INSIGHTS

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Key Decisions and Implications from the “2023 Anti-Graft Act Case Digest” With the aim of bolstering ethical standards within the public sector, the Improper Solicitation and Graft Act, commonly referred to as the “Anti-Graft Act,” was enacted in September 2016. Today, more than six years have passed since its implementation, and we are witnessing the accumulation of a variety of legal precedents that reflect diverse real-world scenarios. The Anti-Corruption & Civil Rights Commission (the “ACRC”), the main governing body of the Anti-Graft Act, has released several case digests of the Anti-Graft Act over the years. In July of 2023, it published the “2023 Anti-Graft Act Case Digest,” featuring over 120 cases spotlighting various aspects of the Anti-Graft Act. In the most recent case digest, there was the notable addition of 18 new cases in comparison to last year’s digest. These cases shed light on how the courts have deemed certain conducts to be in violation of the Anti-Graft Act as well as the range of fines imposed based on the severity of the violations, which could all serve as valuable references for the corporate compliance, legal, and auditing functions. In the following sections, we take a look at the key details and potential implications of three noteworthy cases that have been newly added in the “2023 Anti-Graft Act Case Digest.” 1. A Korean Public Official and His/Her Spouse Receiving a Meal Worth USD 100 from a US Company Violated the Anti-Graft Act (Seoul Central District Court Order 2021Gwa76, August 31, 2021) Relevant Facts and Key Findings From 2018 to 2019, an employee of Korean Government Institution A was responsible for the management and construction contract of Facility B in Washington D.C. In August 2019, the above employee, along with his/her family, were treated to a meal worth approximately USD 100 by the representative of a local construction company in charge of constructing Facility B. The court determined that the employee had received a monetary gift in the form of a meal expense from the local construction company in connection with his/her duties in violation of the Anti-Graft Act, and as a result, imposed an administrative fine of KRW 300,000. Implications This case shows how the Anti-Graft Act applies to Korean public officials engaging in activities beyond the borders of the Republic of Korea as the ACRC has previously iterated. In accordance with the “nationality principle” in criminal law, if a Korean public official receives improper solicitation or obtains goods/money from a foreigner outside the territory of the Republic of Korea, the Anti-Graft Act is nonetheless applicable to that official. The decision shows how the ACRC’s stance related to the “nationality principle” is also consistently upheld in the courts as well. Despite the fact that the meal was provided abroad and the provider was a representative of a local US construction company, the enforcement of the Anti-Graft Act affirms the commitment to uphold ethical standards among Korean public officials, regardless of international settings. This decision holds relevance for foreign corporations as well, highlighting the fact that the jurisdiction of the Anti-Graft Act transcends territorial boundaries. It serves as a reminder that preventive measures, such as proactive education, pre-interaction guidance, and post-event assessments, should include conduct occurring outside of Korea and are indispensable when engaging with public officials in locations beyond the Republic of Korea’s borders. 2. An Association-Hosted Golf Tournament Not Deemed an “Official Event Related to the Duties of Public Official” (Suwon District Court Anyang Branch Order 2021Gwa42, March 10, 2023) Relevant Facts and Key Findings An employee of Government Institution C who has exclusive rights over horseracing, attended a golf tournament hosted by Association D, which was mainly comprised of racehorse owners. Association D covered the employee’s golf expenses (approximately KRW 172,500) as well as transportation costs (i.e., bus charter and transportation costs amounting to approximately KRW 46,150). The main issue in the case was whether the golf tournament would fall under the category of an “official event related to the duties of a public official,” thereby permitting the employee to accept the aforementioned benefits. In a subsequent court decision, citing the fact that the above employee is a public official and other participants of the tournament paid for their own golf expenses, the court held that the employee receiving those benefits violated the Anti-Graft Act and imposed an administrative fine of KRW 500,000. Implications In its decision, the court stated “While the perspective of viewing a “golf event” primarily as a means of providing a meal or entertainment may not be entirely unreasonable, it cannot be unequivocally deemed as providing entertainment.” Interestingly, the court recognized that, in certain situations, a “golf tournament” could potentially qualify as an “official event,” citing that Government Institution C had publicly disclosed the attendees of the golf tournament and that the attendees would be provided with golf balls. Nevertheless, the court focused on the fact that members associated with Association D had covered their golf tournament costs through the provision of sponsorships, whereas the employee did not incur any separate expenses. Consequently, the court held that the golf tournament in question did not qualify as an “official event” as defined by the Anti-Graft Act. It is worth noting that if Association D had provided support for the golf-related and other expenses uniformly to all of the attendees, the court may have reached a different conclusion. This case underscores the importance of the requirement for the “official event” exception that benefits have to be provided uniformly to all participants and not just the attending public official and therefore offers valuable insights to companies considering hosting events of a similar nature. 