Must a wage creditor demand distribution by the deadline to be paid first, and which wages count? Decision 2015Da204762 on 'the final three months' wages' and 'the final three years' retirement pay'

Question

Article 38(2) of the Labor Standards Act provides that the final three months' wages and workers' compensation are paid, out of the employer's total property, ahead of claims secured by pledge, mortgage or a security right under the Act on Security over Movables, Receivables etc., and ahead of taxes, public dues and other claims. Article 88(1) of the Civil Execution Act lets a creditor with a priority claim under the Civil Act, the Commercial Act or other laws demand distribution, Article 148 lists the creditors who take a share, and Article 149 governs the fixing of the distribution table. The questions are whether a wage creditor with such a priority claim must make a lawful demand for distribution by the deadline to receive priority distribution, what 'the final three months' wages' and 'the final three years' retirement pay' mean, and whether the cause for retirement pay must have arisen before the deadline.

Decision 2015Da204762 raises these questions in a distribution dispute over real estate of Deogyang Co., Ltd. The plaintiff is the bankruptcy trustee of bankrupt debtor Silla Savings Bank Co., Ltd., and held a senior mortgage over that real estate. Wage creditors who had worked for Deogyang Co., Ltd. had taken a maximum-amount mortgage over the real estate before the auction commencement order was registered, securing current and future wage or retirement-pay claims, and they were paid ahead of the plaintiff. The demand deadline was 19 December 2011; the question was which of their claims could take priority distribution.

Material to check

The statutes are Article 38 of the Labor Standards Act, paragraph 2 of which provides that, notwithstanding paragraph 1, the final three months' wages and workers' compensation are paid ahead of secured claims, taxes, public dues and other claims; and Article 11(2) of the Employee Retirement Benefit Security Act as it stood before its full amendment of 25 July 2011 (Act No. 10967), which the decision cites for the final three years' retirement pay. The decision's citations note that the current provision is Article 12(2); the former text is not set out here. The Civil Execution Act provisions are Article 88 on demanding distribution, Article 148(4) on mortgages and other priority claims registered before the first registration of the auction commencement order and extinguished by the sale, and Article 149 on fixing the distribution table.

The decision is Decision 2015Da204762 (19 August 2015). It cites Decision 98Da47412 (9 April 1999), whose text could not be opened and whose content is therefore not stated here, and Decision 2006Da1930 (26 June 2008). The latter held that, where the employment relationship had already ended when the worker demanded distribution, the wage claims given priority under the former Article 37(2)(1) of the Labor Standards Act (before its full revision of 11 April 2007, Act No. 8372) are the unpaid wages whose cause for payment arose within the three months counted back from the end of that relationship.

Possible readings

According to the decision's reasons, Article 38(2) rests on the public interest in securing a worker's minimum livelihood, and for that reason restricts in part the effect of general security rights and gives wage claims priority. The right it gives is only a right to be paid first when the wage claim competes with other claims against the same property of the employer, whatever the order in which the claims arose and whether or not a pledge or mortgage was created. For that reason, the decision states the principle that even a wage creditor with a priority claim under the Labor Standards Act or other laws must lawfully demand distribution by the deadline in a compulsory execution or voluntary auction procedure in order to receive priority distribution.

On the two periods, the decision reads 'the final three months' wages' as the unpaid wages whose cause for payment arose within three months counted back from the day the employment relationship ended, for a worker whose relationship had ended before the demand, or from the time of the demand, for a worker still employed at that time. Decision 2006Da1930 states the same rule where the relationship has ended. 'The final three years' retirement pay' is read the same way, so the cause for the retirement pay must have arisen before the deadline for demanding distribution. On the decision's own reasoning, a retirement-pay claim that had not yet arisen at that date cannot take priority.

