Apr 22, 2014

IPG Legal's LAW BLOGS

The Asian Law Blog aggregates most of the content from:
 Please checkout these blogs for additional articles.  We have stopped aggregating content on 4/23/2014, because of changes in Google's search algorithm.  
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

www.ipglegal.com

Feb 13, 2014

Weekly Asian Legal News from International Law Firm - IPG Legal

This Week's Asian Legal News Reported by the Media
Most Recent Posts from The Asian Law Blog
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

www.ipglegal.com

Fair Transactions with Subcontractors Act of Korea: So Buyer Beware or Simply Avoid the Risk and Buy the Seller?

Because of perceived abuse by Korean conglomerates of subcontractors, the Korean Fair Transactions in Subcontracting Act was passed in March of 2011. The Act was effective since the beginning of July of 2011.

The Act, in short, grants wide discretion to the Korea Federation of Small and Medium Businesses. This agency is now authorized to request adjustments to Korean subcontractors contractually obligated delivery prices and additionally may impose treble damages for certain violations of this Act, including for the act of misappropriation of the technology of subcontractors.

The Act also reverses the burden of proof in many instances, while requiring conglomerates to make technical requests in writing and to conduct formal subcontractor practice surveys.

The treble damages component of this Act is very rare in Korea. Punitive damages are only available in the most rare of cases and only if authorized by statute.

The inclusion of treble damages in Korea is welcome, but I am still always alarmed that even in the most egregious of professional negligence cases and in most other types of cases, treble/punitive damage is not available in Korea and the compensation awarded by the Korean court is often comical.

The Act seems “fair” on its face, but I have already been privy to instances when subcontractors have been using the Act to essentially extort more profit from conglomerates.

We expect that courts, if the Korean Federation of Small and Medium Businesses becomes overly aggressive, may, also, aggressively overturn the agency’s actions. The agency, in most respects, has been fair with regard to its power to fine, make formal recommendations and issue cease and desist orders, however, the agency, as its website clearly proclaims is an agency that “was established in 1962 to develop measures that can help SMEs to meet the challenges of the ever-changing management environment, while increasing their competitive power. By offering diverse user-oriented services, we are helping the SMEs to consolidate their position as the core of our domestic economy. We need to shift the focus of our economy from being centered on large companies to a greater emphasis on SMEs, so that we can share the effects of economic growth with all people, and to create a positive loop of growth and employment.”

The agency, if you employ a creative and proactive litigator is often able to convince the agency how a negative disposition is actually harmful to Korean SMEs. We recently dealt with such a case and the agency is willing to hear and often accept these arguments. However, the normal passive Korean attorney approach is not advised.

What do you think? Will this lead to more conglomerates in Korea buying subcontractors in order to eliminate the cost adjustment risk?
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SeanHayes@ipglegal.com

Feb 11, 2014

"Ordinary Wages" Under Korean Labor Law Clarified by the Supreme Court: "Regular, Uniform & Flat" Definition

The definition of "ordinary wage" has been clarified by the Korean Supreme Court in two decisions handed down on December 18, 2013.  The cases will have a significant impact on Korean Labor & Employment Law and will, likely, lead to additional litigation.

The calculation for an Ordinary Wage is utilized to calculate statutory entitlements, thus, has an impact on the aggregate amount of contributions necessary to be paid to an employee.  The issue is one of the most significant issues, this year, for domestic and foreign employers.

For example, under Article 56 of the Korean Labor Standards Act, an employer must pay 50% of the "ordinary wage" plus the ordinary wage for overtime, night and weekend work performed by the employee.  For many companies, this calculation could increase costs to a point that will make profitable companies head, immediately, to the red.

The basic test has been that an Ordinary Wage is a payment that is: "regular, uniform and flat" Obviously, this "test" leaves much unanswered.  The vagueness of this test has led to considerable litigation over the past few years.  Additionally, the Korean courts have inconsistently interpreted the definition, thus, leading to much confusion.  The confusion coupled with the significant burden on companies that may be imposed, led to a major lobbying drive by foreign and domestic companies.