3. Strict Application of the Joint Liability Provisions of the Anti-Graft Act In Determining Corporate Liability (Seoul Central District Court Order 2019Gwa54258, June 9, 2022) Relevant Facts and Key Findings Company Z was entrusted with the management of Facility E under the Korea Electric Power Corporation (“KEPCO”). Company Z’s employee F was the on-site manager (local representative) of Team G that was woking within the KEPCO. On January 11, 2019, employee F provided gift certificates to KEPCO employees H (KRW 300,000), I (KRW 200,000), and J (KRW 200,000), who were responsible for supervising the services provided by Company Z. The core issue raised pertained to Company Z’s liability for employee F’s actions under the scope of joint liability provisions. The gift certificates provided to employees H, I, and J were funded with money that Team G employees, including employee F, contributed on a monthly basis, ranging from KRW 5,000 to KRW 10,000 each. This fund was akin to mutual aid contributions, and Company Z was unaware of its existence. However, the court held that the mere fact that Company Z was unaware of such circumstances or asserting that the company had diligently supervised its employees’ cost expenditures was insufficient to exempt Company Z from liability under the joint liability provisions. Consequently, Company Z was administratively fined KRW 1,400,000. Implications Company Z contended that it was unaware of its employees’ voluntary contributions for the above funds, which were mainly to be used for funeral/wedding-related expenses. Furthermore, Company Z asserted that it had rigorously supervised and restricted cash usage, strictly mandating the use of corporate debit cards for business purposes and bank wire transfers for expenses. Nevertheless, the court held that such circumstances alone did not constitute sufficient grounds to “conclude that employee F’s misconduct fell outside the scope of Company Z’s management and supervision, or that Company Z exercised substantial care and supervision to prevent the violation.” This highlights the stringent stance the court has taken with regard to exemption of corporate liability under the joint liability provisions (Article 24) of the Anti-Graft Act. From the perspective of the company, this raises questions as to the extent of managerial responsibility required to claim exemption from potential liability under the joint liability provisions. The decision should not be interpreted to mean that, “Even if the company undertook thorough supervision and management of company disbursements, this will not be taken as a positive factor in the consideration.” Instead, this case tells us, while thorough management and supervision over disbursements are positive factors, they do not automatically exempt companies from liability when there has been a failure to manage and supervise actions directly related to violations, such as the offering of gift certificates. In other words, in addition to undertaking comprehensive management and supervision related to expenses, a company has the obligation to identify high-risk situations where violations of the Anti-Graft Act could occur (in this case, managing the purchase and use of gift certificates), and if it fails to establish an appropriate control system to address such situation, there is a possibility that the company may incur responsibility for violating the Anti-Graft Act. The trend evident in the above cases is consistent with the recent decisions concerning a director’s duty of oversight, which demand “heightened supervision for tasks associated with anticipated legal risks.” Now, more than ever, it is imperative for companies to recognize and address core risks they face and to implement appropriate measures such as establishing and operating a robust compliance management system. For effective risk mitigation, conducting an objective and thorough analysis, taking into consideration the characteristics of the company’s industry and business practices, is particularly critical in identifying which functional departments/sectors and operational scenarios pose risks. [Korean Version]
2023.08.24

