Exclusive
"Flaws in Employee Consent Process": HDC Hyundai Development Company Loses Wage Peak System Invalidity Lawsuit

[비즈한국] It has been confirmed that employees of HDC Hyundai Development Company294870 (HDC) recently won a partial court victory in a lawsuit filed against the company, demanding payment of wages reduced due to the implementation of the wage peak system. The court ruled that the wage peak system was invalid, stating that HDC failed to properly follow the employee consent procedure required by the Labor Standards Act when amending its employment rules to the disadvantage of employees.

On the 23rd of last month, the Seoul Central District Court (Presiding Judge Koo Kwang-hyun) ruled that HDC must pay a total of 1.6424 billion KRW to 36 out of 37 former and current employees who filed the suit to recover wages reduced by the wage peak system. The average amount awarded per employee is approximately 45.62 million KRW. The wage peak system refers to a policy that reduces the wages of employees who reach a certain age in exchange for guaranteed employment until retirement.

The retirement age for workers in Korea is 60 or older. Under the Act on Prohibition of Age Discrimination in Employment and Aged Person Employment Promotion (Aged Person Employment Act), employers must set the retirement age for workers at 60 or above. Even if an employer sets the retirement age at under 60, the Act considers the retirement age to be 60. This regulation was newly established by an amendment to the Aged Person Employment Act in May 2013 and went into full effect in January 2016.

In August 2016, HDC revised its employment rules to extend the retirement age and introduce a wage peak system. The retirement age was extended from 'the last day of the year in which the employee turns 58' to 'the last day of the year in which the employee turns 60,' but wages were to be reduced by 10% annually starting from age 57 compared to the previous year. Based on the age of 56, the year immediately preceding the application of the system, the wage structure drops to 90% at age 57 and down to 65.61% at the retirement age of 60. HDC obtained consent from a majority of employees by having them sign consent forms.

In December 2022, former and current employees filed a lawsuit against the company, demanding the return of wages cut under the wage peak system. They argued that under the Labor Standards Act, if employment rules are changed to the disadvantage of employees, consent must be obtained through the collective decision-making process of the workers, and the company did not follow this procedure properly. They also claimed that the company unfairly discriminated against them based on age, noting that while wages were ultimately reduced by 34.39%, there were no corresponding measures to reduce workload or labor intensity.

The court first concluded that HDC had indeed amended its employment rules to the disadvantage of employees. While the amendment extended the retirement age by two years (from 58 to 60), it applied the wage peak system starting at age 57, four years before the new retirement age. Compared to the previous system, this created a disadvantage where employees received lower wages at ages 57 and 58. If the wage peak system had only been implemented for the two-year extension, employees would have had the choice to either retire at the original age of 58 or work two additional years at a reduced salary.

The decisive reason for HDC's defeat was the procedural flaw in the process of changing the employment rules. Starting about ten days before the collection of consent forms, HDC held information sessions in Seoul, Cheonan, Daegu, and at its headquarters until one day before the deadline. However, there was no data available to verify how many people attended these sessions. Materials informing employees of the changes were only attached to the notice for the second information session, which was posted after three sessions had already taken place. It was found that no written materials were distributed at each of the sessions.

Furthermore, the consent form signed by employees made no mention of the wage peak system. The form only stated, "I understand the content of the employment rule changes announced through explanations... and I confirm my acceptance of the entire revised employment rules, including the retroactive application of salary regulations from March 1, 2016, for the reflection of wage increases due to changes in the wage system." There was no reference to the introduction of the wage peak system or any attached documents.

The court ruled, "It is difficult to view that the defendant (HDC) obtained consent through a collective decision-making process from its employees regarding the introduction of the wage peak system. Therefore, the wage peak system is invalid as it did not go through the procedures stipulated by the Labor Standards Act."

However, the wage claim by A, a former chairman of the Hyundai IPark Labor Union who was confirmed to be a union member at the time, was dismissed. Around August 2016, when the system was introduced, HDC signed a collective agreement containing the wage peak system with the Hyundai IPark Labor Union, which represented about 10% of the total workforce. Under the Labor Standards Act, unless a labor union represents a majority of the company's total employees in similar roles, the effect of a collective agreement only applies to the union members.

The court stated, "There is no evidence that the remaining plaintiffs, excluding A, were members of the labor union. Therefore, it cannot be seen that the wage peak system applies to them based on the collective agreement signed in August 2016." The court added, "The defendant is obligated to pay the unpaid wages that the plaintiffs (excluding A) failed to receive due to the invalid wage peak system, along with delay damages."

HDC appealed the ruling on the 13th. BizHankook reached out to HDC regarding the ruling, its plans for the appeal, and its intentions for future revisions to the employment rules, but did not receive a response.