7/24/2017

Korean Distributor Sales Territory or Customer Restriction in Korea

Korea's Distribution Law is governed, primarily, by the Commercial Code of Korea, Monopoly Regulation and Fair Trade Law of Korea (FTL) and the, newly enacted, Fairness in Distributor Transactions Act of Korea.  The laws comprise a substantial body of law that is consistently evolving

The main regulatory body enforcing the FTL of Korea is the Fair Trade Commission of Korea ("FTC").  The Fair Trade Laws of Korea, in most cases, creates the most significant risk for suppliers and manufacturers doing business with distributors in Korea.  A nuanced understand coupled with a proactive approach to your distributors is necessary in succeeding in the Korean market.
Korean, Distribution Agreement
Distribution Agreements in Korea

General Rule

In general, Korea prohibits the "unfair restriction" of trade based on the territory or type of customer. However, numerous exceptions exist.  I shall be detailing some of these exceptions over the next couple of months.  Please check back regularly.  The following is, only, and is, only, intended to be a brief explanation of this issue.

Territory Restrictions on Trade in Korea
Korean courts and the FTC have deemed the restricting of a distributor from engaging in business based on territory as an "unfair restriction" on trade if the restriction imposes a severe penalty on the distributor.  Thus, if no "severe penalty" or "strict enforcement" is imposed by the supplier on the distributor the restriction may not be deemed per se illegal in Korea.

The case law on this issue is less than clear and very nuanced.  It is advisable to have someone carefully draft the "restriction," if one is necessary, with an eye to business realities, knowledge of the accepted practices in Korea and nuanced understanding of this developing body of Agency & Distribution Laws in Korea.  Additionally, a nuanced structure may be more successful in your business needs than facial contractual restrictions.

Restriction on Customers
In general, a supplier may legally designate certain customers as customers that the supplier may solely deal.  However, a blanket restriction on competition with the supplier is, often, deemed a violation of the FTL.

Those a violation of the FTL may face corrective orders, administrative fines and even criminal sanctions.  A distributor may, also, prevail in a lawsuit for damages caused by the restriction.

The key in developing distributor relationships in Korea is to first consider the law with a professional with deep knowledge of your business, Korean business practices and a nuanced understanding of Korean Law, the FTC and Korean Litigation.  It is not so easy to find this type of individual and, often, because of Korean legal realities these type individuals are impossible to find in the ubiquitous Korean law firms.  Make sure you shop around and make sure you find someone with a proactive manner and a deep understanding of your industry or a willingness to understanding your industry.  A form puller - is useless in Korea.

Entering into a distributor relationship is easy - getting out of a bad relationship, in Korea, is much more difficult.  Thus, take your time in finding the right attorney and/or business professional to develop, vet and formalize the distributor relationship.

Also, don't forget the vetting process: Distributor Due Diligence in Korea.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

Other Articles on Korean Distribution Law that may be of interest:

7/20/2017

Korean Government Official Prosecuted in U.S. for Violation of Korean Law?

Money Laundering

Is it really true?  A foreign government official may be prosecuted in the United States for the violation of a non-U.S. law - OK - not exactly.

A Korean working for a Korean government research center was, recently, found guilt of U.S. federal money laundering in a U.S. Federal Court.  The individual was convicted of utilizing the banking system of the United States to store and transfer illegal obtained funds.  The funds were deemed illegally obtained under Korean Law.  So yes, the interpretation of Korean Law was necessary.

 According to a Press Release by the Central District of California's U.S. Attorney's Office:
"A former director of South Korea’s Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources (KIGAM) has been found guilty of using a Southern California bank account to launder bribes he received from two seismological companies, including one based in Pasadena. 
Heon-Cheol Chi, 59, of South Korea, was convicted late yesterday of one count of transacting in criminally derived property, an offense that carries a statutory maximum sentence of 10 years in federal prison. 
Chi was convicted of the money laundering charge following a four-day jury trial in United States District Court. The jury that issued the guilty verdict was unable to reach a unanimous decision on five other money laundering charges. According to the evidence presented at trial, Chi laundered funds that were the proceeds of bribes he accepted in violation of South Korea law."
The Korean national was prosecuted for violation of a federal money laundering law - not Korean Law.  The District Court first, however, determined if the funds were obtained via "specified unlawful activities" as defined by the U.S. Money Laundering Control Act.  The Court ruled, of course, in the affirmative.  Foreign bribery and extortion laws are, generally, deemed to be "specified unlawful activities" under the the Money Laundering Control Act.  The forwarding of funds via the "specified unlawful activities" to a U.S. bank is a money laundering under the Act.  The jury found the defendant guilty on only one of the six counts.

