Revision of Wage System Based on 'Age' Unavoidable... Wage Peak System Lawsuits Expected to Follow
Legal Community: "Wage Peak System Must Be Revised According to Supreme Court Standards... Disputes Inevitable"
[Asia Economy Reporters Huh Kyung-jun and Kim Dae-hyun] The Supreme Court has ruled that the ‘wage peak system’ which cuts wages solely based on the age of employees approaching retirement is invalid, signaling that lawsuits between companies and workers who have signed wage contracts reducing wages as retirement nears are likely to continue.
Although the Supreme Court’s ruling did not declare all wage peak systems invalid, it is expected that revisions to wage structures based on ‘age,’ which form the basic framework of the wage peak system, will be inevitable.
However, there is also analysis that the ruling may not have a significant impact because most companies have implemented a ‘retirement age extension-type wage peak system’ by extending the retirement age from under 60 to 60 in accordance with amendments to the Elderly Employment Act and reorganizing their wage systems. This Supreme Court decision pertains to the ‘retirement age maintenance-type wage peak system,’ making it difficult to determine the validity of the retirement age extension-type wage peak system.
Wage Cuts Without ‘Retirement Age Extension’ Are Invalid... Confusion Expected Over Wage Peak System Validity
The Supreme Court has for the first time presented criteria for judging the validity of a wage peak system that maintains the retirement age but reduces wages for workers above a certain age for a certain period before retirement. It viewed that reducing wages alone without extending the retirement age while maintaining job content and intensity is problematic.
Furthermore, the Court stated that the recognition of the validity of retirement age maintenance-type wage peak systems or wage peak systems implemented by individual companies may vary depending on ▲the legitimacy and necessity of the introduction purpose ▲the extent and duration of actual wage reduction ▲the appropriateness of the targeted measures ▲and whether the reduced funds were used for the intended purpose. Ultimately, the validity of retirement age maintenance-type wage peak systems may be judged differently on a case-by-case basis, leading to expected confusion.
Attorney Oh Tae-hwan (Head of Labor Group, Law Firm Hwawoo) said, “(The Supreme Court ruling) is a strong signal that the wage peak system could be invalid,” adding, “There will likely be significant disputes in financial institutions where wage peak systems were widely introduced.”
He continued, “Lower courts will dispute the judgment criteria presented by the Supreme Court. Verdicts will vary by court, and for several years, there will be mixed outcomes until multiple cases accumulate and rulings become consolidated.”
Attorney Park Jae-woo (Law Firm Yulchon) observed, “It seems difficult to expect that workplaces that have introduced the retirement age extension-type wage peak system will be significantly affected by this ruling.”
Labor and Management Likely to Continue ‘Wage Lawsuits’... Concerns Over New Labor Conflicts
Lawsuits between workplaces and workers over the legality of the wage peak system are expected to continue. If litigation persists, there are concerns that new labor-management conflicts may arise over the existence of the wage peak system and the restructuring of wage systems.
Immediately after the Supreme Court ruling, the Ministry of Employment and Labor stated, “We will actively support the field to prevent confusion by analyzing related precedents and gathering expert and labor-management opinions,” but it plans neither to revise the 2016 wage peak system guidelines nor to issue new directives, so confusion is expected to continue.
The legal community anticipates a flood of lawsuits related to the wage peak system. In particular, it is analyzed that large-scale litigation could be triggered in financial institutions and others that have introduced the wage peak system.
Attorney Jeon Jun-yong (Law Firm Dongin) said, “Lawsuits may increase individually by company. Workplaces that have introduced the wage peak system will likely undergo inspections, but the number of lawsuits will not explode.”
‘Company Burden of Proof’ on Legitimacy of Wage Peak System Introduction Is Key in Lawsuits
Following the Supreme Court ruling, companies that have introduced the wage peak system are expected to face numerous lawsuits from workers claiming wage differences, severance pay, and more. This situation is similar to the surge in related lawsuits after the Supreme Court ruled that public institution management evaluation bonuses are included in average wages.
The legal community analyzes that the core of these lawsuits will be whether companies can prove the existence of the criteria presented by the Supreme Court in each workplace.
Attorney Oh said, “Requests are already coming in from companies asking whether their designed wage peak systems have issues and what parts need improvement,” adding, “Even if the wage peak system is revised now, disputes cannot be avoided, and designing future systems is important. Originally, the wage peak system had the effect of easing personnel issues, but since various interests exist in each workplace, confusion is inevitable for the time being.”
Attorney Park said, “Until now, wage peak system lawsuits mostly involved issues such as labor-management agreements and the application of the principle of favorability in employment contracts, unlike this ruling which focuses on elderly discrimination. Elderly discrimination issues have only recently emerged and were not prominent, so the results of upcoming wage peak system lawsuits need to be seen before proper judgment can be made.”
Attorney Jeon explained, “Private companies seem to have few issues with the wage peak system. However, companies planning to newly introduce the wage peak system need to design it in a way that provides other benefits in exchange for wage reductions, as suggested by this ruling.”
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