I have written many memos on this issue with few opportunities to give a definitive answer, because of the lack of a consistent interpretation of the definition by the lower courts and, seemingly, even the Supreme Court.  The situation has improved with the following two decisions, however, we expect disputes to continue with regard to the issue of "good faith."  This issue is addressed in a post that may be found at: (Ordinary Wages and the Principle of Good Faith in Korea: Definition and For How Long?).

On December 18, 2013 the Supreme Court of Korea, in a case that I will call the Regular Interval Bonus Case, has delivered  a couple of more clear examples, than in the past, of cases were compensation will be considered "Ordinary Wages" under Korean labor and employment law.  The cases, in this regard, is a great development in making Korean Labor & Employment law more consistent.  In the Regular Interval Bonus Case, the employer in the case was providing a "regular bonus" every two months to employees.  Seemingly, the major reason was to not increase "ordinary wages."

REGULAR INTERVAL BONUS CASE HOLDING
The Court in the Regular Interval Bonus Case opined, in part, that:
  1. Any collective bargaining agreement (labor-management agreement or like agreement) that deems a certain type of payment as not an Ordinary Wage is void and, thus, unenforceable.  An exception is available for certain specific companies that have implemented this practice in particular limited situations based on the vague principle of "good faith and trust." Discussed at: (Ordinary Wages and the Principle of Good Faith in Korea: Definition and For How Long?); and
  2. Payments paid at regular intervals are Ordinary Wage.  The specific examples below are key in understanding the decision.  The "test" is the same and, thus, is still vague.  Thus, the Supreme Court did a great job in details situations that would "pass" and "fail" the test (found below).
The Supreme Court remanded the case to the High Court to determine if the "good faith" exception is applicable.  As noted this is discussed in another post on this blog.

ALLOWANCE CASE HOLDING
The second case, that I will call the Allowances Case, utilized the Ordinary Wage definition and rationale in the Regular Interval Bonus Case to opine that these allowances when paid just for being employed at a certain period of time will not be considered "flat" under the Ordinary Wage "regular, uniform, and flat" definition.

The Allowances Case was remanded, also, to the High Court to determine if the payments were, only, payments made for being employed during a certain period of time.

The cases are important, since they did a very good job in detailing situations that will and will not be considered Ordinary Wage payments.

EXAMPLES OF PAYMENTS TO INCLUDE IN ORDINARY WAGES
A few examples of payments that should be considered as "ordinary wages" include:
  1. Installment Payment (e.g. payments made every other month);
  2. Prior Year Incentive Pay (e.g. incentive pay based on previous year work performed);
  3. Present Year Incentive Pay if Not Based on Performance (e.g. all employees receive even if lowest performance rank);
  4. Prorated Daily Wages; and
  5. Wages Based on Years of Employment.
EXAMPLE OF PAYMENTS TO NOT INCLUDE IN ORDINARY WAGES
 A few examples of payments that should not be included in ordinary wages include:
  1. Present Year Incentive Pay Based on Performance;
  2. Non-Negotiated Wages (e.g. wages determined by future negotiations);
  3. Wages Paid based on Working at a Fixed Date; and
  4. Wages Paid based on Working for a Certain Number of Days.
I will explain the rationale for each of this situations in future posts.

Please do your company a favor and get a proactive adviser to discuss these matters with you.  I have been preaching about this risk for years and a proactive counsel could have structure payment schemes to lessen this type of risk.
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

www.ipglegal.com

Feb 10, 2014

Public Defenders in Korea: 77.6% of Defendants Satisfied with Public Defenders

The prosecutor office, recently, conducted a survey of defendants and found that 77.6% of defendants were "satisfied" with their public defender. 

The survey, only, polled 134 suspects and, only, for a five week period.  It would be interesting to see how many of the suspects plead innocent.  I would assume most of these defendants plead guilty, thus, the role of the public defender was not as significant of a role as a case when a defendant is pleading guilty. 

A few interesting results from the survey:
  •  104 of respondents (77.6%) noted that the appointed lawyer "was a great help to defendants"
  •  28 respondents (20.8%), noted that the appointed lawyer "was not that helpful."
  • 100 respondents (82%) noted that the appointed attorney "answered requests and advised faithful."
Overall, the survey is a positive reflection on a public defender system.  The system has, greatly, improved over the past decade.  Of course, if you have the necessary funds, it is, always, advisable to hire a private attorney.  The public defenders are, typically, less experienced and connected than private criminal attorneys.  However, for those that do lack the funds, the Korean public defender system has greatly improved and is an adequate solution for the less severe crimes. 

