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In order for a termination for business needs to be valid, an urgent business need must exist. The employer must also have made its best efforts to avoid terminating its employees, used reasonable and fair selection criteria to select the employees to be terminated and engaged in good-faith discussions with the employees' representative. The selection of employees for termination raises a number of issues.
Dismissal of poorly performing employees may expose employers to legal liabilities and expenses, as the Korean courts have shown a tendency to rule against dismissal based on poor performance. Therefore, before dismissing an employee on such grounds, an employer should carefully consider a number of factors in order to minimise the potential legal risks that may arise from the dismissal.
It is common practice in Korea for a company to bring in the employees of a subcontractor to work at the company's facilities along with its own regular employees. However, this practice can expose a company to legal risks, including labour disputes with the subcontractor's employees, an obligation to hire such employees directly and/or criminal liability.
'Ordinary wage' and 'average wage' are statutorily defined terms and used as the basis for calculating certain employee benefits. The Supreme Court recently held that regular bonuses paid commensurate with years of service on a quarterly basis should be included in the calculation of ordinary wages. In light of this decision, employers should seek advice on their existing bonus payment scheme.
As a follow-up to its comprehensive plan to improve the protection of non-regular employees, the government recently promulgated amendments to six labour laws. The amendments cover the acts on dispatched workers, fixed-term and part-time employees, employment welfare, labour standards, collection of insurance and minimum wages.
The new Personal Information Protection Act is not limited to information that is processed by computers or other electronic devices - it also covers personal information about employees and executives of private enterprises. As a result, employers will need to obtain consent from employees throughout the different stages of employment for the collection, use and provision of their personal information.
At the end of 2006 the National Assembly approved a package of tax law amendments for 2007. Among other changes, the amendments reduced the withholding tax rate applicable to interest paid to foreign investors. In addition, the Ministry of Finance and Economy has proposed further amendments that may affect foreign investors investing in Korea.
The Supreme Court has issued a landmark decision that will have a major negative impact on the Korean leveraged buy-out market. Overturning a lower court's decision, it held that the defendant had committed an occupational breach of trust under the Criminal Code when he utilized the acquired company's assets as collateral for borrowing to finance a leveraged buy-out transaction.
The Fourth Civil Division of the Seoul High Court has issued its decision in a copyright lawsuit filed by the mother and brother of the late Korean singer Kwang Seok Kim against Kim's widow and daughter. The dispute centred on the use of songs from Kim's original albums to produce new posthumous albums.
The Korea Fair Trade Commission has enacted amendments to a number of guidelines concerning monopoly regulation and fair trade, in particular to the M&A review guidelines. The guidelines seek to minimize difficulties faced by companies undergoing M&A reviews and increase the efficiency of the review process through selection and concentration.
Spearheaded by the Ministry of Justice, the Korean government is working on comprehensive changes to the Commercial Code. One proposed amendment introduces a freeze-out provision, which will allow a company's largest shareholder to eliminate those minority shareholders which it believes may be troublesome.
The Korean tax authorities are concerned that a free trade agreement with the United States may allow multinational enterprises to manipulate import prices further and reduce their Korean taxable income. Maintaining separate valuation systems for the transfer pricing and customs valuation regimes addresses the issue, but may entail significant compliance costs for companies engaged in cross-border transactions.
Records held by the US and Japanese customs authorities for 2001 show Korea to be one of the top three countries for producing counterfeit goods. However, due to the concerted efforts made by the Korea Customs Service in recent years, Korea became the most successful country for IP rights protection at the 2006 conference of the World Customs Organization.
The government has named Labuan, Malaysia as the first country to be placed on the blacklist of countries presumed to be a jurisdiction used for tax-avoidance purposes. The publication of the blacklist is the culmination of action begun by the ministry in 2005 to amend various aspects of the tax laws to combat perceived abusive tax-avoidance structures used to channel investments into Korea.
To date, Korea has entered into income tax treaties with more than 65 countries. In 2006 three new income tax treaties have come into effect between Korea and Laos, Oman and Slovenia. The treaties set out withholding tax provisions and lay down rules establishing in which country capital gains should be taxed.
New legislation regulating corporate and individual insolvency proceedings (including both liquidation and rehabilitation) has come into force. The new Act on Rehabilitation and Bankruptcy of Debtors unifies and replaces four separate insolvency laws.
The National Tax Service has expressed concern over the adverse impact of aggressive tax planning and proposed defensive measures. Aggressive tax planning refers to tax-planning techniques that undermine the government's tax policy and erode confidence in the fairness and equity of the taxation system.
The Supreme Court recently affirmed that six US, German and Japanese graphite manufacturing companies had violated the Monopoly Regulation and Fair Trade Act when they engaged in cartel activities outside Korea. It held that agreements between the companies to fix and maintain product prices in the international market directly affected the Korean market.
The National Tax Service has made public its internal guidelines on tax audit procedures for the first time in its history. The disclosure comes in response to public criticism of the lack of transparency during tax audits, and is expected to enhance transparency in tax audit practices.
The Seoul Southern District Court has rendered a decision prohibiting the exercise by the largest shareholder of voting rights attached to treasury shares purchased from Daelim Trading Co Ltd, holding that the sale of the treasury shares by Daelim was void.
A proxy battle between the management of KT&G Corporation and a group of dissident shareholders has culminated in the first election of a foreigner nominated by a foreign shareholder to the board of directors of a Korean listed company without the support of the company's management.