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Proposed Amendment to the Korean Commercial Code Including the Introduction of Virtual Shareholder Meetings and Improvement of Appraisal Rights Regime As we informed you previously, on January 26, 2023, the Ministry of Justice (“MOJ”) presented its annual work plan for 2023 and announced “Five Key Policy Initiatives for 2023” (Link). As part of its initiative to construct a legal infrastructure that can ensure future prosperity, the MOJ announced the following amendments of the Korean Commercial Code (“KCC”) that are aimed to improve the corporate environment and reinforce shareholder protection: 1. Introducing a virtual shareholder meeting system (digitalization of meeting convocation notices, shareholder voting and the meeting as a whole) [First half of 2023] 2. Strengthening shareholder protection in corporate restructuring processes (e.g., recognition of appraisal rights) [First half of 2023] 3. Easing regulations for small-sized companies to promote the establishment and operation of start-ups [Second half of 2023] 4. Improving dividend-related procedures and methods to promote in-kind and stock dividends [Second half of 2023] As a follow-up measure to the items 1 and 2 mentioned above, the MOJ issued an advance notice of the proposed amendments to the KCC (the “Proposed Amendment”) on August 24, 2023 that introduces virtual shareholder meetings and aims to improve the appraisal rights regime. The Proposed Amendment introduces a virtual shareholder meeting system by amending the provisions relating to the place of general shareholders’ meetings, which is expected to fundamentally change how companies respond to minority shareholders and operate general shareholders’ meetings. In addition, the Proposed Amendment addresses a number of practical issues with respect to appraisal rights of dissenting shareholders which are commonly becoming a point of importance for various types of corporate restructuring, such as mergers, spin-offs, spin-off mergers, comprehensive stock exchanges and transfers, and business transfers. In particular, the following issues have been ameliorated by reference to foreign legislative examples: (i) the issue of double payment of dividends and default interest (owing to the fact that the dissenting shareholder gets both the shareholder and creditor status recognized during the ongoing dispute over the purchase price of appraisal rights) and (ii) the issue of substantial default interest at the rate of 6% per annum (pursuant to Article 54 of the KCC) being imposed even on the undisputed portion of the purchase price (owing to the inability to make a partial deposit). Furthermore, appraisal rights of dissenting shareholders will be recognized in the case of vertical spin-offs that satisfy a certain size requirement. If the Proposed Amendment is enacted into law, dissenting shareholders’ appraisal rights will be recognized also in the case of a vertical spin-off of unlisted companies. Pursuant to the amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act covered in our prior newsletter (Link), dissenting shareholders’ appraisal rights were previously recognized in the case of a vertical spin-off of listed companies only. Key details of the Proposed Amendment are as follows: 1. Introduction of Virtual Shareholder Meetings (1) Digitalization of general shareholders’ meetings as a whole, including notices, holding the meeting, attendance and voting. (2) In addition to the physical meeting of shareholders, the following types of virtual shareholder meetings will allowed pursuant to the company’s articles of incorporation: Fully virtual shareholder meeting where all shareholders are present via electronic means of communication (It is not permissible to allow only the fully virtual shareholder meeting to rule out the physical shareholder meeting and the parallel virtual shareholder meeting). Parallel virtual shareholder meeting for which shareholders may choose between physical attendance at the place of convocation and attendance by electronic means of communication. (3) In relation to the method of obtaining shareholders’ consent for sending meeting convocation notices by means of electronic documents, it is stipulated that shareholders’ consent may be obtained by electronic means in accordance with the Enforcement Decree of the KCC. 2. Improvement of Appraisal Rights Regime (1) Appraisal rights will granted to dissenting shareholders in the event of a vertical spin-off in excess of 10% of the total assets of the spun-off company. (2) Dissenting shareholders to be converted to creditor status if the purchase price calculated by the company is fully paid by the effective date of the corporate restructuring event (such as merger and spin-off). (3) In the event of a dispute over the purchase price, there will be an option to make a deposit of an amount that is equal to or greater than the purchase price notified by the company to the shareholder in connection with appraisal rights (i.e., partial deposit to be allowed). (4) Required to provide shareholders with specific grounds for calculating the purchase price of appraisal rights and to guarantee the right to review and make copies of relevant records. The MOJ plans to consider opinions from various stakeholders following its advance notice and to have the Proposed Amendment passed at the National Assembly’s regular session this year, with the goal of having the amended KCC come into force during the course of next year. With the enactment of the Proposed Amendment, there is likely to be a significant impact on how companies respond to minority shareholders, operate general shareholders’ meetings and implement corporate restructuring transactions, which would warrant close attention. [Korean Version]
