Peak-wage system court ruling piques the interest of unions

"I'm worried about the retirement" is displayed on a digital signboard in Jung District, central Seoul. [YONHAP]

Unionized workers at big corporations are using a recent Supreme Court decision on the "peak-wage system" to argue that the system should be scrapped and that they should be allowed to continue working a few years beyond retirement age and receive full salaries.

Under the peak-wage system, workers who would normally be forced to retire are employed for about three years at a reduced wage.

In the May 26 ruling, the court ruled that a plaintiff should be paid for income lost under a peak-wage arrangement.

The Supreme Court said that if wages are cut it has to be for an appropriate reason, such as the extension of the retirement age. It added that the peak-wage system may still be legal depending on the facts and circumstances in each case, such as the purpose of adopting the system, the justification for the cut, necessity and the level of the cut.

On May 27, a district court ruled that a peak-wage arrangement by Korea Power Exchange was legal.

On the day of the Supreme Court ruling, a union at Samsung Display demanded the company make its stance clear regarding the peak-wage system. The union plans to communicate with worker groups at other companies about the stance.

A Samsung Electronics union also came forward, saying that it "has been demanding the abolition of the peak-wage system to the company since last year," and "the company should remove the peak-wage system based on the Supreme Court ruling."

SK hynix unionized office workers said that they will include the abolition of the peak-wage system in its wage negotiation proposal. The company adopted the peak-wage system in 2015, extending the retirement age while cutting the wage by 5 percent every year after an employee turns 58.

A union of office workers at LG Electronics said that it would "negotiate with the company to raise the age that the peak-wage system begins to take effect, and reduce the amount of the cut."

LG Electronics cuts 10 percent of the wage every year for three years when an employee turns 58.

Samsung Electronics moved up the age that the peak-wage system is introduced from 55 to 57 in 2020. It cuts 5 percent a year.

Hyundai Motor employees do not get a pay raise starting from 59. The wage is cut only once, by 10 percent, when they turn 60, which is the legal retirement age.

The majority of the companies that adopted the peak-wage system raised the retirement age in exchange for the wage cut, and rarely adjusted other conditions, such as the level of work, working hours or positions. In most cases, the wage cut lasts for about two to four years before the retirement age of 60, with the level of the cut ranging from five to 10 percent a year.

If an employee takes his or her case to court citing an excessive level of the cut and wins the case, companies would be obligated to pay all the salary and bonuses lost.

"It would be considered unacceptable when the level of the cut exceeds more than one-third of the regular wage, based on common sense," said Park Ji-sun, a law professor specializing in labor law at Korea University.

BY KIM KI-CHAN, SHIN HA-NEE [shin.hanee@joongang.co.kr]