The Supreme Court recently rendered a meaningful decision on the requirements of valid wage peak systems.  Below is a summary of the key aspects of the decision. 

In a case involving a wage peak system duly adopted by amending the rules of employment (“ROE”) with the necessary consent of a majority union of a company, the Supreme Court ruled that the plaintiff’s (an employee) refusal to accept the wage peak system, which the plaintiff did not consent to, was valid and that the plaintiff’s employment agreement, which provided for a higher annual salary, should take precedence over the wage peak system containing terms that are less favorable than those found in the individual employment agreement (Supreme Court Decision 2018Da200709, November 14, 2019). 

As grounds for such decision, the Supreme Court reasoned that (i) to inversely interpret Article 97 of the Labor Standards Act, a provision in an individual employment agreement that provides a more advantageous working condition than the ROE shall be valid and preferentially applicable over the ROE; and (ii) because the collective consent under Article 94 of the LSA is only a requirement to validly amend the ROE, even if collectiㅎve consent was obtained that allowed for unfavorable terms to be introduced to the ROE, the principle of free decision making with respect to terms of employment as specified in Article 4 of the Labor Standards Act shall still be guaranteed. 

With the above Supreme Court decision, we anticipate that in the future, there may potentially be controversies over the requirements of valid wage peak systems, as the recent ruling effectively provides for a possibility to challenge the applicability of the wage peak system based on the actual terms of the employment agreement—even in cases where such system was adopted with the consent of the majority labor union.