International Labor & Employment Law Committee Newsletter

Issue: May 2013

Editor: Tim Darby | Africa and Middle East Editor: Karen Seigel | Asia and Oceania Editor: Ute Krudewagen | Canada Editor: Gilles Touchette | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Law Student Editor: Irene Lehne, Earle Mack School of Law at Drexel University | USA: Trent Sutton

South Korea

Mandatory Minimum Retirement Age Set at 60 by Amendment to Age Discrimination Statute

Ki Young Kim, Kim & Chang, Seoul, South Korea

The minimum retirement age of 60 is being changed from a recommendation to a statutory requirement and related changes to salary systems and other arrangements are being made under an amendment to the Act Regarding Anti-Discrimination Against Age and Employment of Elderly Persons (the "Amended Act") approved by the National Assembly on April 30, 2013.

Until now there has been no specific statutory retirement age that is mandatory but when the Amended Act becomes effective, companies will be statutorily required to set the retirement age at no younger than age 60. Any company with a retirement age below 60 will be deemed to have set the retirement age at 60. On the other hand, if the retirement age is extended to 60 or above, the employer and the majority labor union (or, if the company does not have a majority labor union, the majority representative of the employees) must comply with certain statutory requirements, such as adjusting the salary system, to accommodate the retirement age extension.

The effective date of the Amended Act will depend on the number of employees in a given workplace. For businesses, workplaces, governmental offices, and local public enterprises with 300 or more full-time employees, the Amended Act will come into effect as of January 1, 2016. For places with less than 300 full-time employees, the Amended Act will become effective on January 1, 2017.

To overcome the financial burden as a result of this extension of the statutory retirement age, companies may have to consider restructuring their workforce to increase efficiency and also introducing a salary peak system or a performance-based salary system. Under a salary peak system, an employee's salary would start to decrease after the salary peak age so that companies can mitigate the financial burden due to the extended retirement age. The underlying concept is that after a certain age, employees' productivity will drop, while without the peak age approach their salaries will continues to increase every year under the Korea's traditional salary-step system. The performance-based salary system would likewise allow employers to account for any actual productivity drop by changing salary accordingly.

Corporate Exposure and Job Losses Seen Resulting from Burgeoning Litigation Following Supreme Court Ruling Including Fixed Bonuses in Definition of Ordinary Wages

Ki Young Kim, Kim & Chang, Seoul, South Korea

The Korea Employers Federation has issued a financial impact report1 estimating an immediate loss of KRW 38 trillion and an annual exposure of KRW 8 trillion going forward for affected companies, together with a loss of 400,000 jobs with annual job losses of 90,000 going forward, as a result of a 2012 Supreme Court decision2 expanding the scope of "ordinary wages," due to the large number of lawsuits filed in the wake of the decision.

Following the Supreme Court ruling, there has been an increase in lawsuits filed by employees across industries (e.g., automobile, airline, shipping, maritime, financial, etc.) through which employees are seeking to have their fixed bonuses included in the calculation of their ordinary wages. This is because "ordinary wages" are used in the calculation of statutory benefits (overtime, nighttime, holiday work allowance and annual leave allowance).

In March 29, 2012, the Supreme Court of Korea decided that the fixed bonus portion of employee compensation should be included in the calculation of "ordinary wages." While the general trend of the courts was to take an expansive view of what constituted ordinary wages, this Supreme Court decision was the first time that the Supreme Court explicitly ruled that fixed bonuses should also be included in the calculation of "ordinary wages."

The courts are expected to continue the trend in expanding the scope of ordinary wages. As a result, the financial impact of this decision on the affected companies may continue to pose a significant challenge to their sustainability because company reserves will need to be appropriated so that companies can meet their increased employee payment obligations, including those incurred in the past and future.

This decision and the other standards which the courts have used to expand the scope of ordinary wages have a direct impact on how companies organize their employee payment schemes. Given this decision and the recent court trends, attorneys representing employers are recommending that companies re-assess their employee payment schemes in Korea. As regards past wages, employer-side attorneys are recommending that affected companies should work with their labor unions (under POA from each employee) on how to identify which items must be included in the ordinary wages given this court decision and the economic situation of the particular company. Such attorneys also are recommending that for the future, companies should analyze how this decision and the recent court trend may affect their employee payment liabilities in the future.

1The report is titled Analysis of the Financial Impact of Expanding the Scope of Ordinary Wages.

12010 Da 91046.


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