Beware the Grey Market Trap in Korea: Due Diligence, Agreements and Street Smarts

Many of my clients operate, in Korea, through relationships with agents. The local agent, normally, holds an exclusive right to sell the client’s product in Korea. For example, one of my clients sells medical lasers. The company has relationships with agents throughout Asia. The relationships guarantee the agent an exclusive right to sell the lasers in the nation the agent is located in. The agent, also, is responsible for managing technical, warranty and other after-sale matters in the jurisdiction. One Korean company approached my client and noted that they are a Korean company with an office in the Philippines. My client has no agent in the Philippines. The client, thankfully, smelled a rat and called me.  If you hear of a Korean, Chinese or other nationality doing business in a country other than their own country, please smell a rat. After doing a little investigating it became clear that this

Continue reading

Acquiring Shares in Closed Korean Corporation in Exchange for Product at Discount: Don’t Forget the Due Diligence in Korea

I just received a phone call from a prospective client with a wonderful product that has been offered a sweetheart deal.  Whenever I hear that someone has received a no risk or sweetheart deal in Korea, a red flag immediately goes up in my head and I immediately request the client to let me do a couple of weeks of due diligence. The, ubiquitous, sweetheart deal is ownership of shares in company in exchange for some benefit from the foreign partner.  Too often, the Korean company is a shell.  The shell is broke with liabilities that far exceed assets.  The shell, however, is paying his management handsomely through a variety of interested transactions and access to the expense account.  In one case I regrettably saw, the company was under investigation of the prosecution. Thus, your sweetheart deal may lead to unexpected liabilities, the deterioration of your brand image, the eyes

Continue reading

Selecting The Right Korean Partner by Tom Coyner

Most foreign companies in Korea, for practical reasons, must partner with a local company to market, sell and support their products and services. While once upon a time there were legal requirements to do so, now Korea has a relatively free market in this regard. Nonetheless, unless the foreign company is willing to make a very substantial investment up front, it almost always makes sense to partner. Frankly speaking, finding a Korean partner company can be ridiculously easy. Finding a successful partnership, however, can be surprisingly difficult. That is, many Korean companies are willing to partner for all of the wrong reasons. And this may be said for a like number of foreign firms. Many Korean firms look at partnering with overseas companies as a cheap and easy way to “grow their presence by becoming “international,” or at least more international, via foreign partnerships. Partnering can add to their market

Continue reading

Independent Contractors and Obligations under Korea LSA Speech to Amcham Korea

During a recent speech the head of the Korean Labor & Employment Law Team and I gave to the American Chamber of Commerce in Korea, a few interesting topics came up that seemed to be of particular interest to participants. For the Power Point of the presentation click HERE. Factors Courts use to Determine if an Individual is an Employee and Thus Obligated to Provide Severance and Employment Security etc. Under the Korea Labor Standards Act (LSA). These following factors are used by the Korean Supreme Court to determine if one is an “employee” under the Korean LSA. The factors are not weighted equally by courts in Korea. Please note that these factors are not weighted equally by courts and all factors are not required to be met for an independent contractor to be deemed an employee under the LSA. An answer in the affirmative to anyone one of the

Continue reading

Definition of and Obligations to Employees under Korea LSA Speech by Korean retired Judge CHEONG and Sean Hayes for AMCHAM Korea

AMERICAN CHAMBER OF COMMERCE IN KOREA SMALL & MEDIUM SIZE ENTERPRISES COMMITTEE MEETING Dear AMCHAM Members, Entrepreneurs often lack an HR professional in the early years of a business to help keep them out of legal limbo when it comes to employment law. Furthermore, as the employee number grows in the young company, new labor requirements automatically apply – often without the entrepreneur’s noticing the change. To give us an up-to-date, practical understanding of labor laws that have immediate relevancy for small- and medium-sized companies, two partners from J & S Law will give a presentation. Retired Korean Judge Jin-Gyeong CHEONG, Ph.D., Labor & Employment Law and NY Attorney Sean HAYES, the only non-Korean to work for the Korean court system, will give a presentation on the definition of and the obligations owed to employees under Korean Labor Standards Act. The presentation is a must for those that enjoy a

Continue reading

Terminate/Layoff an Employee in Korea under the LSA

The Korean Labor Standards Act mandates that employees under “contract” or “regular employees” may only be terminated for justifiable reasons or managerial reasons. Both standards are often difficult for an employer to meet without the professional structuring of HR policies and procedures and a careful analysis of the situation. I strongly suggest, prior to even considering firing or laying off Korean workers, to put a system of internal controls/systems in place that provides evidence to substantiate the any employment decision. Company executives/directors are normally not considered company “employees” and thus are not benefited by most of the protections afforded by the Labor Standards Act. However, if the company is operating as a subsidiary and not maintaining the appearance of a unique legal entity, Korean courts have been increasingly willing to deem, even a director, an employee. Please see and Article on the issue of Representative Directors as Employees at: Employment

Continue reading

Korea Rules of Employment Required When Employing Ten or More Workers in Korea

A few minutes ago, I was contacted by a new client that was advised by the  former counsel that they were not required to have employment rules.   In most cases, an employer that employs ten or more workers must have rules of employment and the rules must be filed with the Ministry of Employment and Labor. LABOR STANDARDS ACTCHAPTER Ⅸ RULES OF EMPLOYMENT Article 93 (Preparation and Report of Rules of Employment) An employer who ordinarily employs ten or more workers shall prepare the rules of employment regarding the matters falling under each of the following subparagraphs and report such rules to the Minister of Labor. The same shall also apply in case where he/she amends such rules: 1. Matters pertaining to the starting and ending time of work, recess hours, holidays, leaves, and shifts; 2. Matters pertaining to the determination, calculation and payment method of wages, the period for which

