"Response Measures? The Path Lies in Similar Precedents" [Wage Peak System Aftermath]

[Asia Economy Reporter Kim Daehyun] On the 26th of last month, the Supreme Court ruled that the 'retirement age guaranteed (maintenance type) wage peak system,' which reduces wages solely based on age without reasonable grounds, is invalid. According to the legal community on the 5th, companies and workers are reviewing this ruling along with other wage peak system precedents to establish future response measures.

Attorney Yeo Yeon-sim of the law firm Jihyang, a former Supreme Court researcher, held an online seminar on the 2nd and said, "To determine whether the wage peak system already introduced or to be introduced will cause problems, it is necessary to apply and examine each of the various standards set forth by the Supreme Court." The standards presented by the Supreme Court include ▲the legitimacy and necessity of the introduction purpose ▲the extent and duration of actual wage reduction ▲appropriateness of the target (compensation) measures ▲and whether the reduced funds were used for the intended purpose.

◆ "When introduced following the 2015 government recommendation, 'age-based discrimination' is less likely to be recognized"

Most companies have already extended the retirement age to 60 and restructured their wage systems in accordance with the 2016 amendment to the Elderly Employment Act, implementing the 'retirement age extension type' wage peak system. This means reducing wages from a certain age while extending the retirement age. Although wages are reduced from a certain age, the method guaranteeing employment until retirement age is called 'retirement age guaranteed type,' and the method of reemployment for a certain period after retirement is called 'employment extension type.'

Some public institution workers subject to a mixed wage peak system have also filed lawsuits demanding payment of the reduced wages.

First is the case of Corporation A. Around 2015, while extending the retirement age for some employees, the wage peak system was introduced for all employees. Approximately 80.5% of the previous wages were paid annually for three years. This was a mix of the retirement age extension type and retirement age guaranteed type. However, employees in grades 1 and 2, whose retirement age was not extended, raised complaints. Employees in grade 3 and below, whose retirement age was extended to 61, argued that appropriate compensation measures were made, but they themselves were not subject to the retirement age previously set at that age.

The court ruled there was no problem. It found no violation of Article 19-2, Paragraph 1 of the Elderly Employment Act, which states that "the employer of a business or workplace extending retirement age and the labor union representing the majority of workers must take necessary measures such as restructuring the wage system according to the conditions of the business or workplace." Although the initial goals were not fully met, the court also considered the annual increase in new hires.

Corporation B also introduced a mixed wage peak system as a two-year program around the same time, paying 75% of wages in the first year and 70% in the second year. The court also found no issue, ruling that "when the wage peak system is implemented to promote employment of a specific age group such as youth," it cannot be considered age discrimination. Since support measures were taken to maintain and promote employment of specific ages and groups, it falls under the "exception to discrimination" stipulated in Article 4-5 of the Elderly Employment Act.

Attorney Yeo analyzed, "The 2015 'Public Institution Wage Peak System Recommendation' was established with the purpose of creating new employment through the wage peak system. According to the recommendation at that time, when the wage peak system was introduced in a form that guarantees or extends retirement age, claims of 'age-based discrimination' seem to be relatively less accepted."

◆ Increased attention on IBK lawsuit pending Supreme Court ruling... "Large annual wage reduction rates"

The legal community is paying close attention to the lawsuit of IBK Industrial Bank currently pending before the Supreme Court. Like previous cases, a mixed wage peak system was introduced, but the annual wage reduction rates are relatively large.

For employees in grade 3 and above at this bank, whose retirement age was extended from 58 to 60 in 2009, the first year of wage peak system application paid 90% of wages, but by the fifth and final year, only 30% was paid. Nineteen employees born in 1961 filed a wage claim lawsuit in 2019, arguing that "while employees born in 1961 receive 260% (grade 3 and above), 300% (grade 4), and 320% (grade 5) of wages over the five years before retirement under the previous wage peak system, employees born in 1964 receive 395% over the same period, resulting in severe age-based wage discrimination."

The first and second instance courts did not accept the employees' claims. They judged that "there were reasonable grounds for establishing transitional provisions when implementing the wage peak system, so it is difficult to see that the defendant discriminated against the plaintiffs based on age without reasonable grounds."

The second instance court stated, "Although it is true that the employees received significantly lower wages compared to regular workers of other age groups who were subject to the wage peak system's application period and wage payment rates, it is not unfair to gradually change the application period of the wage peak system over time." It also added, "The system was implemented after consultations with the Ministry of Strategy and Finance and the Financial Services Commission, and based on agreements with the labor union."

Unlike the A and B corporation cases, where the appeals were dismissed without substantive review and the workers' losses were confirmed, this lawsuit's appeal is still pending before the Supreme Court. Ultimately, the final judgment is expected to be made based on the recent standards set forth by the Supreme Court.

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