Four Companies Reported to the Fair Trade Commission for "Subcontracting and Fair Trade Act Violations"

Ministry of SMEs and Startups Holds the 12th Mandatory Prosecution Request Deliberation Committee Meeting

[Asia Economy Reporter Kim Cheol-hyun] The Ministry of SMEs and Startups (Minister Park Young-sun, hereinafter referred to as the Ministry) has decided to request the Fair Trade Commission (hereinafter referred to as the FTC) to file charges against four companies that violated the Subcontracting Act and the Fair Trade Act.

On the 22nd, the Ministry announced that as a result of the 12th Mandatory Prosecution Request Deliberation Committee held on the 21st, it decided to request the FTC to file charges against Hanssem, Daelim Industrial, Daebo Construction, and Chris F&C. This is in accordance with the 'Mandatory Prosecution Request System' implemented since 2014, which allows the Ministry to request prosecution for cases where the FTC has not prosecuted companies violating the Subcontracting Act and other Fair Trade laws, considering the damage caused to SMEs or the social ripple effects. Once requested, the FTC is obligated to prosecute to the prosecution.

The four companies requested for prosecution this time were explained by the Ministry as having caused significant damage to SMEs through illegal acts such as shifting costs to SMEs by abusing their superior bargaining position or non-payment of subcontracting fees. First, Hanssem conducted sales promotion events at kitchen furniture showrooms from January 2015 to October 2017 without prior consultation on the methods, scale, and costs of the promotion with the franchise agents, unilaterally imposing promotional costs of 3.4 billion KRW on about 120 franchise agents. As a result, the FTC issued orders to prevent recurrence, notified the violation facts, and imposed a fine of 1.156 billion KRW. The Ministry decided to request prosecution because Hanssem caused financial damage to franchise agents by abusing its superior position, the violation period was prolonged, and as the market leader in kitchen furniture, the social ripple effect was considerable.

Daelim Industrial subcontracted manufacturing and construction to 759 SMEs from April 2015 to April 2018, failing to pay about 1.5 billion KRW in subcontracting fees and delayed interest on advance payments, and either did not issue written contracts or issued them past the legal deadline. The FTC issued orders to prevent recurrence and imposed a fine of 735 million KRW. The Ministry decided to request prosecution due to the large number of affected SMEs, the prolonged violation period, and the multiple types of violations committed by Daelim Industrial.

Also, Daebo Construction subcontracted construction to 117 SMEs from February 2016 to November 2018, receiving completion payments in cash from clients but paying SMEs with promissory notes instead of cash, and failing to pay a total of 250 million KRW in subcontracting fees and delayed interest. The FTC issued orders to prevent recurrence and imposed a fine of 93 million KRW. The Ministry explained that Daebo Construction has a history of similar violations and repeatedly committed violations over a long period, causing damage to many SMEs, which led to the decision to request prosecution.

Chris F&C subcontracted clothing manufacturing to 96 SMEs from November 2014 to October 2018, requiring them to purchase about 120 million KRW worth of its own clothing products and failing to issue written contracts confirming important matters such as contract deposits and payment methods within the legal deadline. The FTC issued orders to prevent recurrence and imposed a fine of 135 million KRW. The Ministry decided to request prosecution because failing to issue written contracts within the legal deadline in subcontracting transactions is a serious violation that must be eradicated to protect SMEs' basic rights and prevent damage, and Chris F&C caused damage to SMEs for its own economic benefit without justifiable reasons.

Kang Sung-chun, Vice Minister of the Ministry, said, "This prosecution request is meaningful in that it calls for strict punishment for violations that cause the most hardship and damage to SMEs, such as unfair economic demands using superior bargaining positions, non-payment of delivery fees, and failure to issue contracts, which are fundamental in subcontracting transactions." He added, "Through this prosecution request, the Ministry expects to prevent recurrence of similar violations and raise awareness in the same industry," and emphasized, "to root coexistence and mutual growth, the Ministry plans to strictly deal with chronic unfair practices where large companies abuse their superior position to harm SMEs or repeatedly violate laws, especially during national emergencies like COVID-19."