A few more articles that may be of interest:
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

www.ipglegal.com

Feb 9, 2014

Ordinary Wages and the Principle of Good Faith in Korea: How long should the principle be applied to Korean CBA?

We wrote a post on this blog a few weeks back entitled: Ordinary Wages Under Korean Law Clarified by Supreme Court: Regular, Uniform & Flat Defined.

Our post noted, in part, that:
" . . .the Supreme Court, in a case that I will call the Regular Interval Bonus Case, has delivered  a couple of more clear examples, than in the past, of cases that will be considered Ordinary Wages.   In the case, the employer was providing a "regular bonus" every two months.

The Court in the Regular Interval Bonus Case opined, in part, that:
  1. Any collective bargaining agreement (labor-management agreement or like agreement) that deems a certain type of payment as not an Ordinary Wage is void and, thus, unenforceable.  An exception is available for certain specific companies that have implemented this practice in particular limited situations based on the vague principle of "good faith and trust."  I will elaborate on this more in a followup post after the holidays; and
  2. Payments made at regular intervals (e.g. every other month) are Ordinary Wages.
The Supreme Court remanded the case to the High Court to determine if the exception is applicable.

In the second case, that I will call the Allowances Case, utilized the Ordinary Wage definition and rationale in the Regular Interval Bonus Case to opine that these allowances when paid just for being employed at a certain period of time will not be considered "flat" under the Ordinary Wage "regular, uniform, and flat" definition.

The Allowances Case was remanded, also, to the High Court to determine if the payments were, only, payments made for being employed during a certain period of time."
I promised to explain in the post the meaning and application of the principle of "good faith" to situations where an implicit or explicit agreement between management and employees exist that excludes from "ordinary wages" certain payments made to an employee (e.g. night-time, holiday or overtime payments - excluded from being calculated as a regular bonus).

The Supreme Court has noted that these "agreements" are not void when:
  1. When the agreement is considered as a "customary practice" in the company;
  2. The increase in cost to the company will cause "serious managerial difficulty" or, otherwise not within the capability of the company to pay; and
  3. The increased cost was not considered in the calculation of the "base salary," when negotiating wages thus, the base salary would have decreased if the company and the employees considered these additional expenses to the company.  
This test, obviously, will need a great deal of interpretation by the lower courts in the future.  We expect this case to lead, in many cases, to additional litigation to determine, among other things:
  1. If an agreement exists (does not need to be a "written" agreement);
  2. If an agreement exists is it a "customary practice";
  3. Will the additional cost cause "serious managerial difficulty"; and
  4.  Whether the employer and employees knew when negotiating wages that compensation to the employee should decrease if this cost was assumed by the company.
Also, we are not, yet, how long will the application of this principle of good faith will assist companies in avoiding this unexpected expenses.  The Supreme Court noted in a press release that any agreements of this sort after the Supreme Court decision are void (December 18, 2013)  However, we are unsure how long, specifically, the principle is applicable for agreements prior to December 18, 2013 when no new agreement is able to be reached.

We will, likely, soon be litigating cases that will determine the specific application of this principle and the length of time this principle should be applied.

Interesting case?  What should be the outcome?
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

www.ipglegal.com

Playing by Local and/or International Rules in Korea by Tom Coyner

The old axiom of "when in Rome, do as the Romans" may seem like practical wisdom. But sometimes that may not be your best option. First of all, going native is a pretty tough thing to do as a foreigner. Usually, at best, an expat can act approximately Korean and hope to get some sympathetic appreciation from the local populace. Other times, one can be in what seems to be a hopelessly disadvantageous position given the cultural and language differences.

At the same time, being a Korean in Korea hardly comprises a bed of roses. Often there seems to be more thorns than petals given the various social and regulatory obligations and responsibilities. In this context, there are some inherent advantages of being foreign since by being alien one is not inferior or superior but simply separate from the mainstream. As such, one can work by slightly different rules.

Often these rules are technically in place within Korean business and legal parameters, but generally are not observed due to overriding social and political concerns. Since as a foreigner -- and even as a foreign business -- the expatriate manager may be surprised at how this can work in his or her favor.

