February Commercial Act and April Industrial Safety Act in Succession... Companies Say "We'd Rather Leave Korea"

Separate Appointment of Audit Committee Members and 3% Rule, Emergency at General Meeting
Enhanced SanAn Act Sentencing Guidelines to Apply Around April
Labor Union Act in July and Serious Accident Act in January

[Asia Economy Reporter Kiho Sung] Korean companies are being driven into a state of near collapse amid a sweeping "perfect storm of corporate regulations." Despite continuous appeals from the business community, the three corporate regulation laws (amendments to the Commercial Act, the Fair Trade Act, and the enactment of the Financial Group Supervision Act) were passed at the end of last year, and the legislation of the three punitive laws (the Serious Accidents Punishment Act, the Class Action Act, and the Punitive Damages System) will be finalized by next month. Furthermore, various regulatory bills are scheduled to be fully enforced starting at the end of next month, plunging companies into unprecedented crises and panic. Some fear that the perception of Korea as a "difficult country to do business in" will spread, fueling movements toward the "de-Koreanization" of companies.

According to the business community on the 14th, the immediate fire under companies’ feet is the regular shareholders' meetings starting at the end of next month. This is because the amendments to the Commercial Act passed at the end of last year will apply from this shareholders' meeting onward. The amendments require that at least one audit committee member be elected separately from directors, and limit the voting rights of the largest shareholder to 3%. Additionally, a "multiple derivative lawsuit system" was introduced, allowing parent company shareholders to file derivative lawsuits if subsidiary directors fail to properly manage the company.

Asia Economy conducted a comprehensive survey of the audit committee members’ terms of office for 70 listed affiliates of the five major groups?Samsung, Hyundai Motor, SK, LG, and Lotte?and found that out of a total of 188 audit committee members, 58 will have their terms expire this year. This accounts for 30.9%. In particular, Hyundai Motor Group is the most urgent, with 17 out of 43 members across 12 companies needing replacement due to term expiration, representing 40%. These companies must immediately appoint audit committee members in accordance with the newly revised 3% rule.

In April, the strengthened sentencing guidelines under the Industrial Safety and Health Act (SanAn Act) are expected to be applied. Recently, the Supreme Court Sentencing Commission significantly increased the basic sentencing for business owners who fail to fulfill safety and health obligations resulting in worker deaths, from the previous 10 months to 3 years and 6 months imprisonment to 2 to 5 years. In cases of particularly bad offenses, the maximum statutory sentence can be up to 7 years imprisonment, and for repeat offenders or multiple offenses within 5 years, the maximum sentence can be up to 10 years and 6 months. The revised sentencing guidelines are scheduled to be finalized at the plenary meeting on March 29 after a public hearing. Once confirmed, the guidelines will be published in the official gazette within a month and can be enforced at any time thereafter.

The sentencing commission’s decision to increase penalties is also interpreted as an attempt to fill the temporal gap until the Serious Accidents Punishment Act (Serious Accident Act), which passed the National Assembly on the 8th, comes into effect. The Serious Accident Act is set to be enforced one year after its promulgation, but a three-year grace period was granted for workplaces with fewer than 50 employees. However, with the increased penalties under the SanAn Act, the three-year grace period gap of the Serious Accident Act has effectively disappeared.

In July, the amended Labor Union and Labor Relations Adjustment Act (Labor Union Act) will be enforced. This law will allow unemployed and dismissed workers to join company-specific labor unions. Additionally, non-working union members such as dismissed and unemployed workers will be allowed to enter workplaces. As a result, it is expected that scenes of dismissed workers engaging in reinstatement struggles and strikes within workplaces will become common. The business community had argued for measures to strengthen companies’ countermeasures, such as allowing replacement labor, abolishing criminal penalties for unfair labor practices, banning strikes within workplaces, and introducing validity periods for strike approval votes, but none of these were accepted.

Companies are in a state of panic. The Korea Employers Federation (KEF), the Korea Federation of Small and Medium Business, the Korea Federation of Medium-sized Enterprises, and the Korea Listed Companies Association recently requested supplementary legislation on the Commercial Act, the Fair Trade Act, and the Labor Union Act from the National Assembly. However, the ruling party, which holds the majority in the National Assembly, has shown little response and is instead accelerating the introduction of new regulatory bills.

An industry insider pointed out, "Externally, speculative forces may gain ground due to the amendment of the Commercial Act, and internally, dismissed workers may gain influence through the Labor Union Act, creating the worst possible situation." He added, "Because the timing of the enforcement of these regulations is concentrated all at once, a perfect storm threatening the survival of companies is expected."

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