Conflict intensifies between labor and management over peak wage system

By Kim Hyun-bin

Tensions between management and labor unions have been growing, following a recent Supreme Court ruling that the current peak wage system is tantamount to age-based discrimination as it cuts wages after a certain age without a rational reason, according to industry officials.

Unionized workers at large companies are demanding the abolition of the peak wage system, while management insists on maintaining the measure, claiming it is needed to hire more young workers as the country's population continues to age. The peak wage system guarantees the employment of workers by gradually reducing wages through the adjustment of working hours from the point when a worker reaches a certain age.

The peak wage system was introduced in 2009 to retain employees facing retirement at lower wages, while freeing up more capital to hire younger workers. The system is divided into two types: a retirement age extension, which increases the retirement age instead of a wage reduction, and a retirement age maintenance, which leaves the retirement age as it is and reduces wages. Most businesses have introduced extended retirement age measures.

"About 90 percent of companies do not have to worry as the Supreme Court ruling does not apply as they extended the retirement age," Kim Dae-jong, a Sejong University business professor said. "There are some companies that have requested the same workload from an employee, but cut their pay just because of their age and the Supreme Court deemed these instances as being illegal. However, it's legal for a company to reduce an employee's workload and cut their pay."

However, labor unions have been sending official letters to management to abolish the peak wage system.

The joint bargaining group of Samsung Electronics' four labor unions sent a letter to management recently to specify their position on the Supreme Court's decision and threatened to take legal action if the system is not abolished.

"We demand the abolition of the current peak wage system, which simply places age restrictions without consideration of work description and qualifications. It is clearly discriminatory," the union wrote in the letter. "We will also demand compensation from the company for monetary damages caused by the unreasonable operation of the peak wage system."

Samsung responded to the union's position by saying, "The company implemented a peak wage system that extends the retirement age, and it is irrelevant from the recent Supreme Court ruling."

Samsung Electronics introduced the peak wage system in 2014 by extending the retirement age from 57 to 60.

Unions affiliated with major domestic conglomerates, such as SK Hynix and Hyundai Motor, have also demanded the abolition of the peak wage system after the Supreme Court ruling.

Legal experts believe the ruling will need to be reviewed by individual corporations to see if the changes apply to them.

"As this Supreme Court ruling does not deny the effectiveness of the peak wage system itself, companies need to review it individually," Kim Dong-wook, an attorney at Shim & Kim said. "If the legal battle over the peak wage system continues, regardless of victory or defeat, it will increase uncertainties for businesses and act as a stumbling block for future employment expansion."

Businesses voice concerns over court ruling

The Korea Chamber of Commerce and Industry (KCCI), a business lobby group, also expressed concerns over the ruling.

"The peak wage system was necessary under the seniority-based pay system," said Kang Seok-gu, head of the KCCI's research division. "If it is nullified, employees both young and old will face job insecurity."

The Korea Enterprises Federation (KEF) emphasized the purpose of the peak wage system, which was introduced to prevent older workers nearing retirement age from losing their jobs abruptly while creating jobs for young people.

"We hope that the court will be prudent in forthcoming rulings, considering the possible impact of its rulings on businesses," the KEF said in its statement.

The peak wage system has been introduced in a number of countries, such as Japan, where the seniority-based wage structure is predominant. In 10 European countries, including Sweden, the working hours of older workers are gradually reduced to prepare for retirement. The reduced income due to shorter working hours is compensated by the government through the social security system.

On the other hand, in the U.S., where an annual salary contract is signed each year, the peak wage system is not implemented and wages can be lowered according to one's performance.

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