For example, with some small Korean companies, oral agreements may be preferred to written ones. A foreigner's insistence on long, written agreements can be regarded as almost insulting. Nevertheless, it is imperative to have written agreements. Generally a foreigner can insist on this easier than a Korean. He or she has the option to demand negotiated agreements to be as explicit as possible due to the business cultural differences.

This is not to say one needn't be sensitive about practical considerations that may seem unique to doing business in Korea. A comprehensively detailed agreement drafted by a Western company's legal department may seem to cover all bases. Yet such a document can confuse and cause major problems during and following negotiations. The expatriate business professional should be prepared to redraft the head office's prepared document to say exactly the same thing but in simpler language. Not to do so is likely to confuse the Korean counterpart with Western "legalese,'' that in turn can lead to major misunderstandings.

One simple approach is to break up long contractual paragraph blocks, with the sub-clauses presented in easy to find and understand outline form. It is often a good idea to add hypothetical examples of unusual or complicated concepts or conditions to ensure not only agreement but also complete understanding by all parties.

Being culturally sensitive, one should be careful in discussing indemnification for malfeasance so as not to insult the other party. This issue normally does not exist in purely Western business, but often a Korean may take exception to how a Western attorney may describe the other party being liable for potential penalties.

Addenda should be freely and fully included to contracts to specifically point out issues such as payment terms and timing so that there is no misunderstanding or possible variance of interpretation.

Now, all of this is a lot of extra work for the Western business person -- but it's worth it given the likely headaches and incriminations that may follow if one doesn't do this kind of preparation.

Not only are the business cultures different, basic commercial concepts may significantly vary in the details -- or possibly not even exist within one's Korean counterpart's normal activities. So it can be dangerous to assume understanding. When in doubt, define in writing.

Furthermore, Korean employees are quite frequently transferred among the various departments. Rarely is there time for a decent handover of responsibilities. It is not uncommon for the exiting employee to neglect to mention to his/her replacement where one's contract has been filed. Consequently, an extremely detailed, heavily illustrated, and well-organized agreement, with full addenda, can be critical for getting the replacement employee up to speed.

This kind of document can also get the new employee off the hook with his or her boss should a disagreement arise. If the disputed matter is covered in the agreement, clearly explained as a contingency or possibility -- complete with hypothetical examples, the new employee can report that the matter has already been contractually settled.

Keeping a Practical Balance

Now should it not be already obvious, the important lesson is not to get suckered into the "cultural gotcha'' of surrendering good business sense due to cultural differences. The Korean cultural trait of not wishing to put things down on to paper or taking contracts as literally serious as Westerners should be accommodated just so far. To repeat, the Westerner is not a Korean and thereby is not part of Korea's social web of obligations and potential penalties. As the Westerner regularly works across the "cultural divide,'' he or she must protect the company's interests by refusing to compromise the company's core values and policies.

It is critical to be as clear and as explicit as possible when negotiating a strategic legal agreement in Korea. It is also important to keep in mind that ultimately Korean contracts are fully enforceable. But be aware that these documents are literally as good as they are written. There are almost no additional legal safeguards beyond what appears on the paper.

So be prepared and be explicit. Most important, do not assume, but always confirm, genuine understanding, in writing, of all points with one's Korean negotiating partner.

Business negotiation is an exacting and demanding matter, particularly complicated when playing by a different set of cultural rules and business practices. The more the expatriate executive is familiar with the rules, the more there can be a meeting of minds -- and the more success he or she can achieve at the bargaining table. It is all to the expat's advantage to be thoroughly familiar with the counterpart's set of mind and behavioral patterns. At the same time, consider what one's strengths may be -- including those that may not strictly fit in the normal Korean cultural context. The fact that other, Korean companies may not have these qualities should not prevent the expat from leveraging those advantages in Korea.

To give an example, if one's company is challenged by government regulator, one should establish a legal defense much as one would in one's native country. Resist _ or at least seriously question -- advice from your Korean employees -- and even Korean legal counsel -- to settle and compromise if one is convinced that the company is totally in the clear. Even if there is indeed a problem, a Western legal defense can be the best course of action.

