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Letter terminating a consultancy agreement Q&A: South Korea

2021.07.13

South Korea- specific information concerning the key legal and commercial issues to be considered when drafting letters terminating consultancy agreements for use internationally, such as<i> <a href="https://uk.practicallaw.thomsonreuters.com/w-018-3064?originationContext=document&vr=3.0&rs=PLUK1.0&transitionType=DocumentItem&contextData=(sc.Default)&firstPage=true"><span style="color:#2980b9;">Standard document, Letter terminating a consultancy agreement: International</span></a> </i>with country-specific drafting notes.<br />
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See also <i><a href="https://uk.practicallaw.thomsonreuters.com/w-005-3518?originationContext=document&vr=3.0&rs=PLUK1.0&transitionType=DocumentItem&contextData=(sc.Default)&firstPage=true"><span style="color:#2980b9;">Standard document, Consultancy agreement (short form): International</span></a></i> with country-specific drafting notes.<br />
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<strong>Issues that could arise when terminating</strong><br />
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<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">1. What are the main considerations when terminating an international consultancy agreement in your jurisdiction?</div>
<br />
It is important to consider:
<ul>
	<li>Whether the reason for the termination of the contract constitutes a cause for termination under the consultancy agreement.</li>
	<li>The company's obligations on termination of the consultancy (such as notice requirements). </li>
	<li>Post-termination confidentiality obligations.</li>
</ul>
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In addition, the most important issue is whether the consultant or the consultant's employees could be considered the company's employees under the Labour Standards Act, since in that case the circumstances and manner in which the consultancy agreement can be terminated are restricted (see <span style="color:#2980b9;">Question 2</span>).<br />
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<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">2. Are there any legal issues that could arise on termination of the consultancy agreement in your jurisdiction?</div>
<br />
If the service provider is private, it is possible that the service provider will be seen as an employee under the Labour Standards Act, depending on the degree of command and supervision by the company.<br />
<br />
In South Korea, the courts decide based on whether the substance (and not the contractual form) of the relationship is such that the person has been engaged on a subordinate basis to provide labour to the business, or at the place of business, in exchange for remuneration. The courts use criteria such as:
<ul>
	<li>Considerable command and supervision (whether the service recipient gives specific instructions on the content of the service and how to perform it).</li>
	<li>Cost burden and profit attribution (whether the service provider can operate a business on their own account by, for example, possessing supplies or raw materials, and whether they personally bear the risk of generating profits and incurring losses from the provision of service).</li>
	<li>Designation of working hours and place of work.</li>
</ul>
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<i>(Supreme Court Decision 2004Da29736, 7 December 2006.)</i><br />
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Where a consultancy company employs individuals to provide the service, employment status issues may also arise:
<ul>
	<li>If the individual's relationship with the consultancy company is deemed to be merely formal and nominal, and the individual is in the position of a subordinate with the service recipient, the service recipient may be required to assume employer responsibilities, as an implied relationship has been established between the individual and the service recipient (Supreme Court Decision 2004Da29736, 7 December 2006). The Supreme Court has recently recognised such implied relationship where the service provider did not own necessary facilities and the service recipient practically exercised command/supervision on the service provider’s employees (Supreme Court Decision 2019Da267013, 9 April 2020).</li>
	<li>Even if there is a genuine employment relationship between the service provider and the individual, the service recipient may be required to employ the service provider's employees directly, when the substance of the service provided is in fact the provision of workers rather than the provision of service (<i>Article 6-2(1), Act on the Protection, etc. of Temporary Agency Workers</i>). In assessing this, the courts use criteria such as:<br />
	•   whether the service recipient exercises significant control over the employees on the job in a direct or indirect way; and<br />
	•   whether the employee is substantially incorporated into the service recipient's business (<i>Supreme Court Decision 2010Da106436, 26 February 2015</i>).</li>
</ul>
 <br />
 
<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">3. Are there any requirements regarding the length or form of the notice to be given to the consultant?</div>
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If the service provider (or the employee employed by the service provider) is not deemed to be the service recipient's employee, there are no specific requirements regarding the length or form of the termination notice. <br />
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However, if the service provider (or the provider's employee) is deemed to be the service recipient's employee, then the termination of the contract will be seen as a dismissal of an employee. In this case, the employer (the service recipient) must:
<ul>
	<li>Give notice of dismissal at least 30 days before dismissal (Article 26(1), Labour Standards Act).</li>
	<li>Provide the employee with the cause and time of dismissal in writing (Article 27(1), Labour Standards Act).</li>
</ul>
 <br />
 
