially, this is refilled through the legal definition that ordinary wages serve as the calculation standard for surcharge wages stipulated by Article 56 of the Labor Standards Act, such as overtime, night, and holiday work allowances. This is cited as the most recent example showing that the Labor Standards Act and its interpretive legal principles, rather than contractual phrasing, serve as the ultimate standard for actual wage calculations.

Things Workers Must Actually Verify

First, pursuant to Article 17 of the Labor Standards Act, employers have the obligation to specify core working conditions in writing—such as wage components, calculation methods, payment methods, contractual working hours, holidays, and annual paid leave—and deliver them to workers, with violations subject to a fine of up to 5 million won. If an employment contract or annual salary contract has not been received, requesting written delivery is the starting point. Next, workers must check whether the hourly or monthly wage stated in the contract falls short of the 2026 minimum wage of 10,320 won per hour or the monthly converted amount of 2,156,880 won. Workers must also be aware that if it falls short, while that clause is automatically void and the minimum wage standard applies, receiving the actual difference often requires separate measures such as demanding corrections from the workplace or filing a petition with the Ministry of Employment and Labor.

In addition, workers should examine whether their annual salary contract contains a clause stating that severance pay is already included in wages, or whether tenure conditions are attached to bonuses, excluding them from ordinary wage calculations. The mere existence of such clauses does not cause a worker's legal rights to vanish, and there is room to contest them in light of the aforementioned Supreme Court precedents. However, because conclusions may vary depending on the wage system or contract wording of individual workplaces, individual verification through experts such as the Ministry of Employment and Labor Customer Counseling Center or certified labor consultants is advisable for specific amount calculations or dispute responses. Meanwhile, whether an employer may immediately terminate an employment contract or inflict disadvantages simply because a worker disagrees with annual salary negotiation results is a separate matter. In administrative practice interpretations as well, disagreements over wage conditions are frequently handled as matters to be resolved through normal consultations and procedures. Ultimately, while employment contracts and annual salary contracts are important documents specifying and proving working conditions, the principle that the law takes precedence the moment their contents infringe upon the minimum baseline set by the Labor Standards Act remains unshaken by any document. Developing the habit of examining whether contract wording lies above or below the baseline of the Labor Standards Act, rather than focusing on what is written in the contract, is the most practical way for workers to protect themselves.