법무법인(유한) 율촌 | Yulchon LLC

Yulchon successfully represented company A and won a lawsuit raised by its current and former employees seeking invalidation of company A’s peak wage system which was instituted by labor-management agreement and claiming unpaid wages.

After the Act on Promotion of Elderly Employment legally requires companies to guarantee a retirement age of 60 in 2013, company A’s management and labor union introduced the peak wage system that gradually cuts salaries for senior workers (by 10% at the age of 56, 20% at 57, 30% at 58, and 40% at 59) by agreement in 2016 (the “Agreement”).

The crux of this case involved: (i) whether the collective agreement made without resolution of the general meeting of union members is effective against third parties, (ii) whether company A’s peak wage system amounts to discrimination based on age, exceeding the limitations immanent in a collective agreement, (iii) whether the Agreement is an abuse of power and (iv) whether the peak wage system is unfavorable to employees compared to their individual employment contracts, which would warrant nullity of the peak wage system by the principle of applying more favorable terms to employees.

The Seoul Central District Court, after fully examining Yulchon’s arguments, dismissed the claims of the plaintiffs on the grounds that (i) the Agreement is binding and effective against third parties despite the absence of a general union meeting resolution; (ii) even in light of the case law of the Supreme Court, the peak wage system cannot be deemed as age discrimination without justifiable reasons which would violate the relevant employment law, nor as unreasonably exceeding the limitations inherent to a collective agreement; (iii) the Agreement does not involve an abuse of power as it was an outcome of substantive labor-management negotiation despite violation of certain procedures; and (iv) the principle of applying more favorable terms cannot be applied here given that, in this case, there are no individual contracts that can be compared to the collective agreement or employment rules of company A.

This case drew a lot of attention from industries because it was the first decision of a lower court rendered in reference to the recent decision of the Supreme Court which ruled against the peak wage system. This case is particularly significant as the lower court upheld the validity of the peak wage system, rendering a different decision yet based on the principles set out by the Supreme Court.