Hello, this is Attorney Choi Jong-ha from Cheongchul Law Firm.
The ‘Wage Peak System’ is a system where the employer gradually adjusts wages on the condition of guaranteeing and extending employment for employees until a certain age, which allows companies to utilize the expertise of workers nearing retirement while minimizing salary burdens. This system has been adopted by various large corporations and public institutions. Of course, even relatively small companies have introduced the wage peak system to reduce costs related to continuing to employ workers whose retirement age has been forcibly extended due to the Employment Improvement Law for Older Persons (“Older Persons Protection Act”), which sets a minimum retirement age of 60 for all employees.
This wage peak system can be broadly divided into ‘retirement guarantee type or retirement maintenance type wage peak system’ and ‘retirement extension type wage peak system.’ The former refers to “a system that adjusts wages with the premise that the employer guarantees (maintains) the retirement age as specified in the work rules,” or “when the wage peak system is implemented without changing the retirement age,” while the latter means “a system that adjusts wages with the premise that the employer extends the retirement age as specified in the work rules,” or “when the wage peak system is introduced based on the timing at which the parties agreed to introduce it as a measure accompanying the extension of retirement age.”
At this time, whether the wage peak system is a measure accompanied by the extension of retirement age should be judged by whether there is an organic relationship between the introduction of the wage peak system and the extension of retirement age. Therefore, if the parties introduced the wage peak system against the backdrop of an extension of retirement age, it can still be viewed as the retirement extension type wage peak system even if the retirement extension and wage peak system were not introduced simultaneously. In particular, before the amendment of the Older Persons Protection Act on May 22, 2013, the retirement age was below 60, but if the wage peak system is introduced after the revision of the Older Persons Employment Act, which mandated a retirement age of 60, it can be deemed as the retirement extension type.
It is important to note that even if the procedures such as agreements between labor and management or changes in work rules have been followed, the wage peak system may be invalid (that is, it may be necessary to pay the wages that have not been reduced). The Supreme Court's ruling on May 26, 2022, in case 2017Da292343 stated, “If the employer implements a so-called ‘wage peak system’ that reduces wages for a certain period before retirement while maintaining the employee's retirement age, there is no reasonable basis for discrimination based on age, and whether that action is invalid should be judged by considering various circumstances such as the validity of the purpose of introducing the wage peak system, the degree of disadvantage to employees affected, the introduction and appropriateness of measures against wage reduction, and whether the funds reduced by the wage peak system were used for its original purpose.” Furthermore, the relatively recent ruling of the Supreme Court on July 11, 2024, in case 2023Da213556 also denied the validity of the retirement maintenance type wage peak system based on this legal principle.
Most companies adopt a model of reducing wages by 10% each year through the wage peak system, so it is common to reduce about 60% of one year's salary over three years (10% in the first year, 20% in the second year, 30% in the third year). Conversely, this means that if the wage peak system is invalid, the employer must pay 60% of the employee's annual salary in a lump sum, which could become a significant amount depending on the validity of the wage peak system. If you have introduced or are subject to the wage peak system, it would be necessary to review the validity of the wage peak system in the workplace.
