Key Issues Companies Must Understand Regarding Wage Peak Systems
Concept and Legal Nature of the Wage Peak System
A wage peak system is a scheme under which an employee’s wages are gradually reduced after reaching a certain age, in exchange for maintaining or extending employment until the mandatory retirement age.
Against the backdrop of an aging workforce and policies favoring longer employment, many companies adopt wage peak systems as a means to mitigate rising labor costs.
However, this system is not merely an internal HR policy. Because it entails a fundamental change to core working conditions, operating a wage peak system without proper legal review can expose a company to significant dispute risks.
Not all wage reductions are justified simply by labeling them as a “wage peak system.” Whether such a system is lawful depends on how it is designed and implemented in practice. Companies are therefore advised to carefully review the points below before proceeding.
Key Legal Issues in Practice
In practice, the problematic issues are quite clear:
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Whether wage reductions based on age constitute “unreasonable discrimination” prohibited under the Act on Prohibition of Age Discrimination in Employment and Promotion of Employment of Older Persons
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Whether the scale of wage reduction and the period of application are excessive
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Whether corresponding measures—such as reductions in workload, responsibilities, or changes in job duties—have actually been implemented to offset the wage reduction
Many companies focus solely on adjusting wages, while treating accompanying measures such as workload reduction, job reassignment, or reduced working hours as a mere formality—or failing to implement them altogether.
In such cases, the wage peak system can become the starting point of serious disputes, regardless of its stated purpose. These issues often extend beyond labor disputes and escalate into civil claims for unpaid wage differentials, making them far from trivial.
Summary of Supreme Court Standards
In determining the validity of a wage peak system, the Supreme Court comprehensively considers the following factors (Supreme Court Decision dated May 26, 2022, Case No. 2017Da292343):
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The legitimacy of the purpose for introducing the wage peak system
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The extent of disadvantage suffered by the affected employees
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Whether measures corresponding to the wage reduction were introduced, and whether such measures are appropriate
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Whether the financial resources saved through the wage peak system were used for its original intended purpose
If any one of these elements is lacking, the wage peak system may be deemed invalid as age-based discrimination. In practice, there have been numerous cases where companies were required to retroactively pay substantial amounts of unpaid wages despite having implemented such systems.
In particular, Korean courts distinguish between “retirement-extension-type” and “retirement-maintenance-type” wage peak systems. Where wages are reduced without extending the retirement age (the retirement-maintenance type), the likelihood of invalidation is significantly higher unless a clear and reasonable justification exists. Such systems therefore require especially careful design.
Ultimately, a wage peak system that merely satisfies formal requirements can result in serious financial and legal liabilities for the company.
Practical Checkpoints for Companies and Decent Law Firm’s Support
When operating a wage peak system, companies should comprehensively review the following points:
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Whether amendments to the rules of employment were properly approved in accordance with Article 94(1) of the Labor Standards Act, including obtaining consent from a labor union representing a majority of employees
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Whether individual consent from affected employees is required
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Whether substantive and practical measures corresponding to wage reductions have been established and are actually being implemented
Even if a wage peak system is already in place, it is necessary to reassess whether the current operation complies with judicial standards.
Responding after a dispute has arisen inevitably involves higher costs and risks.
Accordingly, conducting legal review at the system design stage or during operational audits is the most practical way to protect the company.
Decent Law Firm provides practical legal support tailored to each company’s organizational structure and HR framework, drawing on extensive advisory and dispute resolution experience with wage peak systems, led by attorneys with prior labor law and HR expertise.
If your company is already involved in this issue or requires proactive risk management, we strongly recommend seeking legal advice—even on a preliminary basis.
