Hanjin Korea Strike may Not Come to an End as Reported in the Korean Media

The Korea Times and other local sources have reported an end to the labor strike at Hanjin Heavy Industries and Construction.

The Hanjin union leaders, who began the strike in protest of impending layoffs, signed an agreement, which consents to the proposed layoffs in exchange for increased retirement benefits and an immediate return to work for the employees.

However, about 60 employees are protesting the agreement, with about 30 chaining themselves atop a 50-meter crane. Thus, a stalemate may be forming between the union leaders and these union members, thus, possibly extending the strike and the negative image to Korea abroad.

Under the new revisions to the Trade Union and Labor Relations Adjustment Act (effective on July 1, 2011) disgruntled union members will be permitted to form new unions within the same company.

However, for collective bargaining, one union, for efficency purposes, must be selected to represent the other union(s). In this way, it is possible for disgruntled employees, that receive the support of the majority of employees, to take over bargaining rights from the present leaders. This case could be the first test of these revisions. We will keep the reader updated.

It was initially believed that this law could help to weaken the power of the most radical of unions. Let's see if the opposite can also be realized.

The implications of the revisions to the Trade Union and Labor Relations Adjustment Act were previously discussed by us HERE.

Debt Collection Cases in Korea on the Rise: Buyers and Sellers Beware

My firm has noticed a sharp increase in the number of requests for the debt collection services of my team. One of these cases involves an unpaid invoice from a British company to a Korean wholesaler for over USD 700,000. The British company was duped by a small paid invoice quickly followed by a unpaid large invoice.

Of course, the Korean company (not a company –one guy and a personal bank account) was not capitalized and has few assets. The case will be handled through a criminal filing. The other matters are for mainly low six-figure debts or claims based on faulty or non-delivered goods.

Some of the cases involved nothing more than scams to the less than careful foreign businesses. Others were caused by the squeeze that the liquidity crisis has put on local small businesses.

I have written articles on this in the past. Please conduct a little due diligence prior to engaging in any agreements with anyone that is not your mother. Please see and carefully follow the post below or you face the risk of needing to utilize us for the collection of your Korean debts.

• Debt Collection in Korea: Protect Yourself

I was a little curious about what caused the increase in the number of debt collection cases over the past few years. The answers by my clients are very revealing when you consider that many American and British buyers and sellers were struggling over the past few years to meet payroll. This led to many of these, normally, careful businesspeople from being pressured by the economic climate to be less careful.

We always advise that it is normally better to lose an opportunity than to be not paid for work that you have completed. We often can quickly determine, by a brief company check and a talk with the local company if the deal is a fraud. Korean crooks are often obvious and a phone call from “your Korean law firm” will, often, cause jitters, fears and sometimes even tears.

Also, if the receiving party's bank account is a company name and also a personal name under or above the company name, be aware that you may be dealing with an individual, not a company. The bank, if it sees one of the correct names as the name on the bank account will, in most cases, not deny the transfer.

The British are Coming: U.K. Law Firms in Korea

One if by Land and Two if by Sea, the British Law Firms are Coming and They are Talking to little Ole Me. Ok, enough of my poor "joke of the week."

The KOR-EU FTA passed and thus British law firms will be able to setup shop in Korea over a five-year three-stage phase-in period.  All of the leading British firms have begun building relationships with an eye to formal partnerships in the future.

KOR-US FTA, however, has stalled because of opposition of some prominent lawmakers in the liberal parties.  The two FTAs are very similar and the opposition has more to do with politics and liberal Nationalism than the contents of the FTA.   American law firms, because of this reality, may be left in the cold. 

We have been approached by many of the British and U.S. firms requesting meetings concerning how to structure a relationship with my team at IPG Legal.

From these meetings, I have found that my team, since it operates in a manner similar to international law firms is much more attractive to the international firms than the top-heavy ubiquitous Korean firms because of these firms' low earnings per attorney and unwillingness to structure into firms with international standards of case management and representation.

I have been informed by clients and these firms that they have noticed that they have noticed no quality shift over the past few years, however, some of these firms noted, to me, that they fear breaking their present relationships out of a fear that they will lose present Korean clients formerly referred by these firms.  I think a happy client will never leave a firm and the Korean clients are also, generally, not happy with their Korean firm, thus, building the opportunity for the Korean law firm to loose your happy Korean client.

We are likely to see some announcements in the near future. 

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SeanHayes@ipglegal.com

Apple Sues Samsung at the Seoul Central District Court for violation of Apple IP

In one of the biggest cases this year, Apple has sued Samsung in a Korean court.

Samsung is a supplier of key components for the IPhone and IPad and has a competing smartphone, tablet, laptop, desktop and software solutions that directly compete with Apple.

The companies are going at eachother around the world.

