"At 56, Both Salary and Work Changed" [Aftermath of the Wage Peak System]

Supreme Court: "No Age Discrimination Without Rational Reason... Constitutes Elderly Discrimination"
Wage Claims Subject to 3-Year Short-Term Statute of Limitations... Extended by 6 Months if 'Certified Mail' Sent

[Image source=Yonhap News]

[Asia Economy Reporter Heo Kyung-jun] Following a Supreme Court ruling that wage peak systems which reduce wages solely based on the 'age' of workers approaching retirement are invalid, companies and employees adopting such age-based wage peak systems without significant changes in job duties are becoming increasingly active.

Although the Supreme Court ruling does not imply that all wage peak systems are invalid, it determined that wage peak systems that reduce wages without adjusting the workload or intensity of tasks previously performed are effectively invalid. Consequently, workplaces operating such wage peak systems are expected to inevitably revise their wage structures.

Attorney Yeo Yeon-sim, a former Supreme Court judicial research officer, highlighted at a seminar titled ‘Contents and Significance of the Wage Peak System Ruling’ hosted by the law firm Jihyang on the 3rd that the Supreme Court regarded the anti-discrimination clause for older workers stipulated in the Act on Employment of Older Persons as a mandatory provision.

Previously, the Supreme Court judged that the former Act on Employment of Older Persons’ provision prohibiting age discrimination qualifies as a mandatory rule. Article 4-4, Paragraph 1 of the Act on Employment of Older Persons states, "An employer shall not discriminate against a worker or a person seeking employment on the basis of age without reasonable grounds," thereby prohibiting age discrimination. Discrimination based solely on age in recruitment, hiring, transfer, promotion, retirement, dismissal, wages, and welfare benefits is considered age discrimination. Even if criteria other than age are applied, if a particular age group is especially disadvantaged, it is also regarded as age discrimination.

Attorney Yeo predicted that the Supreme Court’s criteria for judging the validity of wage peak systems will serve as a basis for assessing the validity of wage peak systems operated by companies in future trials. The Supreme Court presented standards requiring a comprehensive consideration of various factors, including ▲the appropriateness of the purpose of introduction ▲the degree of disadvantage suffered by the targeted workers ▲whether measures addressing wage reductions were introduced and their appropriateness ▲and whether the reduced funds were used for the original purpose of introducing the wage peak system. Attorney Yeo explained that the Supreme Court’s mention of ‘various other circumstances’ indicates that factors not identified in this particular case may also be considered when judging the validity of wage peak systems.

The Korean Electronics Technology Institute, the defendant in the Supreme Court ruling, did not extend the existing retirement age (61 years) with the introduction of the wage peak system, nor did the court find that the job content of employees aged 55 and older, whose wages were reduced under the wage peak system, was changed or that their workload decreased due to lowered target levels.

Due to this wage peak system, plaintiff A experienced a sudden drop from senior grade 20 to grade 50 in competency rating after the system was implemented, regardless of performance. In certain years, the minimum monthly salary decreased from a minimum of 930,000 KRW to a maximum of 2,830,000 KRW depending on performance evaluation results.

Attorney Yeo explained, "Key issues will include whether the wage peak system already introduced by companies justifiably rationalizes differential treatment of certain older workers as in the Supreme Court case, whether adjustments were made to job content, responsibilities, and targets, whether statutory retirement age extension and voluntary retirement qualify as measures addressing wage reductions, and whether plans for the use of reduced funds were disclosed." She added, "In this Supreme Court case, the fourth criterion?‘where the reduced funds were used’?was not disputed, but this issue may be addressed in future labor-management agreements."

In future lawsuits, calculating the wage difference to be reclaimed will also be a significant issue between companies and workers. However, there is no established Supreme Court standard yet regarding the amount to be claimed when discrimination is an issue. From the worker’s perspective, it is necessary to consider whether to claim the wage difference or seek damages for illegal acts.

Since wage claims are subject to a short three-year statute of limitations, retired workers may face limitations on the wages they can reclaim. However, claims for damages due to illegal acts are subject to a three-year statute of limitations from the date the damage was recognized, potentially expanding the scope of claimable amounts. When consulting on wage claim lawsuits, sending a certified letter first can extend the statute of limitations by six months.

Attorney Yeo stated, "In this Supreme Court case, the worker claimed wage differences and retirement pay differences for three years, as well as differences in voluntary retirement pay, which the company did not dispute and were thus accepted as is. However, whether it is possible to simultaneously claim the return of wage differences while asserting the wage peak system is invalid and also claim voluntary retirement pay differences received on the premise that the wage peak system is valid may be contested in future lawsuits."

This content was produced with the assistance of AI translation services.