On May 21, 2024, the Cabinet passed an amendment to the Enforcement Decree to the Fair Subcontracting Transactions Act (“FSTA”) which, among others, raises the cap on the total fine mitigation rate for FSTA violations from 50% to 70% to encourage companies to proactively provide relief to subcontractors through the implementation of voluntary remedies, for which the fine mitigation rate cap was raised from 30% to 50% last year. The amended FSTA Enforcement Decree was promulgated upon approval by the President on May 28, and immediately took effect on the promulgation date.
Key details of the amended FSTA Enforcement Decree are as follows:
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Total Fine Mitigation Rate Cap for FSTA Violations Raised From 50% to 70%
The total fine mitigation rate for FSTA violations (previously capped at 50%) is calculated based on two factors: (i) implementation of voluntary remedies (previously capped at 30%), and (ii) cooperation with the Korea Fair Trade Commission (“KFTC”) during its investigation and deliberation process (capped at 20%). The total fine mitigation rate also goes through two adjustments: the first based on how often the company engaged in the violation and how many subcontractors suffered damages due to the violation, and the second based on the company’s willful misconduct or negligence.
Last year, the maximum fine mitigation rate for one of the two factors, (i) implementing voluntary remedies, was raised from 30% to 50% through an amendment to the Notification on Specific Criteria for Imposing Administrative Fines for FSTA Violations. However, as the cap on the total fine mitigation rate remained at 50%, there was little incentive for companies to fully satisfy both mitigation factors. The new total fine mitigation rate of 70% will allow companies to fully benefit from satisfying both mitigation factors (up to 50% for (i) + up to 20% for (ii)).
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New Process for Notifying the Court When the Parties to a Dispute Have Also Separately Filed for Mediation
The amended FSTA Enforcement Decree also establishes the process in cases involving a concurrent dispute mediation and litigation, for notifying the court of the details of the application for mediation and the outcome of the mediation. This is in accordance with the new system introduced under the amended FSTA, which allows the court to suspend trial proceedings until mediation is completed in cases where the parties involved in a dispute separately file for mediation and trial.
Accordingly, when the parties to a dispute have also separately filed for mediation with a fair trade dispute mediation council under the Korea Fair Trade Mediation Commission, the amended FSTA Enforcement Decree specifies that the dispute mediation council shall (i) notify the court of the lawsuit of the details of the application for mediation, and (ii) if the court of the lawsuit suspends the litigation procedure, proceed with the mediation procedure and immediately notify the court of the lawsuit of the results of mediation.
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As the amendment increases the incentive for companies to implement voluntary remedies regarding FSTA violations, companies are advised at this time to conduct an internal inspection of their risks regarding FSTA violations and take appropriate measures to address those risks.
[Korean Version]