A third reading follows from the position of a mortgagee. Under Article 148(4), the holder of a maximum-amount mortgage registered before the auction commencement order is registered and extinguished by the sale receives distribution without making any demand, within the maximum amount of the claim stated in the register and according to its rank. The decision reads that position together with Article 38(2): where a wage creditor with a priority claim has taken a maximum-amount mortgage over the employer's property to secure current and future wage or retirement-pay claims, the creditor need not make the showing by the deadline; it is enough to show, before the distribution table is fixed under Article 149, that the secured claim is a wage claim with priority. The three months are still counted back as in the ordinary case: from the end of the employment relationship for a worker whose relationship had ended by the demand deadline, and from the demand deadline for a worker still employed on that date. The cause for retirement pay must also still have arisen before the deadline.

What the decisions held

Decision 2015Da204762 stated the two rules set out above. First, to receive priority distribution, a wage creditor with a priority claim under the Labor Standards Act must lawfully demand distribution by the deadline; the final three months' wages are counted back from the end of the employment relationship or from the demand, as the case may be; and for the final three years' retirement pay, the cause for payment must have arisen before the deadline. Second, a wage creditor holding such a mortgage may obtain priority over a senior mortgagee and others by showing the priority character of the secured claim before the distribution table is fixed, subject to the same computation.

The court below, the Uijeongbu District Court in its judgment of 16 January 2015 (2014Na53487), had found that the defendants, wage creditors of Deogyang Co., Ltd., had registered their mortgage before the auction commencement order was registered and had shown, before the distribution table was fixed, that the secured claims were wage or retirement-pay claims. Even so, Deogyang Co. had paid all wages due before the demand deadline of 19 December 2011, so the wage claims whose cause arose in the three months counted back from that date were already extinguished. Even if Deogyang Co. had not paid three months' wages counted back from each defendant's later retirement date, those wage claims would not have priority under Article 38(2). And because the defendants were still employed by Deogyang Co. on 19 December 2011 and retired afterwards, no retirement-pay claim had arisen by that date, so they held no retirement-pay claim with priority. The distribution that placed them ahead of the plaintiff, the senior mortgagee, was therefore unlawful.

The Supreme Court dismissed all the appeals and ordered the defendants to bear the costs of the appeal, holding that the lower court's reasoning rested on the legal principles stated above and contained no error, such as the misunderstanding alleged in the grounds of appeal of the law on the starting point for the range of wage claims entitled to priority. It did not disturb the findings on the timely registration of the mortgage or on the character of the secured claims; the claim to priority failed on the dates alone.

Points left open

The decision holds that the priority character of the secured claim may be shown before the distribution table is fixed, but it does not say what form or degree of showing satisfies that requirement, nor what follows if the showing is made only after the table is fixed or only after the distribution date. Article 149, in the text read for this brief, provides only that the court is to fix the table after examining the interested parties present and the creditors who demanded distribution; the decision does not address correction after that point.

The decision states its rule for the final three months' wages, the final three years' retirement pay and claims of that kind, and it places workers' compensation alongside the final three months' wages. Whether the same mortgage route would extend to the other claims arising from the employment relationship that Article 38(1) mentions is not addressed. Nor does the decision state how far the priority reaches where the secured claim exceeds the maximum amount of the claim registered, a limit it mentions only for mortgagees paid without a demand.

When to reconsider

This brief will be revised if Article 38 of the Labor Standards Act or Articles 88, 148 or 149 of the Civil Execution Act are amended, if a decision settles what showing is needed before the distribution table is fixed, or if a later decision applies the rule to other claims under Article 38(1) or to claims beyond the registered maximum amount.

Statutes referred to

• 근로기준법 제38조
• 구 근로자퇴직급여 보장법 제11조
• 민사집행법 제88조, 제148조, 제149조

Decisions referred to

• 대법원 2015. 8. 19. 선고 2015다204762 판결 · Decision ledger
• 대법원 2008. 6. 26. 선고 2006다1930 판결

Verification status

All texts used for this brief were read at the National Law Information Center on 24 October 2026. The current texts of the cited articles of the Labor Standards Act and the Civil Execution Act were read, as were the decision's published holdings, summary and reasons; the former Article 11(2) of the Employee Retirement Benefit Security Act and Decision 98Da47412 were read only as cited.