<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">4. Are there any national agency laws or other legislation that could become relevant when terminating a consultancy agreement in your jurisdiction?</div>
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There are no relevant national agency laws or other relevant legislation, where the relationship is a true consultancy.<br />
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However, if the consultant is seen as an employee under the Labour Standards Act (see Question 2 and Question 3), several employee protection laws will apply, including:
<ul>
	<li>The Labour Standards Act.</li>
	<li>The Trade Union and Labour Relations Adjustment Act.</li>
	<li>The Act on the Guarantee of Employees' Retirement Benefits.</li>
</ul>
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<strong>Confidentiality</strong><br />
 
<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">5. What issues could arise when imposing a new confidentiality obligation on the consultant on termination as set out in Standard document, Letter terminating a consultancy agreement: International?</div>
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The company cannot unilaterally impose a new confidentiality obligation on termination of the consultancy. It would be possible only if the consultant agrees to the new obligation, and on a practical level it would in most cases require some amount of compensation (although providing compensation is not required by law).<br />
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After the company succeeds in imposing a new confidentiality obligation on the consultancy, the following three issues could arise when the consultancy violates the duty:
<ul>
	<li>Contractual responsibility, as set out in Standard document, Letter terminating a consultancy agreement: International.</li>
	<li>Compensation for damage by an unlawful act, under Article 750 of the Civil Law.</li>
	<li>Liability for damages for infringement of trade secrets (that is, technical or business information managed as secret) under Article 11 of the Unfair Competition Prevention and Trade Secret Protection Act. This is punishable by imprisonment with labour for a maximum of 15 years, or by a fine of KRW1.5 billion (if the amount equal to ten times the amount of profit acquired through the violation exceeds KRW1.5 billion, a fine equal to two to ten times the amount of profit) (<i>Article 18(1), Unfair Competition Prevention and Trade Secret Protection Act</i>).</li>
</ul>
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<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">6. Could a new confidentiality obligation on the consultant as set out in Standard document, Letter terminating a consultancy agreement: International amount to a restrictive covenant that could risk a finding of employment status of the consultant, even retrospectively?</div>
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A new confidentiality obligation on the consultant as in Standard document, Letter terminating a consultancy agreement: International would not risk a finding of employment status of the consultant; service provision contracts, including consultancy contracts, can also contain a confidentiality clause.<br />
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<strong>Data protection</strong><br />
 
<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">7. In your jurisdiction, what data protection implications may arise on termination relating to the consultant retaining and deleting information?</div>
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If the service provider no longer provides the service due to the termination or cancellation of the contract, the service provider must return to the service recipient (information controller) the personal information the service provider has acquired in the process of service provision, or delete the information if it is not needed anymore.<br />
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A data subject who suffers damage as a result of a breach of the Personal Information Protection Act by a personal information controller is entitled to claim compensation from the personal information controller for that damage. In this case, the personal information controller may not be released from the responsibility for compensation if they fail to prove non-existence of their wrongful intent or negligence (<i>Article 39(1), Personal Information Protection Act</i>).<br />
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With respect to the compensation of damage arising out of the processing of personal information outsourced to an outsourcee in breach of this Act, the outsourcee will be deemed an employee of the personal information controller (<i>Article 26(6), Personal Information Protection Act</i>).<br />
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<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">8. Are there any other data protection/ privacy issues that may need to be considered when<br />
terminating a consultancy agreement? How can these be addressed?</div>
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No.<br />
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<strong>Execution and other formalities</strong><br />
 
<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">9. Does Standard document, Letter terminating a consultancy agreement: International have to be in writing in your jurisdiction to be valid and enforceable? Are there any language requirements? </div>
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<strong>Does the notification need to be in writing?</strong><br />
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The notification does not have to be in writing to be valid and enforceable, but it is advisable for it to be put into writing to prevent any further disputes.<br />
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<strong>Language</strong><br />
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There are no language requirements. However, when a foreign company signs a contract or sends a letter to a South Korean company or individual, it is advisable to write it in both languages and confirm its contents, to prevent the risk of future disputes.<br />
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<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">10. What are the execution, approval, registration and other formalities that are required for Standard document, Letter terminating a consultancy agreement: International to be valid and enforceable in your jurisdiction?</div>
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No registration or approval is needed for Standard document, Letter terminating a consultancy agreement: International to be effective.<br />
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<strong>General</strong><br />
 
<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">11. Are any of the parts of Standard document, Letter terminating a consultancy agreement: International not legally valid and enforceable or not standard practice in your jurisdiction?</div>
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Standard document, Letter terminating a consultancy agreement: International is legally valid and enforceable, and reflects on standard practice.<br />
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<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;">12. Are there any other standard clauses or wording that would be usual to see in a clause such as Standard document, Letter terminating a consultancy agreement: International and/or that are standard practice to include in your jurisdiction?</div>
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No; Standard document, Letter terminating a consultancy agreement: International is sufficient.

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News Letter terminating a consultancy agreement Q&A: South Korea 2021.07.13

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Marc Kyuha BAEK
+82-2-6200-1937 khbaek@jipyong.com

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