Advancing our wage system

The Supreme Court last week upheld lower court rulings that the so-called peak wage system, or cutting wages when employees reach a certain age, is invalid.

The Supreme Court last week upheld lower court rulings that the so-called peak wage system, or cutting wages when employees reach a certain age, is invalid. The top court agreed with the plaintiff who demanded his former employer Korea Electronics Technology Institute (KETI) pay the salary he lost as a result of the peak wage system. The plaintiff claimed the system violated the Act on Prohibition of Age Discrimination in Employment and Aged Employment Promotion by cutting his wage just because of his age. The highest court’s ruling could spark similar lawsuits against employers as the peak wage system aimed at keeping employees until the legal retirement age in exchange for a lower salary is adopted in most companies in Korea.

The KETI’s retirement age is 61. But since the peak wage system was promoted under President Lee Myung-bak in 2009, the institute employed the peak wage system on employees from the age of 55. The employee claimed his salary decreased since 2011 until he filed for early retirement in 2014.

The Supreme Court said that as the peak wage system was designed to aid management, it cannot justify a salary cut to employees aged 55 years and older. It found discrimination in the salary cut when work levels and performance expectations remained the same. The ruling has set the first legal grounds in the employment of the peak wage system.

The ruling said that the peak wage system should be judged by its cause, necessity and the level of disfavor to the subject employees and by whether funds saved from the system have been used for the purpose of the system.

The ruling does not affect the companies that had adopted the wage system while extending their retirement age to 60. But the labor community found the system not helping increase jobs for the young, but only reduced salaries of workers of seniority.

The peak wage system is used by all public enterprises and broadly by private companies. The cause had been to prevent layoffs of workers of seniority and enable more jobs for young people. The system has been touted as an arrangement for mutual benefit across the age.

If the peak wage system is scrapped, employers would have to increase new recruits. Mechanical adoption of the system could lead to a loss of good labor force. The ruling calls for a fundamental change in our work culture for payment based on performance rather than seniority. The public and private sector must work on advancing our wage system to lessen the wasteful dispute on the labor front.