This article in Korea Times shares some great insights into Korean labor law and practices. The author, Nick Bibby, is a doctoral student in labor law at Dong-A university in Busan.
 By Nick Bibby
Almost every day, the phone rings, or the email pings and, after the niceties, the conversation starts something like this: “My boss says he can’t afford to pay me, is that legal?” After a few minutes figuring out the details I give the answer I could easily have given to the first question. Essentially, it’s illegal but it’s important to be practical. Korean law is quite clear that any worker (with the exception of certain people engaged on a specific project) must be paid at least once a month ― it doesn’t matter whether the payment rate is by the hour, the day, the week, the month, or the millisecond. That’s the important bit, here’s the practical one. Unlike the West, it’s standard in Korea for people to be paid late if the payday falls on a weekend or a national holiday. It’s also fairly routine for the first month’s salary to take its own sweet time. Legally a salary must be paid once a month, in cash ― which means no payment in kind ― and on an agreed date. However, it’s important to keep a sense of perspective, if your pay’s delayed by 24 hours, it’s annoying but scarcely a crisis. Alternatively if, as with some cases I’ve dealt with, it’s a month, two months, or three months, then clearly it’s a different issue. Let’s take two examples just from last week. I’ve changed the names so as to not impact any future legal proceedings. Wednesday’s case ― let’s call her Amy ― was straightforward. She was paid late and when the cash finally turned up it was the wrong amount. Amy’s employer said that he would hold over the first 14 days worth of pay and pay it at the end of the contract. Having talked to her co-workers, Amy quickly realized that her employer had a reputation for non-payment, employment without a visa, dismissal in the 11th month and so forth. Essentially the boss is either a crook, an idiot or both. The objective here is securing a letter of release and the outstanding money. Amy wants to stay in the country but not in the job. Although it’s illegal for an employer to discriminate against a worker who has taken legal action against them to protect their rights, it’s usually worth trying to play nice first. The first focus is the letter of release and getting as much of the cash as possible. With both of those life gets easier. If that doesn’t work there are still options. Critically, whether you resign or are fired (unless it’s for gross-negligence, misconduct or a criminal offense) you must be either given or paid 30 days notice. The idea that if you’re shown the door you have to race to the airport is also a myth. Your first stop should be your nearest immigration office to extend your visa, usually a simple process. Next is to the Labor Board or, more usually, a foreign workers’ rights center or a migrant workers support organization whose staff have the language skills to handle the case for you. Legally, you must be paid, that’s the bottom line. Let’s take case number two, let’s call him Ben. He’s due to leave the country at the start of the following week, today is Thursday. His boss has paid him but it’s short by a little over 1.5 million won. In addition, his employer wants to compel him to stay in the country. Let’s deal with the law first, Ben must be paid ― the full amount owed and on time. In addition, an employer cannot oblige a worker to extend their contract. The question he had is can he withhold his labor until payment is made. It’s a common question and a debatable point. Technically the employer has breached the contract, so Ben would be within his rights ― payment has not been made for work that has been given. However, whether it’s practical when you’re leaving the country in two days and would need to remain, in practice, to argue the point is another matter. First there’s the solution mentioned above, extend the visa and fight or hand it over to a human rights organization. When you have a couple of month’s labor as a bargaining chip, it’s got leverage. When it’s a couple of days, less so. As a result the second option is probably better ― especially with his trip around Asia already planned and paid for. In some ways the important thing is to ensure that issues like this don’t happen to other people. Forty-eight hours before you leave may be too late and a month after you arrive too early to argue a point. With a bit of planning these problems need never emerge. There are plenty of community organizations out there, some voluntary, others commercial ― some are a bit of both. Late payment and non-payment are fraud and theft respectively. In the same way that anyone knows where their passport, wallet or bankcard is, it’s important to know where you rights are too. Nick Bibby is deputy CEO of RightsWatch rightswatch.co.kr ― to be launched in early September) and a doctoral student in labor law at Dong-A university in Busan. He can be reached at Nick.bibby@gmail.com |
South Korea’s Franchising Laws: An Overview
Monday, September 6th, 2010By Kent Wong, Senior Foreign Attorney (Partner) at APEX LLC
Korea’s franchising industry has rapidly developed in recent years, led primarily by fast food restaurant chains. This growth has expanded to include family restaurants, retailing and retail stores, hotels, clothing, mailing services, cleaning services, as well as educational institutions.