Korean government officials are accustomed to sometimes unfairly getting their way, since most Korean companies will quickly try to settle, even when they are completely innocent. If the regulatory challenge is unjustified, it is often best from the first moment to emphatically state so and get one's legal ducks in a row. The regulator will probably not be amused, but will also realize that dealing with the foreign company is going to be more work and it may not be worth the hassle. Even if the regulator decides to proceed, be prepared to act "un-Korean'' and cite chapter and verse of the government's regulations, since often they can be used to one's advantage.

Keep in mind that Korean business practices, though often based on deep cultural foundations, are rapidly changing. The marketplace is becoming more open to international practices. Women and those Koreans who have lived extended periods abroad are making their impacts, along with the changes resulting from the wide application of broadband communications.

The above-discussed points are what one may consider being bedrock when it comes to doing business. Bear in mind the rules are changing. Therefore, it is wise to occasionally review and test one's understanding with a Korean colleague, while being sure not to give up some of the advantages of being a foreign business professional.
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Tom Coyner is President of Soft Landing Consulting(www.softlandingkorea.com), a sales and business development consultancy, and serves as senior commercial advisor to IPG Legal. His professional involvement with Korea began in 1975.

The original appeared in the Korea Times and may be found HERE.
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

www.ipglegal.com

Feb 5, 2014

Contracts with Korean Companies

If you would like to avoid court expenses and headaches related to your business in Korea, please do yourself a favor and have a contract drafted by an experienced professional prior to conducting any business with a company in Korea.

We handle litigation and arbitration matters for many clients that have either used an attorney without adequate experience in Korea or that have foregone the use of an attorney in favor of form contracts they find on the internet. The matter is, often, complicated because of these, too often, poorly drafted agreements and lack of some basic clauses that would add protections for a non-breaching party.

Any client that pleads that the fee to draft the agreement is too high or that they will just download a form agreement from the internet is immediately sent the following.

The primary reason to have a carefully tailored Korean-specific agreement drafted is the following:

1.  Parties Understand Who They are Going to Bed with and What will Happen under the Covers.  We, often, see a party to a dispute jump into bed with a Korean company before knowing what is under the covers and what will happen when they are both under the covers.  A carefully drafted and explained agreement will allow the parties to know what are the obligations of the parties and, also, know the remedy for not meeting these obligations.  Prior to even discussing any relationship with a party, please don't forget our post entitled: Listen to My Mother: JVs in Asia.

For example, lets say that you contract with a Korean company to provide you with 100 widgets every 90 days.  Without a clause setting out the damages for delay, often the Korean company will sign the agreement and, then, note that they thought this 90 days was, simply, a guideline.  The penalty clause makes the Korean party understand the seriousness of delay.

Also, do not forget due diligence comes before the deal - NOT after the deal is completed.  Sometimes it is better to forgo an opportunity in order to avoid unnecessary risk, expense and headaches . Korea Due Diligence: Not So Different than China.

2.  Non-Breaching Parties Have Remedies through a Korean Court or Arbitrator
The Korean courts will enforce written agreements, but are skeptical to enforce oral promises or relationships based on course of dealings.  A carefully drafted agreement will, normally, consider the major arguments that, typically, occur in Korea and, thus, the issues that may arise in the future will likely be addressed in the agreement.  This, allows, the potentially breaching party to reconsider breaching because of the likely damage from the breach, while, also, providing a remedy for breach.  Thus, in all but the most rare of cases, will an agreement, in Korea, be simply one of these three pagers pulled off the internet.

The Korean courts are ranked Second by the World Bank for the enforcement of contracts.  The ranking maybe be found at: World Bank: Doing Business Ranking of Economies.

3.   Liquidated Damages & Related Remedy Clauses Are Your Friends
Liquidated damages clauses should be utilized in most agreements.  Without an agreement with liquidated damages clauses it is, often, difficult for the non-breaching party to establish damages that equal the actual damages.  For a post on liquidated damages take a look at:  Liquidated Damages Necessary in Most Korean NDAs and Non-Compete Agreements.

4.  Korean Companies Fear Lawyers
Korean companies that know that you have an attorney are less likely to play footsies under the covers.  When having a contract drafted make sure the attorney is capable of, also, negotiating the agreement. 

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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S. www.ipglegal.com