As one of the most nationalist countries in the Asian region, Korea, with a propensity to disregard/minimize violations of law by the major conglomerates in the belief that protection is needed for these enterprises for the sake of the national interest, will have a unique opportunity to shack this common and naïve belief and finally discount the "Korean Discount" and stimulate foreign investment.

I have no information on the merits of the case, but will update readers when I have the chance to read the complaint.

The future of Korea is not Korean conglomerates, but foreign investment and the development of a vibrant SME market as is the case for most developed and recently developed nations.

The notion that without Samsung and the power that be at Samsung, the country with collapse on itself is naïve at best.

Samsung accounts for a huge, but decreasing portion of the Korean economy, however, job growth is increasing coming not from the big boys, but from SMEs and foreign investment in Korea.

Another interesting aspect of this case is to see will be how aggressive the law firm for Apple will be.

The ubiquitous Korean law firms are notorious for being passive especially in cases that may be detrimental to their reputations with Koreans. Yes, many law firms are also nationalistic especially when foreign attorneys at these ubiquitous firms are powerless and a mere tool to appease clients and proof memos.

Additionally, since so many of the ubiquitous firm clients are major suppliers to Samsung they often ignore the obvious conflict of interest, but work in a manner that doesn't upset Korean clients.

We hope this will not be the case and will be carefully watching this case and will update the reader.

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SeanHayes@ipglegal.com

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).

 

Thesefactors 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.

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 factors increases the risk to the employer.

• Does company have decision power over the content of work of the individual?
• Are company work rules applied to the individual?  
• Does company have considerable control over the work processes of the individual?  
• Does company set the time and date and other specifics of work?  
• Does company own the work assets?
• Can individual use a third party to replace the work of the individual?
• Does individual have business risks associated with work with company?
• Are earnings based on work - not success?
• Does individual near exclusively depend on the work from the company?
• Is the work with the company continuous,thus, not temporary?  
• Is the individual deemed an employee under the Social Security System?

The court may also consider the relevant social and economic situation between the employer and the independent contractor.

 

After a very lively discussion on these factors and the state of independent contractors under Korean Law, we briefly explained the obligations of employers to employees. The two most noteworthy obligations discussed were:

 

Obligations to Employees Under the Labor Standards Act
Employment Security
A justifiable reason can be either a fault attributable to the employee or an “urgent managerial necessity.”  For layoffs based on urgent managerial necessity, an employer must:

• Implement a “rational and fair” criteria in choosing the persons to layoff;
• Give 50 days notice to the union or representative prior to layoff;
• Give 30 days notice (or payment in lieu of notice);
• Provide three years of preferential rehiring;
• Provide written and specific notice of what the “urgent managerial necessity” is. (the near impossible standard for the employer to meet –the “bankruptcy avoidance test” has been changed in recent years to the more easily capable of meeting “rational business” test.)

For dismissals based on cause, multiple notices should be given to the employee unless the violation is a serious violation of law.

 

Retirement Benefits
The LSA states that an employer should provide an employee with 30 days of compensation for each year of service to the company. The rate for this compensation should be based on the average of the last three months of employment. This payment should be made within 14 days of retirement.

 

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SeanHayes@ipglegal.com

Who Won with the Korean Compliance Law?

Appeared in the Korea Times on June 3, 2011.

The National Assembly of Korea has handed Korean companies a fantastic opportunity with the recent passing of amendments to law requiring the appointment of compliance officers to large listed companies.

Various pressure groups in Korea have expressed support and opposition to the new requirements that listed companies employ lawyers or law professors of five years experience to oversee the companies’ compliance obligations and to act proactively to head off legal issues before they escalate.

Some critics of the new law say it is just a way to find employment for some of the thousands of Korean lawyers who, now, qualify each year. Others, such as Ryu Kwang-choon, the manager of the Korean Listed Companies Association, was quoted as saying, “Large companies have a team of lawyers or a legal department and deal with related issues, but small- and medium-sized firms don’t have much need for legal help. Most listed companies are against the idea of having a compliance officer …”

The critics should look to the substantial benefits that will flow to their companies through embracing a board-driven compliance and corporate governance culture within their organizations.

Unfortunately, critics of the new compliance law and those who think that Korean companies do not need to embrace a compliance and corporate governance culture are in denial concerning the real lack of transparency currently displayed by listed companies, and where the country sits in the world on these issues.

Just look at some real facts. The Financial Standards Foundation, a not-for-profit foundation established in 2001 for the creation and maintenance of a global economic and financial system, compiles a country index assessing the financial transparency and governance against 12 Key Standards for Sound Financial Systems.

Korea, with an index number of 32.5 on a scale of 100, ranks 65th out of 93 ranked countries, behind countries such as El Salvador, Tunisia, Japan and Russia. Australia, by comparison, is ranked fourth with an index of 69.17, the U.K. fifth with 68.33 and the U.S. seventh with 65.