There are no specific legal requirements for overseas franchises to operate in the Korean market, nor is there a requirement for government approval with respect to international franchise agreements. However, franchisees need to comply with various Korean laws, including the Korean Civil Act and Korean Commercial Code, the Fairness in Franchise Transactions in Franchise Business Act (Franchise Act) and the Sub-franchisee’s Fair Trade Act (which closely parallels the rules that exist for sub-franchisees in the US). Below is an overview of some of the questions commonly faced by international franchisors and foreign investors looking to enter the Korean market.
Legal definition of a franchise
Under the Fairness in Franchise Transactions in Franchise Business Act (Franchise Act), a ‘franchise’ is defined as:
... a continuous business relationship in which the franchisor allows the franchisee to sell goods (including raw and auxiliary materials) or services under certain quality standards and business methods using its trademarks, service marks, trade name, signs and other business marks (collectively, “Business Marks”), and supports, educates and controls the franchisee with regard to relevant management and operating activities, and in which the franchisee pays franchise fees to the franchisor in return for the use of the Business Marks and the support and education concerning the management and operating activities.
Laws governing the offer and sale of franchises
The Franchise Act, which was enacted on 1 November 2002 and most recently amended on 3 August 2007, and its accompanying Presidential Decree, taking effect on 6 November 2002 is the primary statute applicable to the franchisor-franchisee relationship. Additionally, the Monopoly Regulation and Fair Trade Act (MRFTA) and regulations promulgated by the Korea Fair Trade Commission (KFTC) are generally applicable to the relationship. Notable are the KFTC’s 1997 Guidelines on International Contracts which remain in effect and could potentially impact the franchisor-franchisee relationship where one of the parties is not a Korean resident.The KFTC regulates franchises in Korea. The KFTC has a franchise-related department and has the authority to impose administrative measures against those who engage in unfair activities.
Forms of business entities
A chusik hoesa (stock company) and a yuhan hoesa (limited liability company) are the business forms in Korea that would be relevant to the typical franchisor. About 90% of all Korean companies are chusik hoesa, which are similar to American stock companies. Only this legal entity, plus occasionally yuhan hoesa, is recommended for foreign investors and businesses.
Laws and agencies which govern the formation of business entities
Primarily, the Korean Civil Act and Korean Commercial Code govern the formation of business entities. In addition, the Foreign Investment Promotion Act relates to the formation of business entities from foreign investment.
The Korean Court Commercial Registrar, National Tax Service and Ministry of Strategy and Finance are the main agencies that have authority relating to the formation of business entities.
Methods of establishing a franchise
A foreign franchisor intending to expand their franchise in Korea may consider a variety of methods. While a single unit franchise or area development franchise is occasionally used, the more popular method is to use a master franchise arrangement. In Korea, international franchising typically entails a foreign ‘master franchisor’ working with a domestic ‘master franchisee’. Master franchisees can either be a 100% subsidiary of the master franchisor or a joint venture company with a local partner; a pure Korean company may also become a master franchisee. The master franchisee then relies on “sub-franchisees” for running the franchise outlets, which are either directly owned and operated by a master franchisee or owned and operated by an independent person or entity – ‘a pure sub-franchisee’.
Tax for foreign business and individuals
The principal taxes affecting businesses in Korea include corporate tax, individual income tax, value added tax, customs duties and inhabitant and education tax levied on corporate tax, income tax and other taxes.
The franchisor has a duty to pay taxes (corporate tax or individual income tax) on royalty incomes. However, the tax rates are limited to the rate stipulated in the tax treaty between Korea and the state in which the franchisor resides. In this regard, the franchisee has a duty to withhold such taxes from the royalties it pays to the franchisor.
Relevant labor and employment considerations
Under the Korean Civil Code, an employer is liable for a tort committed against a third party by an employee who is under the employee’s actual direction or supervision, in relation to the performance of a work that is directed or supervised by the employer. Therefore, if a franchisee or an employee of a franchisee is deemed an employee of the franchisor, the franchisor may be held liable for damages to a third party caused by the franchisor or the employee of the franchisee during performance of his or her work.
About the author Kent Wong is a senior foreign attorney and partner at Apex Law LLC, based in its Seoul office. Kent handles a range of corporate and commercial matters, with a particular emphasis on investment and doing business in Korea. Kent undertakes domestic and international private equity work in addition to general M&A, corporate and corporate finance transactions and advisory mandates. He has published articles and given lectures on foreign investment, project financing and international tax regimes.
Email: kwong@apexlaw.co.kr
Tags: Ken Wong, Korea business law, Korea franchising, Korea franchising law, Korea legal, Smashburger
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