I will update the reader when I read the case.  Interesting case.  I always enjoy reading cases where foreign courts interpret Korean Law.  It is always interesting when my firm is retained to write Legal Opinions for foreign courts.

The link to Press Release for the U.S. Attorney's Office for the Central District of California related to this matter may be found at: Central District of California - U.S. Attorney: Director of South Korea’s Earthquake Research Center Convicted in L.A. of Money Laundering Stemming from Million Dollar Bribe Scheme.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

7/13/2017

Can you Revise Employment Rules in Korea without the Agreement of Employees?

Korea, Seniority, Merit, Wage, Pay
Wage System Reform in Korea
The Guidebook on Wage System Reform, published by the Korean Ministry of Employment & Labor, has sparked more interest, in the private sector, to the revamping of Korea's wage system based on seniority and moving to a system based on merit and/or job scope.

The major issue, in this regard, is if the Rules of Employment of a company may be amended, without violating the Labor Standards Act of Korea ("LSA"), when  "wage system reform" is not consented to by a majority of the employees or the trade union.

Numerous Korean government agencies have successfully moved to a more merit-based promotion and bonus system from a strict seniority-based wage system.  The private sector has carefully watched this trend, because of public failures by noted international conglomerates.  The private sector, to date, has been slow to move to a merit-based wage or like system because of these public failures.

The MOEL's Guidebook on Wage System Reform ("Guidebook") was drafted to be a guide for companies wishing to move from a seniority-based system to a system based on merit and/or job scope/responsibility.

LSA Article 94(1) (Procedures for Preparation of and Amendment to Rules of Employment) 
An employer shall seek consultation of a trade union, if there is a trade union composed of the majority of the workers in the workplace concerned, or the consultation of the majority of workers if there is no trade union composed of the majority of the workers, with regard to the preparation of an amendment to the rules of employment. However, if the rules of employment are to be modified unfavorably to workers, the employer shall obtain workers' consent. 
Some Korean courts and the Ministry of Employment & Labor of Korea have interpreted this Article 94(1) of the LSA not to impose an absolute burden to receive the consent of employees for modifications to rules of employment when the modifications are not "unfavorable to workers." Courts and the Ministry of Employment & Labor have, recently, supported the "generally-accepted justification" test to determine if modifications to rules of employment are "unfavorable to workers."

Generally-Accepted Justification Test
Under this Generally-Accepted Justification Test, Korean courts, should weigh the following factors in determining if the change of the rules of employment of a company violates the LSA.  The factors to be considered are:
  1. Degree of Disadvantage to the Employee in the Changed Employment Rules;
  2. Degree of Change and Necessity of the Change in the Employment Rules;
  3. Reasonableness of the Change in the Employment Rules;
  4. Whether the Disadvantage was Offset by Advantages;
  5. Degree of Progress in Negotiations with the Union and the Reaction of the Union and employees; and
  6. Whether the Changes are considered Common in Korea.
Courts, recently, have moved to become more employer friendly.  However, without a nuanced approach to amending rules of employment, a nuanced understanding of Korean legal and political realities and a savvy and experienced local Human Resources guide - companies will, likely, run aground  in employment relationship issues.  A proactive and experienced team is necessary for success in Korea.  The ubiquitous teams are, not, always the best teams.

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes
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Employment Law Articles
Additional Articles on Employment Law, in Korea, may be found at:

6/16/2017

A "Tasty" Exclusive Agent Agreement for Artists & Entertainers in Korea: Entertainment Law Basics in Korea

Korea, artist agreement, exclusive rights, agreement
Exclusive Agent Agreements in Korea: A Tasty Saga
The Fair Trade Commission of Korea (FTC) created a sample standard-form Exclusive Agent Agreement for Entertainment Agreements, in Korea, that was, recently, challenged by the Chinese Band Twin Duo "Tasty."