2023.08.25

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法律简讯
KFTC Issues Guidelines on Self-Management of Dark Patterns On July 31, 2023, the Korea Fair Trade Commission (the “KFTC”) issued a new set of Guidelines on the Self-Management of Dark Patterns (the “Guidelines”) providing specific guidance on how companies can avoid using dark patterns (i.e., deceptive marketing schemes) in their online user interfaces. Created as a follow-up to the KFTC’s announcement of its Policy Direction for Protecting Consumers from Online Dark Patterns on April 21, the Guidelines explain how the KFTC classifies dark patterns into specific types of conduct, and provide guidelines for companies on engaging in each type of conduct, which consumers should also keep in mind when making online transactions. As the Guidelines, though neither legally binding nor designed for the purpose of assessing illegality, are expected to serve as the KFTC’s main standards for its regulation of dark patterns, companies are advised at this time to become familiar with the Guidelines and conduct a thorough inspection of whether there are any dark patterns in the design and operation of their user interfaces, and to take preemptive measures to minimize the risk of misleading consumers. 1. Scope of Application The Guidelines apply to online transactions (i.e., e-commerce transactions, mail orders, online sales brokerage transactions) regulated under the Consumer Protection in E-Commerce Transactions Act (the “E-Commerce Act”), and to online labeling and advertising regulated under the Fair Labeling and Advertising Act (the “FLAA”). 2. Basic Principles and Guidelines for Self-management The Guidelines state that companies (e.g., online vendors, electronic payment service providers), in designing and operating user interfaces, should make it easier for consumers to clearly understand how they operate, and provide the following guidelines for each of the 19 types of dark pattern as classified by the KFTC under four major categories (i.e., defrauding, misleading, obstructive, pressuring) so that consumers may make independent, reasonable decisions based on their personal preferences. The key details of the Guidelines are as follows. The types of conduct that could be seen as violations of the E-Commerce Act or the FLAA that require special attention are marked in grey. Category Conduct Type Description Management Guidelines Defrauding Hidden renewals Renewing service agreements without notifying consumers, when such renewal would result in transitioning free services to fee-based services or charging of higher fees Companies should provide consumers with, in an easy-to-understand manner, information on how their service will, after a certain period, transition from being free or provided at a discounted price to a fee-based service or service based on a higher fee, and obtain their prior and express consent on the scheduled transition and automatic payment for the newly charged or higher fee. Companies should notify consumers of the time and date of such transition, the change in the fee, and method of payment by email or text message at least seven days before the scheduled transition. (Prior notice is not recommended for automatic payment of a monthly fee when there is no change in the fee amount.) Gradual disclosure of costs Intentionally displaying a lower price on the first search results page, then gradually revealing hidden costs as the consumer proceeds to make the purchase, and ultimately charging a higher price that includes the hidden costs When displaying the price of a product, companies should display all compulsory costs that the consumer must pay in order to purchase the product. (Compulsory costs include taxes and public charges (e.g., value-added tax) that will be included in the final consumer price, and service charges and cleaning fees that will be included in the price for using an accommodation facility.) Companies may gradually disclose costs when the final cost of a product will change depending on the options selected by the consumer, but should indicate this possibility on the first page to enhance predictability. Online mall operators should design their user interfaces so that the transaction terms (e.g., product prices) are accurately conveyed to consumers. Displaying a discount rate based on a lower-than-actual total price could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act. Sneak into basket Adding, without notice, a product not selected by consumers in their online shopping basket, inducing them to make an unintended purchase Inducing consumers to make an unintended purchase by sneaking a product they did not select in their online shopping basket could be seen as a violation of Articles 13 (2), 14 (2), and 21 (1) 4 of the E-Commerce Act. Misleading False discounts Displaying false information on discounts to induce consumers to purchase products at higher prices Providing consumers with false information on product discounts could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act and Article 3 (1) of the FLAA. Companies should provide information relating to discounts (e.g., base price, sales price, discount rate) accurately without exaggerating the discount rate by inflating the base price against which the discount rate is calculated, or by indicating that the current sales