Australian companies and the Australian Securities Exchange (ASX) are finding little difficulty sourcing foreign funds and investors for large projects on the back of their financial transparency and good corporate governance systems. Like surveys have come to similar results.

Korean corporate opposition to instituting compliance and good governance programs is in stark contrast to other trading partners and competitors in the East Asian region.

A 2007 Chartered Financial Analysts Institute Center for Financial Market Integrity ― China Corporate Governance Survey noted observations by the International Financial Corporation that: “… a growing number of Chinese managers and entrepreneurs show willingness and desire to improve their corporate governance practices. They are becoming aware that a commitment to good corporate governance (i.e., well-defined shareholder rights, a solid control environment, high levels of transparency and disclosure, an empowered board of directors, etc.) makes a company more attractive to both investors and lenders and ultimately more profitable.”

The Chinese Securities Regulatory Commission in 2001 issued the Code of Corporate Governance for Listed Companies in China. Based on the "comply or explain" principle, this code has “strictly followed” the OECD Principles of Corporate Governance.

The Chinese Ministry of Finance, the China Securities Regulatory Commission, the National Audit Office, the China Banking Regulatory Commission and the China Insurance Regulatory Commission jointly published the Basic Standard for Enterprise Internal Control in 2008, to increase the effectiveness of internal controls in listed Chinese companies, thus reducing risks for companies and their stakeholders.

The standard requires listed companies to conduct self-evaluations of their internal controls, publish an evaluation report and hire qualified agencies to audit the effectiveness of their internal controls.

Korean companies should stop rowing against the tide of world corporate opinion. The sooner that Korean boards (large, medium and small) realize that embracing good compliance and corporate governance practices does not mean that they will lose control of their companies, but will in fact enhance their reputation, and that of their companies, the sooner those companies will show greater profit, and easier access to funds and investor support.

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SeanHayes@ipglegal.com

Korean Commercial Code Revisions Make Capital Reductions in Korea Easier

The recently amended Korean Commercial Code (KCC) will make it simpler for local and Korean foreign-capital invested companies to make nominal capital reductions. The law will come into effect next year.

Previously in the KCC, there was no differentiation between a real capital reduction, in which assets are distributed to shareholders in proportion to their holdings, and a nominal capital reduction (also known as a reduction of capital “without consideration.”)

A nominal capital reduction is, obviously, inherently less cumbersome than a real capital reduction. In the case of a nominal capital reduction, the company in Korea could choose to reduce the book value of assets to, in turn, reduce losses shown in financial statements. This tactic was often used in Korea to help a company show more accurate figures when the real value of the loss is significantly less than the book loss.

However, even though there is no reduction in the company’s total assets, the existing KCC gives the same treatment to these reductions as to real capital reductions. Scholars, for these reasons, have criticized the current version of the KCC.

The amended KCC will allow for differentiation of these two types of capital reductions. In the current version, either type of reduction must be passed by 2/3 of the shareholders present at the meeting representing 1/3 of the total issued and outstanding shares. In addition, the company must go through a creditor protection procedure, in which the company must do the following:

• Notify each known creditor of the decision to conduct a capital reduction;


• Make a public announcement requesting any creditor dissenting to the capital reduction to submit his objection within a designated period (one month or more);


• Compensate these dissenting creditors, provide a security interest in the amount of the creditor’s claim, or entrust a trust company with net assets equal to the claim.

While these requirements are sensible for a real capital reduction, where the creditors risk a company dispensing funds to shareholders rather than paying their debts, they are unnecessary for nominal reductions, in which a creditor’s risk will not increase.

The amendments to the KCC include a provision to exempt companies from the creditor protection procedure in a nominal capital reduction, if it is to compensate for a capital deficiency. In addition, such reductions only require an ordinary resolution to pass. This means that only ¼ of shareholders present, accounting for ¼ of total outstanding shares are needed to pass these nominal capital reductions.

This change will allow businesses to operate more efficiently without the need for the lengthy creditor protection process in cases where creditors are apparently not at risk. If a firm is considering any of these financial strategies, it is always best to contact an attorney experienced in Korean law to advise on the plan.

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SeanHayes@ipglegal.com

Korea, the Land of Perpetual Crisis, is facing yet another crossroads

Korea, the Land of Perpetual Crisis, is facing yet another crossroads -- this time Korean the focus is on renewed challenges facing manufacturing. The weakening Japanese yen together with the growing strength of Chinese manufacturing, not to mention rising costs of local labor, is placing Korea once again as the proverbial shrimp positioned between the two whales.

In fact, to a large degree, the real growth of Korean manufacturing is taking place in Korean-owned facilities outside of Korea. While this trend is real, it does not satisfactorily address what needs to be done overall. There are simply not enough domestic jobs in design, marketing and administration. A core of Korea's economy must continue to be in-country manufacturing as a central economic pillar.