Continue reading

Audit Proof your Independent Contractor Expenses

I just read a great post on an even better blog entitled the New York Small Business Law Blog. The blog post – Tips on Making your Independent Contractors Audit Proof – notes that the feds are increasing their efforts to crack down on misclassified independent contractors. They advise the attorney gave on how to avoid the scrutiny of the government would have also been useful for a client of ours that ran into an issue with the Korean National Tax Service and the Ministry of Labor a few years back.  The client, who was working with a large ubiquitous Korean law firm, lost a costly battle with the Ministry of Labor and National Tax Service because of a naively drafted contractor agreement and poor advice given by a team that consideres itself the leading team in labor law.  Never believe those publications that rate law firms.  The blog post reawakened my memory of this incident.  The practical advice noted in the

Continue reading

Basic Agreements for Doing Business in Korea

Below are the basic Korean start-up agreements, normally, necessary for doing business in Korea. The list is not exhaustive. We will be writing on all of these agreements over the next couple of months. Please note we have articles about Korean shareholder (JVC), distributor, license and other agreements already posted.   Korean Stock Corporation (Chusikhaesa) Shareholder Agreement/Joint Venture Agreement Article of Incorporation Intellectual Property Assignment/License Agreement Confidentiality/Nondisclosure Agreement Employees and Management in Korea Employment/Contractor Agreements Work Rules Confidentiality Agreement Korean Customers/Vendors Service Agreement License Agreement Sales/Distributor Agreements Landlord Lease Agreement Website Terms of Use/Privacy Policy [email protected] (c) Sean Hayes – SJ IPG. All Rights reserved.  Do not duplicate any content on this blog without the express written permission of the author. [email protected]

Continue reading

Doing Business in Korea (by Tom Coyner: IPG Legal’s Senior Adviser)

IPG Legal’s Senior Business Adviser – Tom L. Coyner has published the second edition of his book on Korean business. The book is entitled “Doing Business in Korea” and may be purchased through Amazon or at most books stores in Korea. The book is highly recommended reading for anyone with business interests in Korea.  Sean Hayes has been noted as a contributor to the legal chapter of the book and considers the book a must-have for all doing business with Koreans. For those not in Korea having difficulty obtaining the book (Amazon only carries a few copies), please contact IPG Legal and we will obtain you a copy. REVIEWS “Underscored with a deep and nuanced understanding of modern Korean culture, this is a ‘must read’ for any foreigner in Korea.        — Robert Fallon, Former Chairman of the Board of  Korea  Exchange Bank “Examples and practical advice—it’s all here! This book

Continue reading

Doing Business in Asia: Due Diligence, Agreements, Attorneys and Street Smarts

International attorneys mention in blogs, speeches, journal articles and in the press, frequently, that doing business in Asia is different and much more risky than in the West. Maybe we are not getting the word out clear enough. Understand, we are not trying to sell you anything you don’t need —-LISTEN UP – Get someone who works locally to execute these deals, get a carefully drafted agreement and engage in a little due diligence. If not, we love litigation, winding-up joint ventures and filing criminal complaints. These are the things that require a good deal more time than drafting and negotiating agreements. For example, a client involved in a USD 600,000 breach of contract/fraud case (option to purchase industrial machinery) with a Korean manufacturer recently contacted use with another issue in Korea. The client (I know you are reading this and we love you guys) concluded a deal with a

Continue reading

Asia Risk: KIKO in Korea

Quote from the Cover Story of the May 2009 issue of Asia Risk Magazine KO-ed in Korea Sean Hayes, foreign legal consultant, says that the firm’s key arguments will all be around mis-selling. Hayes makes a point of saying that Ahnse is not a typical plaintiffs’ lawyer – the firm’s clients are often foreign companies or large banks that need to defend themselves in Korea – and he himself had misgivings about the cases when Ahnse accepted them. “When I first looked at this, my general attitude was that these are private contracts and I felt it was not the kind of case that a business law firm should be taking. But then when you start to look into it and find out what was happening here, you start to get a feeling that the banks were taking advantage of people,” he says. In some cases, Hayes adds, clients were

Continue reading

Egyptian Cell Service Introduced in North Korea

I had the displeasure of visiting North Korea on a few occasions. Maybe on my next trip I will be able to use my cell phone. The Egyptian company, Orascom Telecom, announced that it is investing $400mil in North Korea to develop a 3G Mobile Network. CHEO Technologies, which is 75% owned by Orascom and 25% owned by North Korea, won a 25-year-license to operate the network. The network went online today. Orascom noted that service will be expanded to most major cities by the end of the year. It is puzzling why this company would invest in North Korea. At present, most North Koreans are not allowed to own phones and the Internet is strictly controlled. Also, I hope Orascom realizes that they have no remedy for contractual breaches and North Korea is not known for honoring contracts. [email protected] (c) Sean Hayes – SJ IPG. All Rights reserved.  Do

Continue reading

U.S. SOFA Korea not Reciprocal

It has been noted by my friend Brendon over at Korea Law Blog that: The Korea Times reports that in August Korean aircrews and planes will be training at Nellis AFB, Nevada for the first time. As for me, I am halfway hoping that one of the Korean military members gets into a traffic accident, or even flips out and commits some sort of crime. We are talking about servicemembers on temporary duty, so drunk driving seems the best bet. So why am I rooting for some kind of misfortune? It’s not because I dislike Koreans, or any members of the aircrews personally. It’s because some kind of a legal entanglement in the Nevada desert would be a teachable moment for the Korean public about the reciprocal nature of the US-Republic of Korea Status of Forces Agreement, a bilateral treaty the “unfairness” of which is an article of faith among

Continue reading