In a Supreme Court decision rendered on June 30, 2022, in relation to an alleged fraudulent hiring of new employees by a large Korean financial institution, the representative officer at the time was found not guilty on all charges.  Additionally, the key stakeholders, including the head of the HR department, were found not guilty of the majority of the charges and guilty only of a minimal part of the indicted facts, resulting in the suspension of sentences or fines.

Alleged concerns about violations of the law in the hiring process of banks were raised during the 2017 National Assembly Audit, and thereafter the Financial Supervisory Service conducted a full investigation on financial institutions in Korea, including commercial banks, and requested investigations by the Prosecutors’ Office (the “PO”).  In September 2018, the PO indicted our client, the representative of a financial institution at the time, and officers and employees of the HR Department for providing preferential treatment to certain applicants and intentionally adjusting the gender ratio in the process of hiring new employees.  The issues in dispute during the trial included the alleged obstruction of business and violation of the Equal Employment Opportunity and Work-Family Balance Assistance Act.

The PO argued that the defendants interfered with the company’s hiring process and job interviews during the recruitment process, discriminating against applicants based on their gender without a reasonable basis.  Counsel for the defendants, including Kim & Chang, countered the PO’s claims based on the legal principle of the crime of business obstruction and relevant materials from the recruitment process, leading to the court’s acquittal.

The key details of the trial are as follows:
 

• During a total of 45 hearings held at the Seoul Eastern District Court, the Prosecutor’s Office (the “PO”) submitted a total of 17 volumes of evidentiary materials covering 974 cases.  From 2013 to 2016, the PO examined the HR personnel in charge of open recruitment of new employees and interviewed both the interviewers and the defendant.  The counsel for the defendant also examined a number of witnesses and the defendant.  During the district court trial, the PO and the defense counsel submitted a number of briefs on the legal principle of the crime of business obstruction.  In particular, our firm actively argued in individual briefs and witness examinations that there was a legitimate reason to hire each of the applicants who the PO alleged had received preferential treatment.  Furthermore, our team also fiercely disputed the admissibility of evidence, including whether the applicants consented to the evidence submitted by the PO, whether the hearsay rule is applied to documents submitted in relation to the recruitment process, and whether the PO asked leading questions during the examination.  Our firm’s argument that some of the evidence was not admissible was accepted, thereby excluding some evidentiary materials submitted by the PO.  On January 22, 2020, the Seoul Eastern District Court partially acknowledged that the representative and head of the HR Department incumbent at the time interfered with the interviews but suspended the sentence of imprisonment. Other defendants were sentenced to fines.  All of the defendants were found not guilty of violating the Equal Employment Opportunity and Work-Family Balance Assistance Act.

• The Seoul High Court held a total of nine hearings to examine the witnesses who mainly disputed the elements that constitute the crime of business obstruction.  On November 22, 2021, the Seoul High Court found the defendant not guilty on a broader scope than the lower court.  Contrary to the lower court’s decision, the appellate court found the representative not guilty on all charges and the head of HR Department not guilty on most of the indicted facts.  It therefore imposed a fine on an extremely small proportion of the charges found guilty.  In addition, the appellate court maintained the lower court’s decision that all of the defendants were not guilty of the alleged violation of the Equal Employment Opportunity and Work-Family Balance Assistance Act.

• On June 30, 2022, the Supreme Court dismissed the appeals of both the PO and the defendants, and the decision became final and conclusive based on the appellate court’s judgment.

After the National Assembly Audit and the Financial Supervisory Service’s full inspection in 2017, a number of Korean financial institutions underwent investigation by the PO for allegations of unlawful hiring.  At the time, several criminal cases were filed in relation to those alleged unlawful hirings.  In addition to the dispute over the interpretation of the legal principle on crime of business obstruction, we were able to substantiate that the circumstances in this case were different from criminal cases dealing with unlawful hiring of other financial institutions, which ultimately led to the judgment that the hiring at issue did not constitute business obstruction.

In this case, the key issue disputed was whether provisions on the crime of obstruction of business under the Criminal Code can apply to a private company’s recruitment and decision-making process.  The court acknowledged that certain applicants’ information was delivered to the recruiting team by certain HR personnel.  However, the court ruled that, unless there is a separate law that prohibits and regulates the “delivery and consideration of personal information,” and partially acknowledging the limitations of the provision, the provisions on crime of business obstruction under the Criminal Code cannot apply to the act of “delivery and consideration” itself.  Nonetheless, the court maintained the legal principle of precedent that the crime of business obstruction by fraudulent means may be recognized depending on the involvement of the HR Department.  However, the court held that (i) a judgment on the fairness of a hiring process shall be based on whether each applicant was hired through due process, and (ii) even if the recruiting team was aware that the personal information of a certain applicant was delivered through internal or external channels, if the applicant’s abilities and capabilities satisfied the company’s recruiting objectives and the applicant was hired following a legitimate screening process by the recruiting department, he or she should be deemed an applicant who passed the recruiting procedure lawfully based on fair procedures.  Therefore, the court ruled that the allegations concerning the applicants did not constitute business obstruction.

In conclusion, we advise private companies to prepare materials that support the legitimate qualification of each applicant during an open recruitment process, by recording the details of qualitative and quantitative assessments of applicants who passed the recruiting process.