[Aftermath of the Wage Peak System] Economic Groups "Supreme Court Ruling Causes Major Confusion... Concerns Over Labor-Management Litigation"

"Impije Controversy Sparks Labor-Management Conflicts in Industrial Sites" Unified Voice
Law Firms Hold Briefings to Alleviate Concerns

[Image source=Yonhap News]

[Asia Economy Reporters Oh Hyung-gil and Park Sun-mi] Following the Supreme Court ruling that wage peak systems, which reduce wages based on age without reasonable justification, are invalid, economic organizations are expressing concerns about the worsening confrontation and confusion between labor and management and the potential aftershocks this could have on our society.

There is growing concern that labor-management conflicts could become a burden for companies. While cautioning against excessive anxiety, there are also predictions that lawsuits between labor and management will continue.

According to economic organizations on the 10th, major economic groups such as the Federation of Korean Industries (FKI), Korea Employers Federation (KEF), and the Korea Chamber of Commerce and Industry (KCCI) are holding briefings and seminars daily to provide accurate information regarding the Supreme Court ruling on the wage peak system.

On the 9th, the KCCI held an online briefing session titled “Trends in Wage Peak System Rulings and Corporate Response Measures” at the KCCI building in Jung-gu, Seoul, in collaboration with the law firm Sejong.

Attorney Kim Dong-wook stated, "This Supreme Court ruling does not deny the effectiveness of the wage peak system itself, so excessive anxiety and fear are unwarranted," adding, "Companies need to accurately understand the Supreme Court’s intent and individually review the validity of the wage peak systems currently in operation."

He continued, "If wage peak system lawsuits unfold, regardless of the outcome, they will increase corporate uncertainty and act as obstacles to employment expansion or future employment extension," urging, "Labor unions should be cautious about advocating for invalidation lawsuits and abolition of the wage peak system following this ruling."

Since the Supreme Court ruling, the Korean Confederation of Trade Unions has issued field guidelines encouraging the invalidation and abolition of the wage peak system, and bank unions have begun legal reviews in preparation for filing lawsuits.

[Image source=Yonhap News]

However, the legal community views wage peak systems aimed at extending retirement age rather than reducing wages or forcing workforce exit as having high validity. Attorney Kim Jong-su said, "Wage peak systems generally introduced by companies as a response to the mandatory extension of retirement age to 60 are relatively safe."

He added, "Even for wage peak systems introduced to extend retirement age, caution is necessary because if they do not meet the Supreme Court’s validity criteria?such as the legitimacy of the purpose and the degree of disadvantage to workers?they may be invalidated."

Attorney Kim cited an example of an education company’s wage peak system invalidated by the Seoul High Court last year, explaining, "In cases where the retirement age was extended to 60 and wages were cut by up to 50% starting at age 44, appearing to aim at wage reduction or workforce exit, there is a high possibility of invalidation according to the Supreme Court’s standards."

Attorney Lee Se-ri identified key preparations companies should make regarding wage peak system responses, including ▲review and improvement of current wage peak systems, ▲response plans in case of lawsuits, and ▲collective bargaining strategies with unions.

He emphasized, "HR managers need to individually check aspects such as the form of the retirement system, the purpose of the wage peak system, and measures taken for affected workers, and organize the currently operated wage peak system," presenting a ‘Wage Peak System Validity Checklist’ that can be directly used in corporate settings.

Kwon Tae-shin, Vice Chairman of the FKI, at a recent seminar on "Issues and Tasks Regarding the Supreme Court Ruling on the Wage Peak System," stated, "The Supreme Court presented four criteria for the validity of the wage peak system: ▲the legitimacy and necessity of the purpose of introducing the wage peak system, ▲the degree of disadvantage suffered by the affected workers, ▲whether measures such as work adjustments for wage reductions were introduced, and ▲whether the reduced funds were used for the purpose of introducing the wage peak system," adding, "However, these criteria inevitably lead to stark conflicts between labor and management."

For example, the degree of disadvantage perceived by labor and management due to the introduction of the wage peak system or the work adjustments related to wage reductions are issues where labor and management positions inevitably clash, making conflict unavoidable. Vice Chairman Kwon expressed concern, saying, "Many businesspeople are worried that this ruling might escalate into intense labor-management conflicts," and warned, "It will trigger labor-management conflicts in industrial sites where the wage peak system has already been introduced and is being operated through labor-management agreements."

The KEF has taken steps to quell confusion by emphasizing in its “Response Measures Regarding the Supreme Court Ruling on the Wage Peak System” distributed to member companies that this ruling pertains to exceptional cases even among retirement maintenance types and is unrelated to the retirement extension types adopted by many companies.

Although labor unions in companies are intensifying demands for the abolition of the wage peak system through lawsuits and other means, the stance is that most wage peak systems introduced so far are legitimate systems adopted through labor-management agreements to ensure employment security.

[Image source=Yonhap News]

The KEF argued, "Retirement extension-type wage peak systems do not constitute age discrimination in principle, and retirement maintenance-type wage peak systems should also be recognized for their purpose as they have the effect of extending retirement age." It reminded that a recent survey of wage peak systems in 30 major companies showed that the vast majority (95.7%) had introduced retirement extension-type wage peak systems, with purposes including retirement extension (73.9%), expansion of new hires (13.0%), and employment retention (4.3%).

However, since the Supreme Court’s ruling is seen as ambiguous, the conflict phase between labor and management does not appear likely to subside easily.

Attorney Lee Kwang-sun of the law firm Jipyung said, "There are ambiguous points to judge, such as ▲whether the Supreme Court’s validity criteria for the wage peak system apply to retirement extension-type wage peak systems, ▲how to assess the validity of wage peak systems introduced after the mandatory retirement age extension to 60 (effective January 2016), and ▲which statute of limitations applies to wage claims due to invalidation of the wage peak system?wage claims (3 years) or tort damage claims (10 years)," adding, "On top of that, a flood of lawsuits from unions is anticipated, leaving companies bewildered."

Yoo Il-ho, head of the Employment and Labor Policy Team at the KCCI, said, "The wage peak system was introduced to alleviate the burden of retirement extension under the seniority-based pay system and to minimize negative impacts on the labor market such as the reduction of youth jobs," proposing, "To fundamentally resolve the confusion caused by the wage peak system ruling and the side effects of retirement extension on jobs, a swift transition to a job-based pay system is necessary."