Fair Trade Commission: "Koas cuts subcontract payments claiming defects despite no product issues... Correction order and fines imposed"

[Sejong=Asia Economy Reporter Joo Sang-don] Koas was sanctioned by the Fair Trade Commission for imposing disadvantages on subcontractors citing product defects despite no issues with the products, or for reducing subcontract payments by preparing settlement documents as if there were returns when there were none. It was also revealed that Koas engaged in an illegal act of recovering fees by lowering product unit prices after paying substitute payment fees.

On the 11th, the Fair Trade Commission announced that it decided to impose corrective orders and fines on Koas for such actions.

According to the Fair Trade Commission, from September 2015 to August 2018, Koas committed unfair subcontracting trade practices such as ▲unjust reduction of subcontract payments ▲non-payment of subcontract payments ▲violation of the obligation to issue written documents while outsourcing furniture parts mold manufacturing.

Koas reduced subcontract payments by 15.31 million KRW by imposing penalties even though there were no defects in the products delivered by subcontractors. The Subcontracting Act generally prohibits reductions in subcontract payments. Exceptions are only recognized if the principal business operator proves justifiable reasons. However, the penalty imposition meeting minutes confirmed by the Fair Trade Commission lacked even signatures of attendees, casting doubt on their credibility, and the legitimacy of the penalty imposition was not proven at all.

Additionally, Koas reduced subcontract payments by 36.2 million KRW by preparing settlement documents as if there were returns when no products had been returned. They continuously included items not produced or delivered by subcontractors in the return records and reduced payments accordingly, which objectively lacked justifiable grounds.

Koas also failed to pay subcontract payments. While outsourcing mold manufacturing to subcontractors, Koas agreed to pay part of the payment in advance and then pay the balance in installments each time products produced from the mold were ordered, but failed to pay the remaining balance. Furthermore, Koas did not pay additional costs when instructing mold modification work.

There was also an illegal act. Koas paid substitute payment fees, which the Subcontracting Act requires to be paid to subcontractors, but then lowered product unit prices to recover 22.55 million KRW of the fees already paid. The Fair Trade Commission judged that this effectively resulted in not paying the fees through unjustified product price reductions.

Moreover, after outsourcing mold production, Koas instructed mold modifications such as adding protrusions and changing shapes five times in September and October 2015 and October 2016, but did not issue written documents before subcontractors began work.

Accordingly, the Fair Trade Commission imposed corrective orders (including recurrence prevention orders and a payment order of 115 million KRW) and a fine of 59 million KRW, requiring Koas to ▲issue written documents before starting work ▲refrain from unjustly reducing subcontract payments ▲pay unpaid subcontract payments ▲and refrain from evading the Subcontracting Act through indirect methods.

A Fair Trade Commission official stated, "This action is significant in putting a stop to habitual unfair subcontracting practices that disadvantage subcontractors by exploiting superior positions in the principal-subcontractor relationship," and added, "We will continue to actively consider payment orders to ensure prompt and effective relief for victim companies through thorough investigations."

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