Since this is an English newspaper, I'm writing with the assumption that a disproportionate percentage of readers are expatriate. Consequently, I am specifically writing to this audience, but what I have to say may also apply to Korean managers.

Though only 11 percent of the Korean workforce is unionized, that small percentage has a disproportionate influence on the overall workforce. Furthermore, I suspect when it comes to foreign-owned factories in Korea, the percentage is considerably higher. While some unions have been discredited in the public eye for all ready being well paid and perhaps spoiled, many media-grabbing labor actions highlight a real or imagined "struggle" between management and other employees in many non-unionized employee's minds.

As the old saying goes, "what we have here is a failure to communicate.'' This is the perennial challenge of any organization, but in Korea with cultural, language and sometimes political divides to cross, this issue has the potential to drive even Job up the wall.

The biggest failure for communication is a breakdown in trust between management and employees -- organized or not. And as much as it is easy to blame radical unions, most of the time the fault must be laid at the feet of management for not putting in adequate time and effort back when problems were minor and relatively easily manageable.

Last year, when I was researching our book on doing business in Korea, I had the privilege to interview some of Korea's leading executives and attorneys. Their comments reminded me of my first professional decade as a human resources manager, first working with a bank union in Seoul and later keeping a union out of a Japanese factory in California. What struck me was even after the decades working in sales & marketing, the principles of good labor relations have not really changed -- no matter where one works.

Given the limited space on this page, I will bullet point some of the most important points that can foster management-employee trust, which in turn may get everyone reading off the same page to reduce waste, improve productivity and increase overall competitiveness. Though much of the following may seem aimed at unionized shops, most if not all applies to good employee relations, regardless if there is a union.

1. Establish and hold regular rap sessions between employees/employee representatives and the management team; summarizing the discussion in all-employee memoranda or in company newsletters.
2. Use company training to concretely demonstrate management's commitment to your employees and the Korea operations _ as well as upgrade professional skills and teamwork.
3. Disentangle management's compensation schemes from the union's pay increases. For example, consider keeping management's salary increases on a different cycle from the union's -- and not tied to the same economic benchmarks, such as cost of living, used to rationalize the union's pay increases. Otherwise, you may find collusion between your managers and employees.
4. Hire a new or replace your human resources manager with someone who is not only experienced but also trained. Frankly, from over a decade in international HR, I can tell you there are competent HR professionals but they are in a small minority. Too often general management does not adequately respect the HR function and too often low company expectations allow incompetency to dominate that function.
5. Treat all employees equally at all times, regardless of the manager's natural preferences. This should be a no-brainer, but it's one of those easier-said-than-done issues.
6. Communicate frequently and openly about the real situation of the company to both union leadership and employees so informed employees can in time differentiate between company business concerns and union political concerns.
7. Use athletic and social events as opportunities to signal to the rest of the employees that the union and management are getting along with mutual respect.
8. Put in all the time that is necessary with the union or your employees' concerns -- even if it may seem excessive compared to one's past assignments.
9. Spend at least three times as much time communicating with your management team about dealing with the union as directly communicating with the union. One bad manager can destroy a great deal of union bridge building. This also applies to non-union shops when it comes to good management-employee relations.
10. Be aware that often senior local managers harbor grudges and prejudices against the union or groups of employees. One may find that 90 percent of your management's thinking needs to change. It is equally important to work for change with your managers as with one's union or one's other employees.
11.  Recognize in most instances that management has much more power and resources than the union. If you are a certain distance apart between labor and management, management should travel 90 percent and labor 10 percent -- and then, together, the two can move on and steer back to the center.
12. Don't restrict negotiating to the time of CBA re-negotiations. A skillful general manager is always negotiating. Sometimes he or she will try for a major union concession shortly after a CBA has been signed when the union leadership may be emotionally worn out.
13. Consider unions are often like adolescents in that they are constantly probing to see what their limits may be. It is important to clearly and concretely communicate one's limits and governing principles.
14. Do not allow unions to have a voice in promotions. Promotion is a key management control vehicle. Koreans highly value promotions for social as well as economic reasons. Management should have full control in this area as a way to keep employees in line.

Regardless of how many of the above points may apply to your company, the truly effective manager is the one who personally takes the initiative to learn about his or her employees by walking about and asking questions about them both on a personal level and professional level. Korean employees sincerely appreciate senior managers taking sincere interest in them as human beings and they are often proud to demonstrate their expertise in their given company roles. Often the difference between a successful manager who instills strong employee loyalty versus the remote manager who is often at odds with the employees is whether that executive takes a regular initiative to spend time really trying to get to know the employees and to learn from them how they are making company contributions.

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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.