The Chinese band filed a lawsuit against the Korean entertainment company - SM C&C - in order to invalidate a 7-year exclusive agent agreement - claiming that because of major differences with the Korean entertainment company, the relationship between the parties was frustrated.  SM utilized a standard-form agency agreement that was developed by the FTC.

In 2015GaHab19327, the Seoul Central District Court ruled, among other things, that:

  1. The FTCs standard-form agency agreement is presumptively valid in the entertainment business in Korea. The Seoul Central District Court, further, noted that the intent of the this exclusive agreement was not to bind the entertainers to long terms, thus, the FTC made the standard-form exclusive agency agreement term at seven years in order to protect entertainers.
  2. The court, also, noted that the liquidated damages clause, in the agreement, was valid, since it was difficult to ascertain the actual damages and the liquidated damage sum was not, on its face, excessive.  
The major significance of the holding is the case is the first case upholding the right of entertainment companies to hold entertainers to the exclusive arrangements based on the FTC standard-form agreement in Korea.  

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info@ipglegal.com

6/07/2017

Bankruptcy Court in Seoul Korea Established

Korea, in March 2017, established the Seoul Bankruptcy Court.  The Seoul Bankruptcy Court replaces the Seoul Central District's Court Bankruptcy Division.  The establishment of the Seoul Bankruptcy Court is welcome news for most Seoul-based practitioners.
Seoul Bankruptcy Court, Insolvency Law Korea
Seoul Bankruptcy Court

The Seoul Bankruptcy Court is the first separate bankruptcy court in Korea.  The Seoul Bankruptcy Court was established because of a drastic increase in bankruptcy/insolvency filings over the last few years and a perceived need to have more efficient handling of bankruptcy cases.

The major law governing bankruptcies, in Korea, is the Debtor Rehabilitation & Bankruptcy Act of Korea.  This Bankruptcy Act, in short, provides that any company, in Korea, with debt of KRW 50 billion or more that has 300 or more creditors may file for bankruptcy at the Seoul Bankruptcy Court, notwithstanding the location of the company.

We shall update the reader on more news concerning the Bankruptcy Court as more news becomes available.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

IPG's Insolvency Team 
We are proud to have an efficient Insolvency Team with local and international experience.  The team lawyers work with seasoned business and accounting professionals.  We have experience in local and international bankruptcies, restructurings, workouts and rehabilitation proceedings in Korea, China, Hong Kong, and in the United States.  

6/05/2017

Product Liability Act of Korea Amended: Punitive Damages & Burden of Proof in Product Liability Cases in Korea

Product Liability, Act, Korea, Warning Product Label

The Amended Product Liability Act of Korea was published in April of 2017.  The Act shall be promulgated in April of 2018.   The major amendments to the Act are:
  1. Allowing Judges to Award Punitive Damages; and 
  2. Lowering the Burden of Proof. 
Punitive Damages in Product Liability Cases in Korea
The present Korean Product Liability Law limits damage to the actual damages incurred, thus, not allowing a judge to award punitive damages.  

This reality has led to few product liability cases being prosecuted by consumers, because of the conservative calculation of "actual damages" in Korea and, thus, a belief suing, in Korea, large manufacturers leads to nothing but a legal bill and a small damage award.  

The Amended Korea Product Liability Law, however, allows a judge to grant punitive damages if:
(a) the manufacturer of the product in question had knowledge of the defect;
(b) the manufacture failed to make corrective measures to fix the defect; and
(c) the defective product causes serious injury to life and/or body.  

Punitive Damages are unable to obtained against suppliers and is, only, available for personal injuries (not injuries to property). 

Burden of Proof in Product Liability Cases in Korea
The present Product Liability Act of Korea does not specifically address the burden of proof, thus, courts have utilized, prior to a 2000 Supreme Court case, the normal burden of proof criteria utilized in, ordinary, civil liability cases. Thus, Korean courts, even in product liability cases, would look to see, in short, if:

(a) a wrongful/negligent act occurred (defective product);
(b) damages occurred because of the wrongful/negligent act; and
(c) the wrongful act was the cause of the injuries alleged.  