price is lower than it actually is (in combination with “gradual disclosure of costs”). False recommendations Deleting negative consumer reviews or creating fake positive reviews Unilaterally deleting or hiding unfavorable consumer reviews or ratings, or creating fake reviews or ratings that are favorable to the company could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act and Article 3 (1) of the FLAA. If the company hires an advertising agency to execute such false recommendations, both the company and the advertising agency will be held responsible for the violation of law. Bait and switch Posting content that falsely advertises the sale of products that are not available for sale as “bait” to lure consumers Falsely labeling or advertising the sale of products that are not available for sale (e.g., due to lack of inventory) could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act and Article 3 (1) of the FLAA. Consumers should be informed as soon as possible if the inventory is suddenly exhausted due to a surge in orders. (The Supreme Court decision 2010Du24371, issued on June 28 2012, confirmed that an open market operator violated the E-Commerce Act by falsely advertising that it had sufficient inventory for five days.) Disguised advertisements Exposing consumers to advertisements that are disguised so that they are not recognized as advertisements Companies should clearly indicate that content created for advertising purposes by the company or by another business in exchange for monetary compensation is an advertisement. Disclaimers that the content is an advertisement should be made in Korean. Providing consumers disguised advertisements could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act and/or Article 3 (1) of the FLAA. Trick questions Asking consumers questions that trick them into making unintended replies or choices, or that require significant attention to detail to properly understand Asking consumers trick questions could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act. Companies should design their questions to consumers and their interface layout in a way that enables consumers to clearly understand to which options they have given their consent or not. (i) If consumers have to make more than one selection, they should be asked separate questions for each selection that needs to be made, along with being presented with a separate list of options to choose from to ensure that consumers clearly understand what they are selecting. (ii) The options for each question should be crafted into easy-to-understand sentences, and the use of double negatives should be avoided. (iii) Words that have a clear meaning should be used. The use of words with emotional connotation or ambiguous words that allow different interpretations should be avoided. False hierarchies Using a visually conspicuous design to highlight options that are unfavorable to consumers or favorable to the company, thereby misleading consumers to believe that those are the only options available or that their selection is required When asking consumers to make a decision between options (e.g., select/refuse, agree/disagree, purchase/cancel), the page displaying the options should be designed so that each option is clearly distinguishable in terms of size, shape, and color. Pre-selection of purchase options Pre-select options that are favorable to the company in an inconspicuous manner and induce consumers to inadvertently accept those options without noticing When it is necessary for consumers to give their consent or make a decision, the user interface should be designed in a way that requires consumers to take specific action (through a click or screen touch) for their decision to take effect. Companies should avoid highlighting an option in an excessive manner that makes it seem like it is the only option. When recommending a product to consumers during their process of purchasing or subscribing to another product or service, companies should avoid pre-selecting the option to purchase the recommended item along with the initial recommendation. Obstructive Obstruction of cancellation or withdrawal Prevent consumers from freely cancelling orders, terminating an agreement or cancelling a membership by limiting the means for doing so or making the process more complicated compared to the process for placing orders, entering into an agreement, or joining a membership Consumers should be allowed to cancel orders, terminate an agreement or cancel a membership through the same means used for placing orders, entering into an agreement, or joining a membership. Allowing consumers to place orders, enter an agreement, or join a membership online, while only allowing offline means (e.g., by visiting an office, phone, mail) for cancelling orders, terminating an agreement or cancelling a membership, or not providing a process to apply for cancellation or termination could be seen as violations of Article 5 (4) of the E-Commerce Act. The process for cancelling orders, terminating an agreement or cancelling a membership should be less or at least equally complicated compared to the process for placing orders, entering into an agreement, or joining a membership (based on a comparison of the number of menus or clicks required to complete the two processes). Hidden information Concealing, omitting