Risk of a Second Regular Wage Crisis... Concerns Over Litigation Surge Following Wage Peak System Backlash

FKCCI Seminar on "Key Issues and Response Strategies Regarding the Supreme Court Ruling on the Wage Peak System"

[Asia Economy Reporter Park Sun-mi] Since the Supreme Court ruled on the 25th of last month that the wage peak system, which reduces wages solely based on age without reasonable grounds, is invalid, concerns have grown that labor-management conflicts will be triggered and a flood of lawsuits will ensue.

On the 8th, the Federation of Korean Industries (FKI) held a seminar to review the main points and anticipated issues of the Supreme Court ruling on the wage peak system and to explore future corporate response measures and policy improvement tasks.

Kwon Tae-shin, Vice Chairman of the FKI, said in his opening remarks, “The Supreme Court’s criteria for invalidating the wage peak system based solely on age include the legitimacy of the introduction purpose, the degree of disadvantage suffered by workers, and whether measures such as workload adjustments were implemented. These are issues where labor and management positions inevitably diverge sharply,” adding, “This ruling is expected to trigger labor-management conflicts in industrial sites where the wage peak system has already been introduced and operated through labor-management agreements.”

At the seminar, Attorney Kim Do-hyung of Yulchon LLC gave a keynote presentation on “Understanding the Supreme Court Ruling on the Wage Peak System,” and Attorney Lee Kwang-sun of Jipyong LLC presented on “Issues of the Supreme Court Ruling on the Wage Peak System and Corporate Response Measures.” The final session featured a panel discussion with Professor Choi Jun-seon, Professor Emeritus at Sungkyunkwan University, and Professor Lee Sang-hee of Korea Polytechnic University.

Attorney Kim, the first keynote speaker, explained, “The Supreme Court presented four criteria for judging the validity of the wage peak system introduced while maintaining the retirement age: ▲the appropriateness of the introduction purpose, ▲the degree of disadvantage suffered by workers, ▲whether measures such as workload adjustments were implemented, and ▲whether the funds reduced by the wage peak system were used for their original purpose. The issue in this ruling was that the wage peak system was introduced to improve management efficiency by alleviating labor cost burdens, lacking legitimacy in its purpose, and that measures such as changes in work content to respond to wage reductions were insufficient.”

He added, “Although this ruling concerns the ‘retirement age maintenance type’ wage peak system introduced before the mandatory retirement age of 60 was enforced by the 2013 amendment to the Elderly Employment Act, the criteria presented by the Supreme Court are expected to influence the validity assessment of wage peak systems implemented alongside retirement age extension measures after the legal amendment. In such cases, courts should fully consider the background of implementation following the legal amendment when judging the appropriateness of the wage peak system’s purpose, and be cautious in denying its validity unless the implementation is manifestly unreasonable.”

Attorney Lee, the second keynote speaker, mentioned, “There are ambiguous points to be judged, such as whether ▲the Supreme Court’s validity criteria apply to the retirement age extension type wage peak system, ▲how to assess the validity of wage peak systems introduced after the mandatory retirement age extension (January 2016), and ▲which statute of limitations applies to wage claims resulting from the invalidation of the wage peak system?whether the wage claim period (3 years) or the tort damage claim period (10 years). On top of this, a wave of lawsuits from labor unions is anticipated, leaving companies bewildered.”

During the panel discussion following the keynote presentations, Professor Choi pointed out, “This ruling is limited to the retirement age guarantee type wage peak system, but some parts of society are interpreting it self-servingly to encourage lawsuits,” and argued, “Since the wage peak system was inevitably introduced to ensure employment stability for older workers and job opportunities for youth in a reality where wages are rigid downward, policy improvements such as easing the procedures for changing employment rules to allow changes with the consent of individual labor contracts or worker representatives at the job group or rank level should be prepared when reforming wage systems including the wage peak system.”

Professor Lee, who also participated in the panel discussion, stated, “Korean companies mainly use the seniority-based wage system, which is among the highest in wage seniority worldwide. As we enter an era of low growth and aging, issues such as youth unemployment and the sustainability of the seniority-based wage system have emerged. Unless fundamental wage system reforms are made, the wage peak system is indispensable,” emphasizing, “The government should promote job- and performance-based wage systems by expanding infrastructure for job and wage information and increasing support for wage system reform consulting. Efforts such as providing explanatory sessions are also necessary to prevent instability in industrial sites due to this ruling.”

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