Law "Introduction of Wage Peak System with Significant Wage Cuts is Unreasonable"

The court ruled that the introduction of the wage peak system, which excessively cut wages without providing measures to offset this, was wrong.

Seoul Central District Court, Seocho-dong, Seoul. Photo by Mun Ho-nam munonam@

According to the legal community on the 17th, the Seoul Central District Court Civil Agreement Division 41 (Presiding Judge Jeong Hoe-il) recently ruled partially in favor of the plaintiffs in a lawsuit filed by four current and former employees of KB Credit Information, including Mr. A, against the company demanding "wages and severance pay." Out of the total claim amount of approximately 541 million KRW, about 537.9 million KRW was granted.

The court stated, "It can be seen that the workers suffered economic losses due to the implementation of the wage peak system," and "Although the working period was extended by two years, the total amount they can receive after the age of 55 is more likely to be reduced, indicating that the extent of the damage is not insignificant." The court also pointed out that sufficient measures, such as reducing work intensity, were not taken to compensate for the disadvantages.

Previously, KB Credit Information signed a collective agreement with the labor union in February 2016, extending the retirement age from 58 to 60 years old, but introduced a wage peak system that reduced wages starting at age 55. Instead, depending on performance, they agreed to pay 45-70% of the annual salary before the wage peak system was applied.

Mr. A and others argued that the wage peak system, which drastically cut wages without any compensation measures, was invalid. They claimed the difference in wages and severance pay they would have received if the wage peak system had not been applied.

Focusing on the excessive wage cuts, the court sided with the employees. Initially, they could have received 300% of their annual salary for three years from age 55 until the original retirement age, but after applying the wage peak system, low performers received only 225% of their original annual salary over five years starting at age 55.