or downplaying important information that is necessary for making informed purchasing decisions as a means to solicit consumers or engage in transactions with consumers Falsely informing consumers by concealing, omitting or downplaying important information could be seen as a violation of Articles 13 (2) or 21 (1) 1 of the E-Commerce Act. For transactions that occur under certain conditions (e.g., product price, purchase unit, service fee, shipping costs) companies should accurately indicate important information that could influence consumers’ purchasing decisions (e.g., factors for satisfying those conditions, method and time of delivery). Obstruction of price comparison Conduct that makes it difficult to compare the prices or sales conditions of various products Online sales brokers (e.g., platform operators) are not responsible for the obstruction of price comparison caused by errors in information posted by third-party vendors. However, online sales brokers should make efforts to design their user interface (e.g., regarding how product information is entered and search results are displayed) in a way that enables accurate comparison of product information. Online vendors should make the following efforts to enable accurate comparison of product information by consumers: (i) Price comparison information should be provided based on identical terms without applying separate conditions (e.g., whether the payment is made using a particular credit card). (ii) If the purchase requires an additional selection of options, price comparison information should be provided so that the final price includes the price that will be added by making such selection. (iii) The meaning of the words used should be clear. Use of emotion-appealing or dual-meaning words, which could cause consumers to have a different understanding, should be avoided. Online vendors should make the following efforts to prevent consumer harm: (i) Online vendors should provide consumers with, in an easy-to-understand manner, information on product exposure standards (e.g., price, sales volume, release date). (ii) Online vendors should prevent deceptive transactions that redirect consumers, who have selected a product based on an initial price comparison, to a different product (e.g., in terms of its price, size, volume) that is similar but more expensive. Click fatigue Inducing consumers to give up trying to select favorable options or obtain desired information out of exhaustion by requiring an excessive amount of clicks (touches) to make a favorable selection or obtain desired information When a simpler process is feasible, companies should avoid deliberately requiring consumers to go through an unnecessary number of menus or to answer unnecessary questions to make their desired purchase. Making it too difficult to access or select from menus relating to order cancelation, contract withdrawal or processing of complaints or disputes could also be seen as an act of “obstruction of cancellation or withdrawal.” Pressuring Repeated interference Repeatedly urging consumers (e.g., through pop-up notices), to perform a specific action Companies may ask a consumer to confirm a decision he/she has made, but should refrain from asking such questions more than once. Notices asking a consumer to confirm a choice or decision he/she has made should provide an option not to receive such notices for at least one week. Consumers should be allowed to select which types of notices they will receive (e.g., contract information, advertisements, updates, security alerts). Emotional steering Using expressions that appeal to consumers’ emotions to urge them to perform a specific action Companies may use expressions that appeal to consumers’ emotions, but not to the extent that would make it difficult for consumers to understand the meaning of such expressions. When giving consumers different options to select from, companies should use neutral expressions, such as “cancel” or “withdraw.” Limited time offer notification Indicating that a product can be purchased at a discounted price only during a limited time or period to urge them to purchase the product Falsely informing consumers of limited time offers could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act and/or Article 3 (1) of the FLAA. Low stock notification Indicating that a product is low in stock or in high demand to urge them to purchase the product Falsely informing consumers of the inventory status of a product could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act and/or Article 3 (1) of the FLAA. Companies should make efforts to accurately inform consumers about the inventory status of a product. If the inventory is suddenly exhausted due to a surge in orders, the company should notify consumers who have already placed an order of this fact and give them a refund within three business days as is required under Article 15 of the E-Commerce Act. Notification of other consumers’ activities Listing the number of times a product was recently viewed or purchased to urge hesitant consumers to purchase the product Falsely informing consumers of other consumers’ activities could be seen as a violation of Article 21 (1) 1 of the E-Commerce Act and/or Article 3 (1) of the FLAA. Companies should make efforts to accurately inform consumers about other consumers’ activities. 3. Cautions and Considerations The Guidelines are the latest step in the ongoing efforts by the KFTC and other government agencies to create a regulatory environment for dark patterns in line with global trends and developments. Going forward, the KFTC is expected to step up its enforcement of dark patterns-related measures based on the Guidelines, especially considering the increasing number of dark pattern cases in other jurisdictions involving proactive enforcement by foreign competition agencies. Therefore, companies are advised at this time to conduct an internal review of the design and operation of their user interfaces regarding dark patterns in preparation of possible enforcement actions by the KFTC. [Korean Version]
