South Korea: Doing Business In Korea: What You And Your Client Need To Know

Approximately 16,000 foreign companies are doing business in Korea in various industries including finance, technology, automobiles and automotive parts, and medical devices. More than 200 of these companies are Fortune 500 Global Enterprises. In 2017, the direct foreign investment into South Korean markets reached $22.94 Billion U.S. dollars.

As both a strategic and commercial alliance, the close relationship between the United States and South Korea depends on the ability of each country's market participants to successfully conduct business within each jurisdiction. For this success to continue, U.S. businesses and their advisors need to possess a clear understanding of the current legal and regulatory landscape in South Korea. In the past year, a number of political and economic changes introduced by President Moon's administration resulted in significant changes to laws and regulations in South Korea that foreign investors need to be aware of in order to update their strategies, comply with the current South Korean laws and regulations, and avoid the serious consequences of noncompliance and violations.

On November 7, 2018, Wilson Elser1 and the Korean American Lawyers Association of Greater New York (KALAGNY) co-sponsored a conference for South Korean attorneys and U.S. attorneys in Korea to share their insights in the recent legal developments in South Korea. The panel featured prominent South Korean attorneys John (JungKyum) Kim, Bryan Hopkins and William (Woo Jong) Kim from Lee & Ko2 . All speakers had served as in-house counsel for multinational companies before they joined Lee & Ko.

This program provided an overview of some of the key commercial and legal considerations for attorneys representing current and potential as well as those with an existing commercial presence in South Korea. The highlights of the program were the multiple changes in South Korean employment law and anti-trust law and the differences in litigation procedures between the two countries.

EMPLOYMENT LAW

There were a number of Amendments to South Korean employment law as President Moon's administration promised to aggressively tackle the high rate of unemployment in South Korea by creating more than 130,000 jobs, improving working conditions, reducing weekly work hours, and increasing the minimum wage to 10,000 Korean.

The changes in employment law also led to a number of other legislative changes in South Korea. For example:

  • Effective July 1, 2018, businesses with 300 or more employees are required to keep the 52 maximum working hours in 7 business days as compared with the 68 hours in 5 business days requirement South Korea used in the past.
  • The minimum wage increased by 16.3% from 2017 to 2018. Also, there is a growing trend toward recognizing temporary workers as full-time employees. On July 20, 2017, the South Korean government announced a new initiative of "Zero Temporary- Workers in the Public Sector." To accomplish the administration's policy goals, it started changes in the public sector. For example, as a result of this initiative, Incheon International Airport in 2017 was forced to absorb approximately 9,000 outsourced workers as direct employees almost overnight.
  • The initiative also expanded to the private sector. To illustrate, Paris Baguette Korea, one of South Korea's most well-known bakery chains with more than 3,000 stores inside the country and hundreds more in the United States, China, Vietnam, Singapore and France, had to absorb as full-time employees approximately 5,000 outsourced bakers, who previously worked for franchisees.

It may come as a surprise at first glance that these swift changes in employment law and regulations are not always welcomed by subcontractors and employees that are poised to benefit from the changes. Since the companies are not taking preventive measures to avoid creating any negative precedent, subcontractors often find themselves without workers and are essentially forced out of business. The increased minimum wage also is forcing small and mid-size companies to hire fewer employees and the employees who relied on overtime allowances find their overall salaries significantly decreased. Therefore, employees and unions are requesting companies not to enforce the 52 work-hour limit during the 6-month grace period.

ANTI-TRUST AND COMPETITION LAW

In anti-trust and competition law, the Korea Fair Trade Commission (KFTC), an independent, ministry-level central administrative agency with quasi-judicial and quasi-legislative functions, shows enforcement trends under the Moon Administration. KFTC's new chairman, Dr. Sang-Jo Kim, is known as a "Conglomerate (Chaebol) Sniper". Under his leadership, KFTC focuses on abuse of superior bargaining positions in the distribution, franchise, agency transaction and subcontracting sectors, chaebol reform and revision of the competition law.

The KFTC launched the Competition Law Enforcement Reform Task Force in August 2017, and in six months released its report on antitrust enforcement reform measures. In March 2018, the KFTC launched the Competition Law Amendment Special Committee, and the National Assembly approved proposed amendments for adoption of a punitive damages system. Also, the KFTC enhanced its monitoring of intellectual property rights' abuses in fields where standard essential technologies are used, such as next-generation semiconductors and wireless communications industries.

In addition, there is increased criminal prosecution of individuals involved in cartel violations, increased criminal sanctions in prison terms from three to five years, and fines from 200 million Korean won to 300 million Korean won. The KFTC also doubled the administrative fine rates from 10% to 20% for cartel fines, from 3% to 6% for abuse of dominance and from 2% to 4% in unfair trade practices. There is a movement to introduce a U.S.- style litigation system by including injunctive relief as a remedy for private persons in some Acts, treble punitive damages for cartel violations, class actions for private parties and enhanced regulation of information exchange.

LITIGATION PROCEDURES

There are a number of differences in the litigation procedures between the United States and South Korea.

FOR EXAMPLE:

  • To commence an action, one must give a power of attorney to an attorney admitted before the South Korean Bar.
  • There are stamp taxes of approximately 0.5% of the claim amount as well as security costs (if the plaintiff has no physical presence in South Korea) which a foreign plaintiff is responsible to pay if it loses the case for both parties.
  • Court composition is quite different. There is a judicial panel of three judges for cases involving 200 million Korean won or more, and there is an annual rotation in February of each year. Therefore, one may have to present the same case to different judges if the proceeding extends beyond a year.
  • In South Korea, trials are conducted through a hearing process, and all questions of law and fact are argued before the court with questions by the judicial panel. There is no discovery in South Korea, which means that the life of an action is approximately six months on average in the trial court, called the District Court, and approximately four months in appellate courts, called the High Courts, although litigations involving a foreign litigant tend to last longer.
  • The High Court has the power of de novo review. Evidence may be submitted by each party to the court and judges determine the value, credibility and authenticity of the evidence.
  • If one fails to appeal within two weeks, there is no right to appeal. Therefore, it is important to find a reputable and competent local counsel to handle litigation in South Korean courts.

Footnotes

1 Some 800 attorneys strong, Wilson Elser serves clients of all sizes, across multiple industries and around the world. Wilson Elser has 37 strategically located offices in the United States and another in London. This depth and scale has made us one of the nation's most influential law firms, ranked in the Am Law 200 and top 53 in the National Law Journal 500.Since our founding in 1978, Wilson Elser has forged a reputation as a formidable player in insurance coverage and defense. Our experience in this tightly regulated, cost-conscious industry has shaped a firm culture of accomplished professionalism and cost efficiency that delivers demonstrable value to clients. Please visit the homepage of Wilson Elser for more information at www. wilsonelser.com.

2 Lee & Ko is a leading full-services law firm based in Seoul, South Korea that was established in 1977. The firm and its various practice groups have a long history and deep experience which are ranked as Tier 1 and Band 1 among leading legal publications such as Chambers & Partners and the Legal 500. Please visit the homepage of Lee & Ko for more information at www.leeko.com.

Originally published in CHART (Cover Holders And Risk Takers) Exchange

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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