Recent Court Decisions On The Peak Wage System In Korea ' Focusing On Violation Of The Act On Prohibition Of Age Discrimination In Employment And Elderly Employment Promotion

• Law Firm: DR & AJU LLC
• Subject Matter: Employment and HR, Discrimination, Disability & Sexual Harassment, Retirement, Superannuation & Pensions, Employee Benefits & Compensation, Employee Rights/ Labour Relations
• Author: Ms Kyung Hee KWON
• Published date: 02 January 2023

1. Overview

The peak wage system is a system that gradually reduces the salary of employees while guaranteeing employment in exchange. The system was first implemented domestically in the Korea Credit Guarantee Fund in 2003. Following the amendment of the Act on the Prohibition of Age Discrimination in Employment and Elderly Employment Promotion ('Elderly Employment Act') in 2013, which increased the retirement age to 60, the Korean government accelerated the widespread adoption of the peak wage system by the public sector by presenting the 'Peak Wage System Guidelines' in May 2015.

2. Peak Wage System Types

The peak wage system can be classified into three types: i) the 'retirement-age guarantee', which guarantees employment until the retirement age stipulated in collective agreements and rules of employments, but adjusts wages from a certain age; ii) the 'retirement-age extension', which extends the employee's retirement age, but adjusts the wages for the years extended prior to retirement; and iii) the 'employment extension,' in which extends employment by rehiring the employee as a contract worker after the employee retires at the retirement age.

3. Whether Article 4-4(1) of the Elderly Employment Act which prohibits age discrimination, is a mandatory provision

The purpose of the Elderly Employment Act is to contribute to the employment security of the aged and to the development of national economy by preventing discrimination in hiring practices on the grounds of age without justifiable grounds and supporting and promoting the employment of the aged to ensure they have occupations suitable for their abilities (Elderly Employment Act, Article 1).

In particular, Article 4-4(1) of the Elderly Employment Act fundamentally prohibits discrimination on the grounds of age.

Article 4-4 (Prohibition on Age Discrimination in Recruitment, Employment, etc.) (1) Employers shall not discriminate against any of their workers or any person who wishes to work for them, on the grounds of age without justifiable grounds in the following areas: 1. Recruitment and employment; 2. Salary, provision of money and valuables other than salary, or other welfare benefits; 3. Education and training; 4. Placement, transfer, or promotion; 5. Retirement or dismissal. (2) Any markedly disadvantageous result caused to a certain age group as a result of applying standards other than age without justifiable grounds is deemed age discrimination.

On whether the regulations above are compulsory provisions (provisions which have effect notwithstanding to the will of the parties. The Korean Civil Act renders legal acts that violate these provisions illegal and void), the Court held that 'considering the legislative...