The Supreme Court’s “Wage Peak System” Ruling Viewed Through Q&A

“Could our company’s wage peak system be a problem?” After the Supreme Court ruled that a domestic research organization’s wage peak system was invalid, law firms and labor law firms were flooded with inquiries from companies and workers on the 27th. On the 26th, the Supreme Court ruled that a wage peak system, which reduces employee wages solely based on age without reasonable grounds such as an appropriate reduction in workload or an extension of the retirement age, is invalid for violating the Act on the Employment of Older Persons.

The labor team at the law firm Gwangjang received more than 30 inquiries in a single day on the 27th. Attorney Kang Se-young of Gwangjang said, “We received inquiries from all industries, including manufacturing, public institutions, banks, and the hotel industry,” adding, “They asked about the appropriateness of operating the wage peak system and how to respond going forward.” A lead labor attorney at a labor law firm said, “We are receiving a steady stream of consultation inquiries from workers who retired after being subject to the wage peak system,” adding, “Consulting firms are also in an emergency situation, monitoring workers’ reactions.”

Inquiries from retired workers about the statute of limitations in lawsuits also continued. Attorney Ryu Jae-yul of Law Firm Joongshim said, “If violations of the Act on the Employment of Older Persons are regarded as torts and the statute of limitations of 10 years is applied, workers who have been retired for nearly 10 years can also claim damages for the wage difference lost under the wage peak system.” He added, “In fact, we are receiving ongoing legal inquiries from retirees who have been retired for nearly 10 years.”

There were also many inquiries about whether the workload and intensity had decreased, as mentioned in the Supreme Court’s “reasonable grounds.” In the case of office workers, the question is whether there are objective indicators to measure the workload. Jeon Myung-hwan, CEO of Eon Consulting, a leading comprehensive management consulting firm in Korea, explained, “Before applying a wage peak system in the HR department, it is possible to quantify various in-house job roles in advance through job value assessments.”

It means that the difficulty, importance, and job expertise of each role can be quantified or graded. Jeon said, “It is possible to verify whether workers’ workload and intensity decreased before and after the wage peak system was applied,” adding, “However, it is necessary to have many workers participate in the quantification process and obtain their consent.”

We have organized inquiries and questions from companies and workers regarding the wage peak system in a Q&A format.

▷ Do we each have to handle the lawsuit separately.“It is standard practice to sue the company alone, but workers with similar legal standing may also hire lawyers and file a class-action lawsuit.” There is also the option for a labor union to file a class-action lawsuit on behalf of the employees. However, a collective lawsuit filed by union representatives must be based on a labor-management agreement that the court’s decision applies equally to the workers subject to the wage peak system

▷ Can the portion reduced under the wage peak system be treated as 'unpaid wages' and filed as wage arrears with the labor office.If an employee who judged there was a problem with the company’s wage peak system demanded wage compensation from management and was denied, they may also file a complaint or lawsuit with the labor office. If the labor office deems there is an actual problem with the company, it may also investigate. If the case is referred to the prosecution with a recommendation for indictment (violation of the Labor Standards Act) after investigating the company’s representative and others, the company will become entangled in a criminal lawsuit. However, the feasibility varies depending on the matter."

▷ What is the difference between filing a complaint or complaint with the Labor Office and filing a lawsuit in court.“Unpaid wages are a violation of the Labor Standards Act and are subject to criminal punishment. A lawsuit for unpaid wages is a civil lawsuit. A civil and criminal lawsuit may proceed simultaneously over the same matter."

▷ I retired 10 years ago under a wage peak system. Can I get back the money I didn’t receive."Under civil law, the statute of limitations for a claim to wages is three years. However, if an illegal act under the Act on the Employment of Older Persons is recognized, the statute of limitations for damages will be extended to 10 years. The outcome can vary depending on which statute of limitations the court applies

▷ Can the reduction in workload and intensity after applying the wage peak system be objectively compared and measured.Through job value evaluations within the company, factors such as the difficulty, importance, and job expertise of each job can be categorized into scores or grades. Through this, it is possible to measure and compare changes in workload and intensity."

▷ If job assignments changed after the wage peak system, how can we tell that the workload and intensity have decreased.It can be determined through the job value evaluation mentioned earlier. We also need to examine whether the reduction in workload and the reduction in wages have a proportional relationship. There is also a way to compare the workload, working hours, wages, and so on of other employees performing the changed tasks. It can also be compared with employees working in the same job category at another company

▷ Should the risks of the wage peak system also be considered during corporate mergers and acquisitions (M&A).If the company subject to acquisition is implementing a wage peak system, it is necessary to examine how reasonably the system is being operated in light of Supreme Court precedents. Because there is also a possibility that current and former employees who were subject to the wage peak system after the acquisition may file a lawsuit."

Reporters Choi Jin-seok, Kim Jin-sung, and Kwak Yong-hee iskra@hankyung.com

Source: Hankyung Korea Market. See details