Of course, plaintiffs, in Korea, had a very difficult time proving (c) causation (cause of the injuries) and the Korean Supreme Court in 2000, among other reasons, created a test that assisted in allowing plaintiffs to more easily prove damages in product liability cases in Korea.  If this Causal Relationship Test, noted below, is met the causal relationship between the defective product and the injuries is deemed established.  

Product Liability Causal Relationship Test in Korea
The Supreme Court (98Da15934), in 2000 noted, in part, that: "If a plaintiff indirectly establishes that: (a) the injury occurred while the defective product was in normal use by the plaintiff; (b) the accident occurred in an area of exclusive/total control of the manufacturer; and (c) the injury is of a nature that it would not have occurred, but for the negligent act" the Causal Relationship Test is met and the defective product is deemed the cause of the injuries.    

The amended Product Liability Act in Korea adopted this Test.  

Advice to Manufacturers in Korea
  • Create a Nuanced Internal Compliance Program;
  • Mandate that your Distributors and Agents Notify you of any Reported Defects by Customers;
  • Create Detailed Warning Labels for all Products;
  • Create a Recall Procedure with Specific Triggers; 
  • Revise your Distribution/Agent Agreement based on these New Risks; 
  • Consider Purchasing Product Liability Insurance; and 
  • Have a Dedicated Complaint Department in Korea. 

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

Amendments in Korean Employment & Labor Law under Pres. Moon Administration: Labor Law Updates

President Moon, Korea, Labor Law Revision
President Moon
President Moon promised during his presidential campaign to make major changes to Korea's Labor & Employment Law.  The major changes,  in short,  promised are the following:

Create 810,000 New Jobs via expanding Korea's Public Sector
President Moon has vowed to create over 340,000 new government social service jobs and over 140,000 new government jobs in public safety and security while converting 300,000 non-regular workers to permanent workers.

Impose Limitations on the Utilization of Non-Regular Workers in Korea
President Moon has vowed to propose a bill that some have named the "Special Act on Preventing Discrimination Against Non-Regular Workers."  This Bill would, among other things, according to the President Moon Administration:
  • Impose limits on the use of part-time and fixed-term workers to only work that is seasonal or temporary;
  • Mandate that all workers are paid an equal sum for equal work;
  • Impose a fine on employers that employ too high of a percentage of Non-Regular Workers; and
  • Impose joint-employer liability on companies using in-house contractors.
Expand Childcare Leave & Benefits in Korea 
President Moon has promised to expand paternity leave from the present five days to 14 days (10 of the 14 days to be paid days).  Childcare leave benefits were vowed to be doubled for many parents.  

Reduce Working Hours in Korea
The maximum weekly working hours, in most cases, under present Korean law is 52 hours. However, the lack of adequate documenting of hours, among other things, has led to many workers working far in excess of 52-hours each week.  President Moon has pledged to require employers to adequately document hours worked, while promising to reduce the overtime exemptions.  

Additionally, for parents with children under the age of eight years old, working hours may be reduced to six hours for up to 24 months without any pay cut.  

Impose a 10,000 Won Minimum Wage by 2020
The present minimum wage is KRW 6,470.  

Expand Youth Employment Quota to Non-Government Entities
Presently, a youth employment quota, only, applies to government and government-controlled organizations. President Moon may expand the 3% to 5% quota to larger non-governmental entities. Non-compliance would, likely, lead to a fine.

Expand Labor Protection to Insurance Planners, Delivery Drivers & Private Teachers
President Moon has vowed to expand protection for workers that have been perceived to have been provided less protection under law.  These workers, include, insurance planners, delivery drivers and at-home private teachers.

Limit or Prohibit the Use of Contracted Workers for Dangerous Activities
Outsourcing of dangerous activities is a common activity in Korea that has, recently, gained attention. The practice may be banned or limited.  

We shall update the reader when more information is available. 
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes
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Other articles that may be of interest: