Daebeop's 'Invalidation of Wage Peak System' Ruling... Business Community "Employment Anxiety Will Worsen"

Sangui "Youth Job Insecurity and Other Side Effects"
Kyeongchong "Employment Insecurity for the Elderly Directly Affects Youth Opportunities"
Jeongyeongryeon "Law Amendment Intent Undermined... Increased Corporate Burden"

Supreme Court, Seocho-gu, Seoul.

[Asia Economy Reporter Moon Chaeseok] The business community expressed concerns that the Supreme Court's ruling on the invalidity of the 'wage peak system,' which reduces workers' wages solely based on age, will cause side effects in the industrial field going forward. The logic is that if the wage peak system, introduced to ensure job stability for workers, is invalidated and abolished, corporate burdens will increase and lead to employment instability among both youth and middle-aged workers.

On the 26th, the Korea Chamber of Commerce and Industry (KCCI) stated in a press release following the Supreme Court ruling, "The wage peak system was an inevitable measure under the existing seniority-based pay system (step system)," and "If it is invalidated, the side effects of extending retirement age, such as youth job shortages and employment instability among middle-aged workers, will worsen." Kang Seok-gu, head of the KCCI Research Department, added, "Moreover, with the increasing number of lawsuits and worsening labor rigidity, corporate management burdens will intensify and competitiveness will decline," emphasizing, "It is urgent to amend the Elderly Employment Promotion Act to mandate the wage peak system."

The Korea Employers Federation (KEF) also expressed concerns. In a statement released that day, it said, "Generally, the wage peak system was introduced through labor-management agreements to prevent sudden unemployment of elderly workers and to promote the creation of new jobs for youth, considering Korea's rigid wage structure and employment environment. It is a system of 'age coexistence,' not age discrimination." It added, "Since the wage peak system is closely related to employment insecurity among the elderly and job opportunities for young job seekers, we hope that future related rulings will be made carefully, taking into account the purpose of the system's introduction, the intent of the law, and the impact on the industrial sector."

The Federation of Korean Industries (FKI) echoed similar sentiments. Choo Kwang-ho, head of the FKI Economic Department, analyzed, "The recent ruling that judged the wage peak system, introduced through labor-management agreements to ensure employment stability in response to rapid aging, as illegal age discrimination will increase corporate burdens and cause employment instability." He added, "This ruling is expected to cause confusion in the industrial field, undermining the purpose of related legal amendments."

Since the Elderly Employment Act was amended to mandate retirement ages of 60 or older from 2016, the wage peak system has been widely adopted as part of wage system reforms. Choo added, "In future related trials, we hope for careful interpretation that reflects voices from the field so that the positive functions of the wage peak system?such as employment stability for the elderly and expanded job opportunities for youth in an aging society?can be effectively realized."

The Supreme Court's First Division confirmed the lower court's ruling partially in favor of plaintiff A, a retiree who filed a wage claim lawsuit against a research institute where he had worked. The court sided with A, who argued that his wages had significantly decreased compared to before the wage peak system was applied, ruling that the wage peak system violated the age discrimination prohibition clause under the Elderly Employment Act.