[Aftermath of the Wage Peak System] Labor "Abolish It" Tug-of-War with Management Across Industries

Union Demands Follow Supreme Court Ruling
Companies Say "'Retirement Extension Type' Is Not Invalid"
Major Firms with Strong Union Influence in Auto and Heavy Chemical Sectors Face Struggles

[Image source=Yonhap News]

[Asia Economy Reporters Hyunseok Yoo and Chaeseok Moon] The Supreme Court ruled that wage peak systems that reduce wages solely based on age without 'reasonable grounds' are invalid, sparking conflicts between labor and management across various industries. Particularly, there is a significant difference in interpretation of the term 'reasonable grounds' between companies and labor unions. Companies accept that as long as the wage peak system is not explicitly applied for wage cuts or workforce dismissal purposes, it is acceptable, while labor groups are encouraging union leadership to promote the invalidation and abolition of the wage peak system among members.

According to industry sources on the 10th, the wage peak system has emerged as a major issue in this year's wage and collective bargaining agreements (Wage and Collective Bargaining, WCB) in the completed car industry. Companies advocating for the abolition of the wage peak system include Hyundai Motor Company, Kia, and Renault Korea.

Hyundai Motor Company and Kia include employees aged 59 and above in the wage peak system. In the first year, wages are frozen. At the retirement age of 60, wages are reduced by 10% compared to previous levels. The Hyundai Motor and Kia unions argue for abolishing the current wage peak system and extending the retirement age in connection with the timing of national pension benefits. The Hyundai Motor union recently stated in a newsletter that "for members born in the 1960s, extending the retirement age and abolishing the wage peak system are the most important issues in this year's negotiations." The Renault Korea union also included the abolition of the wage peak system in this year's WCB demands. Renault Korea applies the wage peak system starting at age 54, with wages cut by 10% annually. Especially after the recent Supreme Court ruling, a legal review has begun to check for any illegality in the currently implemented wage peak system.

In major heavy chemical companies such as POSCO, fierce conflicts between labor and management over the wage peak system are also ongoing. The POSCO branch of the Korean Metal Workers' Union, affiliated with the Korean Confederation of Trade Unions (KCTU), is recruiting plaintiffs for a lawsuit to invalidate the wage peak system. When POSCO introduced the wage peak system in 2011, the retirement age was extended from 56 to 58, and employees aged 59 to 60 were rehired after retirement. Later, in 2016, the retirement age was increased to 60, with seniority increments stopped from age 57 and wages cut by 10% from age 59. The Hyundai Steel union has been occupying the Dangjin Steelworks president's office for over a month since the 2nd of last month, demanding a special incentive payment of 4 million KRW, which Hyundai Motor, Kia, and Hyundai Mobis have paid. The management recently filed a complaint with the police against the union, to which the union responded that it would be "the kindling for the struggle," signaling a warning of intensified confrontation.

The Hyundai Steel union submitted a WCB demand to management that includes a basic wage increase of 165,200 KRW and a 15% performance bonus based on last year's operating profit. This demand is more than double last year's basic wage increase of 75,000 KRW. Regarding this, Hyundai Steel President Andong-il told reporters at the 23rd Steel Day event held at the POSCO Center in Gangnam, Seoul, on the 9th, "The responsible executives are responding, and we will resolve it well through good consultation," offering only a general response. Hyundai Heavy Industries concluded last year's wage negotiations on the 31st of last month, but if the union raises opposition to hiring foreign workers or demands wage increases, a strike could follow.

Within the industry, there are concerns that the labor sector is using the Supreme Court ruling as leverage in negotiations to abolish the system or secure higher wages, rather than carefully verifying cases where some companies might have applied the wage peak system as pressure for employee dismissal, which could justify the court's invalidation. The controversy over the wage peak system is showing signs of expanding beyond verifying deviations by some companies that might warrant invalidation, to political bargaining by unions, large-scale debates such as abolishing seniority-based pay systems and job-based pay systems, and impacts on major labor decision-making processes like next year's minimum wage.

First, there is suspicion that labor is trying to capitalize on a favorable ruling to pressure management and obtain their demands. Given that the pro-labor Moon Jae-in administration has ended and the pro-business Yoon Suk-yeol administration has taken office, there is widespread suspicion that labor is trying to seize the initiative early. There are concerns that rather than in-depth discussions on the system, the wage peak system is being used as a summer bargaining card, potentially influencing next year's minimum wage negotiations at the Minimum Wage Commission and major labor decision-making judgments such as the Labor Director System and Time-Off System (paid leave for union officials) at the Economic, Social and Labor Council. Not only the Korean Confederation of Trade Unions but also the Federation of Korean Trade Unions (FKTU) is issuing field guidelines encouraging invalidation and abolition of the wage peak system, which is also under scrutiny. Bank sector unions have also begun legal reviews to file lawsuits.

Corporate Impi-je Checklist Created by Lawyer Lee Seri of Sejong Law Firm. (Source: Korea Chamber of Commerce and Industry)

The legal community is responding that labor should exercise restraint regarding unilateral lawsuits and discussions on abolishing the system. They advise that companies can continue operating the wage peak system as long as they avoid large wage cuts that could lead to a court 'invalidity declaration.' According to the 'Wage Peak System Validity Check Checklist' created by attorney Lee Seri of the law firm Sejong, who held a briefing session with the Korea Chamber of Commerce and Industry the day before, if companies adhere to principles such as having individual regulations that guarantee wages higher than internal company rules and verifying whether the wage peak system leads to increased new hires or extended employment, they may avoid going to trial.

Contrary to labor's demand to abolish the wage peak system, which leaves open the possibility of dismissing older workers, there are even calls to eradicate the seniority-based pay system, broadening the scope of discussion. Yoo Il-ho, head of the Employment and Labor Policy Team at the Korea Chamber of Commerce and Industry, stated, "The wage peak system was introduced to alleviate the burden of extending retirement age under the seniority-based pay system and to minimize negative impacts on the employment market, such as reduced youth employment." He added, "To fundamentally resolve the confusion caused by this (Supreme Court) ruling and the side effects of retirement age extension on jobs, we must promptly transition to a job-based pay system."