"Only Primary Contractors Punished, Job Losses: Companies Fear Side Effects of Serious Accident Punishment Act (Comprehensive)"

Report on 5 Potential Issues Arising from the Enforcement of the Serious Accident Punishment Act by FKI
High Possibility of Unfairness Where Accidents Occur at Subcontractors but Only Primary Contractors Are Punished
Concerns Over Job Losses in SMEs and a Rush of Corporate Production Bases Moving Overseas

[Asia Economy Reporter Changhwan Lee] The business community has raised concerns that if the Serious Accident Punishment Act (Serious Accident Act), currently being promoted by the government and political circles, is implemented, the policy effect of reducing industrial accidents will be unclear, while various side effects such as a decrease in orders for small and medium-sized enterprises (SMEs) and the relocation of production bases overseas will occur.

Companies have already been subject to some of the world's toughest penalties related to serious accidents, and they appealed that adding only punitive regulations would impose too much management burden.

The Federation of Korean Industries (FKI) stated on the 6th in a report titled "Five Problems That the Serious Accident Act May Cause" that if the government’s Serious Accident Act proposal currently under discussion in the National Assembly is implemented, numerous unintended policy side effects could arise.

Decrease in Orders and Jobs for SMEs Inevitable

The FKI cited five representative cases. The first is the absurd situation where serious accidents occur at subcontractors, but only the primary contractors are punished.

The government’s Serious Accident Act proposal stipulates that if a business owner or corporation entrusts services, contracts, or commissions to a third party, the obligation for safety and health measures is jointly borne by the third party, and if a serious accident occurs at the subcontractor, the primary contractor is also punished.

At the same time, the law exempts application for workplaces with 50 to fewer than 300 employees for two years after promulgation, and for workplaces with fewer than 50 employees for four years after promulgation. During this grace period, subcontractors, who are the direct parties responsible for serious accidents, may be exempted from liability due to their relatively smaller scale, while only the indirect party, the primary contractor, may be punished.

An FKI official pointed out, "Most fatal accidents occur at small to medium-sized workplaces, and it is unfair that only companies with large scale are subject to punishment."

The second concern is the potential decrease in work opportunities for SMEs. The FKI predicted that with the introduction of the Serious Accident Act, primary contractors may hesitate to expand their business or reduce subcontracting due to the cost burden of managing subcontractors’ safety, which would likely lead to a significant decrease in orders for subcontractors.

According to the government, as of 2019, 42.1% of domestic SMEs are subcontractors, and most of their sales (83.3%) are generated by delivering to commissioning companies. SMEs highly dependent on subcontracting are feared to face serious management difficulties.

The third concern is the lack of expertise in police investigations. Under current law, investigations of violations of the Industrial Safety and Health Act are conducted by labor inspectors from the Ministry of Employment and Labor, who serve as special judicial police officers to ensure expertise in industrial safety.

However, if the Serious Accident Act is implemented, general police officers will directly investigate violations of safety and health obligations at industrial sites, which may lead to a decline in the expertise of industrial accident investigations and inefficiency, undermining the purpose of the labor inspector system designed to compensate for the police’s lack of expertise.

Acceleration of Corporate Exodus from Korea Due to Increased Regulations

Ambiguity regarding compliance targets was also raised as an issue. The FKI expressed concern that the government’s proposal presents the safety and health obligations that business owners and management officials must observe in a comprehensive and ambiguous manner, which could only increase confusion at the actual sites where the law must be complied with. In particular, since there are many workplaces with multiple owners, operators, and managers, unclear responsibility may arise.

Additionally, in cases of services, contracts, and commissions, the proposal does not clearly specify the obligations of primary and subcontractors separately, only stating that they bear the same obligations, making the actual obligations and responsibilities they must bear uncertain.

Lastly, the FKI raised the possibility that the surge in regulations could accelerate the relocation of corporate production bases overseas. The FKI predicted that if the Serious Accident Act is enacted amid the passage of the three corporate regulation laws and the labor union law, the environment for domestic companies will deteriorate to the worst level, significantly increasing incentives for relocating domestic production bases abroad.

They argued that Korean companies are currently subject to the highest level of accident penalties through the Industrial Safety and Health Act compared to major advanced countries overseas, and if additional regulations are introduced, managing businesses domestically will become more difficult.

Choo Kwang-ho, Executive Director of the FKI, said, "Even if the Serious Accident Act is not enacted, the current penalty level under the Industrial Safety and Health Act is already among the strongest worldwide, and looking at cases overseas such as the UK, the effect of stronger penalties on reducing industrial accidents is not clear. When formulating policies, the focus should be on preventing serious accidents rather than imposing harsh penalties on companies."

This content was produced with the assistance of AI translation services.