At a glance
- South Korea’s Supreme Court validated a bank’s wage peak system, rejecting claims of ‘age discrimination’.
- The system adjusts salaries of employees over 55, with a total payment rate of 290% over five years.
- The court cited the bank’s right to hire experienced employees and reduced workload under the system.
- This decision sets a precedent for wage peak systems in the financial sector.
This article has been reproduced with the permission of the authors Hakjoon Kim, Dong Min Cho, Paul Cho and Hoin Lee at Kim & Chang.
The Supreme Court ruled on 14 March 2024 that the wage peak system of a large national bank in Korea (Bank) did not constitute ‘age discrimination without just cause’ under the Act on Prohibition of Age Discrimination in Employment and Elderly Employment Promotion (Elderly Employment Act) and therefore is valid.
In this case, the Bank initially introduced a wage peak system as of 31 December 2004 together with an extension of the Bank’s retirement age from 58 to 59. For the first year of its wage peak system, the Bank applied 90% of the base salary from the immediately preceding year (Base Salary) for those employees who had reached the age of 55. The applicable Base Salary was then 75% for the second year, 50% for the third year, and 40% for the fourth year. Subsequently, the wage peak system was amended as of 25 January 2008, extending the retirement age from 59 to 60, and the Bank applied 35% of the Base Salary for the fifth year. As a result, the total payment rate over the past 5 years was 290% of the Base Salary.
The employees who contested the validity of the Bank’s wage peak system (Petitioners) argued that it constituted age discrimination without just cause under the Elderly Employment Act. However, the lower court ruled that it was not age discrimination for the following reasons, and the Supreme Court affirmed the lower court’s decision without a hearing.
- The purpose of the Bank’s wage peak system seems reasonable, as the employees have been guaranteed continued compensation based on the extension of their retirement age. In addition, the Bank as an employer has the right to hire employees with vast experience and skills under an efficient labour cost system.
- As for the payment rate of the Base Salary under the wage peak system, prior to the introduction of the wage peak system, the Petitioners were entitled to 300% (100% x three years) of the Base Salary from age 55 to 58. However, after implementing the wage peak system, the employees were paid 290% of the Base Salary from the age of 55 to 60, and the total amount of the Base Salary was reduced by only 10% (300% - 290%). However, the Petitioners actually received more in wages including incentives and allowances after implementing the wage peak system.
- The employees subject to the wage peak system have worked fewer hours and have performed less burdensome tasks than before the wage peak system was introduced.
Additionally, the Petitioners argued that since the Elderly Employment Act was amended in 2013 and the mandatory retirement age had already become 60, such a wage peak system functions as a ‘Maintenance of the Retirement Age’, rather than an ‘Extension of the Retirement Age’. The Petitioners further argued, therefore, that the wage peak system in this case constituted a disadvantageous change to the company’s Rules of Employment. However, the lower court did not agree that the amended Elderly Employment Act resulted in making the wage peak system an immediate unfavourable change to the Rules of Employment, and the Supreme Court upheld the lower court's decision.
The Supreme Court’s decision above will be an important precedent for determining the legitimacy of the wage peak system in the financial sector, which has a number of controversial issues in this regard.
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