The Supreme Court ruled on May 26, 2022 that a wage peak system constituted age discrimination without just cause under Article 4-4 (1) 2 of the Act on Prohibition of Age Discrimination in Employment and Elderly Employment Promotion (“Elderly Employment Act”) and was therefore invalid. In the ruling, the Supreme Court held that the following factors should be comprehensively considered to determine the validity of a wage peak system: (i) validity of the purpose of introducing the wage peak system; (ii) extent of the disadvantages suffered by employees; (iii) whether to have introduced countermeasures for wage reductions and the appropriateness of such countermeasures; and (iv) whether financial resources (i.e., savings) generated as a result of the wage peak system were actually used in accordance with the intended purpose of introducing such system (Supreme Court Decision 2017da292343, May 26, 2022, hereinafter “Supreme Court Decision”).
 
Since that time, however, many questions have been raised as to how to interpret the aforementioned factors cited in the Supreme Court Decision, particularly regarding whether to maintain the retirement age (given the finding of age discrimination by the Supreme Court) can be considered in determining the validity of a wage peak system to extend the retirement age. After the above ruling, there have been subsequent legal disputes over the validity of a wage peak system in various workplaces such as the financial industry, public institutions, and the telecommunications industry. Below are some notable court decisions related to this issue:
 

Since the validity of a wage peak system is determined by considering various factors as noted above, there is no clear standard in determining the validity of a wage peak system. Nevertheless, the following position can be confirmed based on court precedents over the past one and a half year:
 

• The legal principles for determining the validity of a wage peak system, as established in the Supreme Court Decision, can be applied to both maintaining the retirement age and extending the retirement age under the wage peak system.

• In terms of extending the retirement age under a wage peak system, some courts have ruled that extension of the retirement age was the most significant measure itself and the wages paid for the extended working period were the most important use of the reduced labor costs. Therefore, it is highly likely that a wage peak system to extend the retirement age will be considered more valid by the court rather than a wage peak system to maintain the retirement age.

• However, it should be noted that even in the case of wage peak systems to extend the retirement age, we note that if the resulting wage reductions are excessive and significant over a short period of time from implementation, the validity can be deemed invalid. Recently, the courts have shown a tendency to compare “the changes in employees’ total wages before and after extension of the retirement age” in order to make their decision.

• In case of a wage peak system to maintain the retirement age, if the wage reduction is not significantly detrimental to the employees in terms of the extent, duration, total amount of wages reduction, and sufficient countermeasures have been taken, the validity can be recognized by the court.
   

If a wage peak system is to be introduced in the near future or legal disputes over an existing wage peak system are expected to arise, it would be helpful to decide whether to introduce a wage peak system and conduct an interim review and inspection on the wage peak system already in effect in light of the court’s recent stance as described above.

[Korean Version]