[Why&Next] "Pay 22.9 Billion" Kookmin Bank Impi-je Loses First Trial... Hyundai Motor·Kia 'On Edge'

Companies Struggle with Wage Peak System-Related Litigation Issues
Labor Standards Act Must Be Followed When Changing Employment Rules
Interpretation That Kookmin Bank Ruling Has Limited Legal Impact

Former and current employees of KB Kookmin Bank won the first trial in a lawsuit claiming wages and retirement pay, arguing that the company changed the wage peak system to the detriment of workers without obtaining their consent. Since the first trial ruling emphasized that strict procedures stipulated by the Labor Standards Act must be followed when changing employment rules related to the wage peak system, Hyundai Motor Company and Kia, which are involved in similar lawsuits, are expected to continue facing challenges.

According to the legal community on the 26th, the Civil Division 15 of the Seoul Southern District Court (Presiding Judge Lee Jin-hwa) ruled in favor of the plaintiffs in a lawsuit filed by 135 former and current employees of KB Kookmin Bank, claiming approximately 22.9 billion KRW in wages and retirement pay. The court stated, “Kookmin Bank changed the wage peak system from a ‘retirement age extension type’ to a ‘retirement age maintenance type,’ which concretely and directly disadvantaged the workers’ working conditions,” and “nevertheless, the company changed it without obtaining consent from the labor union organized by the majority of workers, rendering the change invalid.”

KB Kookmin Bank, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

Court: “Second Wage Peak System Disadvantageous Change... Invalid Without Union Consent”

Earlier, Kookmin Bank employees filed a lawsuit claiming about 22.9 billion KRW in wages and retirement pay, arguing that the wage peak system introduced by the company was invalid. Kookmin Bank had implemented the wage peak system (first phase) since 2008 in agreement with the labor union, and the ‘retirement age extension type’ wage peak system was in place as per the union’s demand to extend the retirement age from 58 to 60. However, the company changed the wage peak system (second phase) starting in 2015. The phrase “by extending the retirement age” was removed from the revised personnel operation guidelines, changing the first phase ‘retirement age extension type’ wage peak system to the second phase ‘retirement age maintenance type’ wage peak system.

Accordingly, the workers argued that since the revised wage peak system did not extend the retirement age and was a ‘retirement age maintenance type,’ it was a disadvantageous change in working conditions and invalid because it lacked union consent. The Labor Standards Act requires that when an employer changes employment rules to the detriment of workers, consent must be obtained from a labor union organized by the majority of workers or from the majority of workers themselves, and the company’s change violated this. On the other hand, Kookmin Bank argued, “The second phase was merely a revision of the retirement age due to the enforcement of the Elderly Employment Act and is fundamentally the same as the first phase, so it cannot be seen as a disadvantageous change in workers’ conditions.”

The court sided with the workers. The court viewed the change in the definition of the wage peak system as a disadvantageous change in employment rules. The court stated, “The revised definition of the wage peak system differs in whether the implementation is premised on ‘retirement age extension,’” and “Regardless of whether the retirement age is extended, the wage peak system implemented upon reaching a certain age clearly constitutes more disadvantageous working conditions for workers.” The court further ruled, “The company is obligated to pay wages, retirement pay, and delayed damages at the level that would have been paid if the wage peak system had not been implemented.”

Hyundai Motor Company and Kia Face Multiple Lawsuits... Will This Affect Trials?

The legal community expects that this first trial ruling will influence ongoing lawsuits involving similar issues at Hyundai Motor Company and Kia. This is because the Southern District Court first judged whether collective consent was obtained according to Supreme Court precedents when determining the invalidity of Kookmin Bank’s wage peak system. As a result, the burden of proof on the workers’ side, which was relatively difficult regarding the claim that the wage peak system was an unreasonable age discrimination without rational grounds, has been reduced.

In fact, on the 5th, 77 retired executives of Kia filed a lawsuit at the Seoul Central District Court claiming damages totaling about 3.8 billion KRW against the company. Thirty-two retired executives of Hyundai Motor Company filed a similar lawsuit last December, claiming about 1.6 billion KRW in damages for similar reasons. The retired executives commonly argue that the company amended the employment rules for executives to introduce the wage peak system, but since union consent was not obtained during this process, the change in employment rules is invalid.

Attorney Ryu Jae-yul of Law Firm Joongsim explained regarding the Kookmin Bank wage peak system ruling, “In the past, workers argued two points regarding the wage peak system: that it was an ‘unfavorable change in employment rules’ and that it was invalid due to ‘age discrimination violating the Elderly Employment Act.’ However, proving that the wage peak system implemented in their company was discriminatory based on age and lacked rational grounds was a very difficult task and a heavy burden of proof for workers.”

He added, “According to the court’s logic this time, in cases where the wage peak system is introduced through employment rules, if the introduction is merely a disadvantageous change for workers, the court will judge only whether collective consent was obtained according to Supreme Court precedents. If such procedures were not followed, the wage peak system will be considered invalid. Last year’s Supreme Court plenary session ruling marked a new phase for wage peak system cases, and legally, it clearly increases concerns for the employer side.”

Until now, the Supreme Court had issued many precedents recognizing the validity of changed employment rules even without consent if there was ‘socially accepted rationality.’ However, in May last year, the Supreme Court plenary session overturned existing precedents for the first time in 45 years. The ruling stated that disadvantageous changes in employment rules without consent from the majority of workers are generally prohibited.

Hyundai Motor Company headquarters in Yangjae-dong, Seocho-gu, Seoul. [Image source=Yonhap News]

However, there are also predictions that the court’s judgment on Kookmin Bank’s wage peak system will have limited impact on Hyundai Motor Company and Kia’s wage peak system trials. The Southern District Court judged procedural defects, but the issue of whether consent was obtained varies by company.

Attorney Jeong Sang-tae of Law Firm Barun said, “In Kookmin Bank’s case, the wage peak system was judged invalid because the procedure for disadvantageous changes in employment rules was not followed, but whether such procedures were followed differs by company, so the impact of this ruling on the industry will be limited.”

Regarding this, Attorney Choi Ji-soo of Law Firm Lin’s HR team said, “It is necessary to judge individually whether each company actually obtained collective consent from workers,” but added, “Given the trend of extending workers’ retirement age, cases where the wage peak system initially introduced as a retirement age extension type was changed to a retirement age maintenance type are not expected to be very rare.”

She further evaluated, “At least for workers in similar factual circumstances as the Southern District Court case above, it is meaningful in that the burden of proof for conditions that were relatively difficult to claim and prove has been reduced.”