The Seoul Administrative Court has upheld a ruling of the Korean Trade Commission that certain Indonesian paper exporters had violated Korean anti-dumping regulations and had not observed the imposition of anti-dumping duties by the Ministry of Finance and Economy following the commission's ruling.
The Financial Supervisory Commission has amended two important securities regulations. The amendments affect (i) the procedure for calculating the conversion price of some convertible bonds and the exercise price of some bonds with warrants, and (ii) the calculation of the timing requirements for the filing of a substantial shareholding report.
The government has introduced revisions to the customs legislation designed to streamline customs procedures in Korea, as well as to grant more administrative powers to the Korean Customs Service. The most notable amendment is the expansion of the Customs Service's jurisdiction over foreign exchange transactions.
Following the revision of major Korean tax laws relating to domestic transactions at the end of 2005, the Ministry of Finance and Economy issued revised enforcement decrees to be incorporated into the Korean tax legislation for 2006. Enforcement decrees provide a more detailed description and explanation of how the relevant provisions of the law are to be interpreted and enforced.
The Korea Fair Trade Commission recently updated its standard subcontract for the software industry. It is recommended that the subcontract be used as a guideline when an entity enters into a subcontract agreement to implement and integrate a software application for a company that provides a packaged or customized software end product to end users.
Despite the settlements reached by Microsoft in two antitrust complaints against it, the Korean Fair Trade Commission (KFTC) has found the US software giant to be in violation of the country's fair trade laws and regulations following a four-year investigation. The KFTC ordered Microsoft to cease bundling Windows and to pay heavy fines.
Microsoft has succeeded, at least in part, in settling the two antitrust cases filed against it in South Korea by Daum Communications and RealNetworks Inc. Microsoft and Daum have actually agreed to collaborate in creating a new partnership that would bring select online content and advertising from Daum to Microsoft's MSN users.
In recent years many Korean companies have listed their shares on foreign stock exchanges. Singapore is geographically and culturally closer to Korea than New York and London. The Singapore Exchange, though smaller in size than Asian competitors such as the Tokyo Stock Exchange, is friendly towards foreign companies and has less stringent listing rules than major stock exchanges.
The amended Monopoly Regulation and Fair Trade Act, and the Enforcement Decree promulgated thereunder, introduce certain major changes to the leniency programme that applies to collusive behaviours. The amended provisions apply to all those who report to or cooperate with the commission after April 1 2005.
Although leveraged buyouts are one of the most common types of merger and acquisition worldwide, in Korea they are still viewed with scepticism by both the government and the business sector. However, a recent criminal case may have set an important precedent for determining the legality of leveraged buyouts.
The amended Korean Securities and Exchange Act will soon come into force. It expressly requires the filing of a report on the purpose of ownership in addition to the shareholding status where a party becomes the owner of 5% of the shares of a listed corporation. Harsher penalties for breach of the reporting obligations are also imposed.
Daum Communication Corp, a Korean internet portal company that provides an instant messaging service, has filed a suit against Microsoft and its Korean subsidiary alleging that the inclusion of Microsoft's instant messaging program in its Windows XP operating system amounts to an illegal abuse of its market power.
The government recently published the revised Enforcement Decree to the Foreign Investment Promotion Act, which implements new measures to attract greater foreign investment into Korea. Such measures include more specific regulations concerning the so-called 'cash grant' and 'project manager' policies.
The Seoul High Court's recent decision in Eun Sub Jung v Pyong Sub Jung 2002 represents a significant landmark with respect to the issue of standing in shareholder derivative actions. However, the case is not yet final and is being appealed to the Supreme Court.
A joint task force from financial and other government agencies has submitted its final plan for the reform of accounting practice to Congress. The final plan includes heightened responsibilities for listed companies, as well as restrictions on auditors and the non-audit services they may provide. It also outlines the applicable penalties.
Thousands of online users recently filed an action seeking damages against internet service providers and Microsoft Corporation in connection with an internet disruption which occurred in Korea in early 2003. Cable and wireless internet connection was interrupted nationwide, causing great inconvenience and financial losses.
The Korea Fair Trade Commission has changed its business combination reporting regulations by issuing Notification 2001-11, which requires foreign companies to report certain significant business combinations occurring between foreign companies outside Korea.
In light of a recent Supreme Court ruling, any party to a joint venture agreement or shareholder agreement with respect to a Korean joint venture company should consider carefully the advantages and disadvantages of having two statutory auditors, and may wish to insist on the company having only one.
The Computer Program Protection Act has been amended in order to encourage the online dissemination of software. The amendments allow internet service providers to limit their liability in the case of any copyright infringement that takes place through their information networks.
The Prosecutor’s Office has indicted the operators of Soribada (Korean for ‘sea of sound’) on the basis of facilitating copyright law infringement. The indictment effectively halted the practice of exchanging popular music files without permission from the copyright holder, and has implications for both the music industry and web users.
The Korean National Assembly has passed the Act on the Designation and Operation of Free Economic Zones, with a view to promoting Korea as a key business hub of Northeast Asia. The act establishes a framework offering incentives for the purpose of attracting foreign investors.
New regulations which recently took effect provide that commercial emails (ie, spam) must be entitled "Advertisement" where appropriate. Material that is unsuitable for minors must also be suitably labelled. Fail to label emails accordingly may incur a fine of up to W5 million.
Korea's Ministry of Information and Communication is reforming the country's domain name system. In the first instance, the Domain Name Dispute Resolution Committee has been established to oversee the mediation of conflicts involving domain names registered in the country-code top-level domain '.kr'.