2023.08.22

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Recent Supreme Court Decision: Ruling on Employer’s Criminal Liability for Failure to Pay Statutory Severance by Extended Payment Date Recently, in a case where an employer failed to pay statutory severance by the extended payment date agreed upon by the employer and employee, the Supreme Court reversed and remanded the lower court’s decision, holding that the employer violated the Employee Retirement Benefit Security Act (the “ERBSA”) by failing to make the payment by the extended payment date (Supreme Court Decision 2023Do188, July 13, 2023). Article 9, Paragraph 1 of the ERBSA provides, in principle, that “when an employee separates, the employer shall pay statutory severance within 14 calendar days from the date on which the reason for the payment occurs, provided that under special circumstances, the payment date may be extended by an agreement between the parties concerned.” Additionally, Article 44, Item 1 of the same Act provides for criminal sanctions regarding a person (i.e., registered representative) who violates the above provision. In this case, the trial court and the appellate court found the employer not guilty of violating the ERBSA on the ground that, as long as the parties agreed to extend the payment date within 14 calendar days from the separation date, the employer may not be subject to criminal sanctions for failure to comply with the extended payment date. The primary rationale behind the trial and appellate courts’ decisions is as follows: (i) acts subject to a criminal penalty under the ERBSA are limited to violations of the mandatory provision that “the statutory severance payment shall be made within 14 calendar days from the date on which the reason for payment occurs” and thus, it is difficult to interpret that this provision subjects an employer to criminal sanctions for failing to comply with an extension of the payment date agreed upon by the employer and employee; (ii) the ERBSA should be interpreted in this regard to apply only if either “the statutory severance payment” or the “agreement on extending the payment date” is not made within 14 calendar days from the date on which the reason for payment occurred; (iii) if the parties agreed to extend the payment date, it is appropriate to hold an employer liable for failure to observe the payment date through civil litigation; and (iv) if an employer is subject to a criminal penalty for failure to observe the extended payment date in cases where an employee agreed to receive statutory severance after a long period of time or via long-term installments, the date when the crime occurred and the point at which the statute of limitations commences become unclear. Under such interpretation of the law, acts that are subject to criminal sanctions will inevitably vary depending on the parties’ agreement and such interpretation is against the principle of “no punishment without a legal basis.” However, the Supreme Court disagreed and reversed the appellate court’s decision, remanding the case back to the appellate court. According to the Supreme Court, based on the text, form and purpose of Article 9, Paragraph 1 of the ERBSA, which pertains to the obligation to pay money and valuables within a set deadline, the relevant provision merely allows an extension of the payment date agreeded upon by the parties, and it cannot be deemed to exempt an employer from criminal liability when it fails to pay statutory severance by the extended payment date. Therefore, even if the parties had agreed to extend the payment date, if the employer fails to pay statutory severance by the extended payment date, it constitutes a violation of the ERBSA. In sum, the Supreme Court clarified the extent of an employer’s criminal liability under Article 9, Paragraph 1 and Article 44, Item 1 of the ERBSA by ruling that in this case, the employer violated the ERBSA when it failed to pay statutory severance within the mutually agreed upon extended date. [Korean Version]
2023.08.17

