[비즈한국] Companies sometimes make decisions that are difficult to explain solely based on money. Knowing the laws or systems hidden behind these decisions can help you understand the deeper nuances. 'Business Law Insights (Al-Sseul-Bi-Beop)' introduces key points to help understand the flow of business.
The law should align with common sense. If the interpretation of the law does not match common sense, one must rethink whether that interpretation is correct. While the essence of law lies in its coercive power, laws that do not align with reason are neither respected nor enforceable. This is evident from the "obsolete laws" scattered everywhere.
However, the problem is not simple. Common sense differs from person to person, and it can also become outdated. To say that one must always interpret the law according to common sense is to deny the very purpose of the law, which is to realize social justice and promote public interest.
An example of this complex situation is the existence of acts that violate the law but are recognized as legally valid under civil law. If the purpose of a law is limited to administrative enforcement, a violation only becomes subject to administrative sanctions; its validity under civil law is not inherently denied. Legal precedents and theories suggest that such an interpretation is inevitable when considering legislative intent and legal stability.
The concept that an act is "legally prohibited but contractually valid" can be difficult to grasp at first. It raises questions such as: "Why is an illegal state left uncorrected?" or "Is it not an arbitrary judgment and essentially a form of judicial law-making to deny validity in some cases while recognizing it in others?" I often hit a wall during consultations at this very point, and it’s not once or twice that I’ve had to push forward by telling a client, "It's unavoidable due to legal precedent," when they say, "I just can't understand this."
I mention these introductory legal concepts at length because the legal treatment of violations of the Subcontracting Act has recently changed drastically. The Fair Transactions in Subcontracting Act (Subcontracting Act) regulates unfair trade practices that may occur in subcontracting transactions between prime contractors and subcontractors.
The Subcontracting Act has clearer constituent elements compared to other fair trade laws. Regardless of whether a subcontractor has suffered actual damages, a violation of the law can be established solely through formal or procedural breaches, such as failure to provide written documents. Furthermore, perhaps because "gap-eul" (superior-subordinate) relationship disputes are so intense in Korea, cases of violation are well-categorized, making it easy for regulatory agencies to make immediate judgments. As a result, the Subcontracting Act has more enforcement cases than other laws, and when a subject falls under its scope, sanctions are highly likely to be imposed, even if the severity may vary.
Among the acts prohibited as unfair trade practices under this Subcontracting Act is the "prohibition of unfair special clauses" (Article 3-4). This states that prime contractors must not set contract terms that unfairly infringe upon or restrict the interests of subcontractors.
While there is some ambiguity regarding what constitutes "unfair," it is not difficult to infer which clauses are prohibited by the Subcontracting Act by looking at the Korea Fair Trade Commission’s "Guidelines for Reviewing Unfair Special Clauses." These guidelines define an "unfair special clause" as "contract terms set through agreements that affect the rights and obligations between the prime contractor and the subcontractor—regardless of the name or form, such as design drawings, specifications, or site descriptions provided or received when the prime contractor entrusts manufacturing, etc., to a subcontractor—that unfairly infringe upon or restrict the interests of the subcontractor." Specific examples are also listed.
Let’s assume a subcontractor, after overcoming immense hardships through Fair Trade Commission reporting procedures, civil litigation, and other steps, finally gets the unilaterally imposed conditions of the prime contractor recognized as an unfair special clause in violation of the Subcontracting Act. Will the problem be solved by denying the validity of that condition as an unfair clause?
According to past precedents, the answer is no. Supreme Court ruling 2010Da53457 held that even if a clause violates the Subcontracting Act's prohibition on unfair reductions, the act remains valid in light of its legislative intent and purpose. The court ruled that the subcontractor could only claim damages from the prime contractor if the act constituted an illegal tort infringing upon the subcontractor's rights or interests.
The idea that an act remains valid despite violating the Subcontracting Act, with only damages being claimable, seems reasonable at first glance. However, in reality, this precedent presents another difficult task for subcontractors. Even after a subcontractor wins the arduous battle to have a Subcontracting Act violation recognized, they cannot be remediated by that fact alone; they must prove various elements such as the "occurrence of damage," the "causal link between the act and the damage," and the "amount of damage" to receive compensation.
In civil litigation, it is not uncommon for courts to rule, "The tort is recognized, but the claim for damages is dismissed because the occurrence of damages, etc., was not proven." Furthermore, perhaps due to the conservative nature of the courts or legal principles like comparative negligence, the amount of damages recognized in such lawsuits is often far too small from the victim's perspective. In such a situation, seeking relief through Fair Trade Commission reports or civil litigation is a "break-even at best" scenario. No matter how hard one tries, one can never receive more than their original due, leaving most in a deficit.
Any reasonable person would naturally ask this question: "Why not just treat the illegal act as if it never happened and simply return what was exchanged based on that premise?" The idea is to ignore complex concepts like legal stability and simply deny the validity of the illegal act. In this case, since what the prime contractor received from the subcontractor (such as completed work or delivered goods) was obtained without cause, it should be returned to the subcontractor regardless of whether they proved specific damages.
Based on this critical perspective, the revised Subcontracting Act stipulates that the validity of unfair special clauses is completely null and void (effective October 2, 2025). According to this, agreements that pass on costs to the subcontractor for items not specified in writing, agreements that force the subcontractor to pay for complaints or industrial accidents that should be borne by the prime contractor, and agreements that charge for costs not included in the bid are all void. Any agreement that restricts a subcontractor's interest or shifts the prime contractor's obligations to the subcontractor is void if it is significantly unfair to one party.
With the revised Subcontracting Act boldly stipulating the invalidity of unfair special clauses, many changes are expected in the landscape of subcontracting disputes. While there may be voices concerned about the revision in terms of legal stability, from a practitioner's perspective, I believe such amendments are a necessary process. The fact that the Subcontracting Act is being revised promptly to reflect issues raised in the field is a testament to the dynamic nature of our society.