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Enhanced Electricity Business License Review Criteria On August 1, 2023, the notification on detailed review criteria for electricity business licenses was amended (the “Amended Notification”), enhancing various standards related to obtaining an electricity business license (“EBL”) and clarifying the criteria for granting priority to wind farms. The key details of the Amended Notification are summarized as follows: Key Amendments1 Classification Previous Standards Current Standards Financial Capability Its own equity capital ratio in financing plan 10% of the total project cost 15% of the total project cost Minimum paid-in capital to apply for an EBL None 1% of the total project cost Minimum credit rating Project owner with Grade B, unless financing capability is established Applicant with Grade B (without any exception) Preparation Period Preparation period (the date of the EBL - commencement of project) Four years for wind power Six years (onshore wind) and eight years (offshore wind) Construction plan approval period (the date of the EBL - commencement of construction) None Two years for solar and fuel cells Four years for onshore wind Five years for offshore wind Requirements for extension [Preparation period] If there is an unavoidable circumstance [Preparation period] In case of a long term contract for the sale of electricity or REC In case of a reasonable circumstance (only limited to cases where a necessary development permit is or could be obtained) [Construction plan approval period] If there is an unavoidable circumstance [Construction plan approval period] In case of a long term contract for the sale of electricity or REC In case of a reasonable circumstance (only limited to cases where environmental impact assessment is completed) Wind Data Measurement Effective area (i.e., the area to which the EBL can be issued) [Flat areas, public waters] Within a 5km radius (no overlapping effective areas, with consent of other project owners, or area of up to 100km2) [Complex areas such as mountains] Within a 2km radius [Onshore measurement] Onshore area within a 2km radius [Offshore measurement] Offshore area within a 7km radius, provided that the area of the entire power complex may be up to 80km2 within the effective area Validity period (i.e., the period during which the EBL can be applied for the effective area) None Within three years from the issuance of the installation permit (excluding amended permit), provided that any period where unavoidable circumstances (e.g., natural disaster, large-scale fire) occur will be excluded for up to one year Priority criteria in case there are multiple project owners in the same effective area Priority is given to the project owner who obtained an installation permit earlier and installed the wind measuring instrument within six months from the issuance of the installation permit (with a potential extension for unavoidable circumstances) Priority period: within four years from the date of the installation permit Priority is given to the project owner, who obtained an installation permit earlier and installed the wind measuring instrument within six months (onshore) or 12 months (offshore) from the issuance of the installation permit (with a potential extension for unavoidable circumstance) Measurement period One year At least 365 days (not necessarily consecutive days) with at least 90% availability Transitional Provisions The amended criteria will apply to EBLs applied after August 1, 2023 (for applications previously filed but still pending, the amended criteria will apply starting from August 1, 2024); provided, however, that the criteria for wind data measurement and priority will be separately prescribed. For EBLs issued before August 1, 2023, the amended criteria will apply starting from February 1, 2024, when an application is made to (i) amend such EBLs or (ii) obtain approval for a business transfer or acquisition of shares; provided, however, that the application must involve (x) a change of investors or (y) an increase in existing investors’ investment amount. Implications The Amended Notification aims to address a rampant installation of wind measuring instruments for the purpose of pre-occupying or selling potential sites and to resolve the controversy over effective areas by (i) strengthening the financial requirements to apply for an EBL and (ii) simplifying effective areas for wind data measurement and clarifying the priority criteria. Now that the government’s policy, announced in November 2022 to promote renewable energy in an orderly manner, is reflected in the Amended Notification, we expect that renewable energy projects will be pursued by more financially capable businesses, and potential disputes over effective areas and priority rights will be reduced among project owners. Moreover, previously a request to extend the preparation period used to be made as a mere formality and often granted without any issue. However, as the Amended Notification prescribes specific conditions for grating such a request, a dispute may arise as to who should be held accountable if a preparation period is not extended due to a reason not attributable to the project owner (e.g., complaints from local residents). In addition, while the Amended Notification sets forth detailed transitional provisions in connection with the preparation period, the timing for applying the new review criteria, and the validity period for wind measuring instruments, project owners may have diverse interests regarding how these transitional provisions should be applied. Therefore, it will be necessary to closely monitor how relevant authorities will interpret the transitional provisions and the specific scope of their application. 1 This table summarizes the key amendments which may differ in the context of specific facts.
2023.08.11

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