Archives for May 2008

Use-It-Or-Lose-It Annual Leave in Korea

by Brendon Carr

A common question I get from time to time is whether employee leave not used during the year may be forfeited. Prior to the September 2002 Amendment of the Labor Standards Act introducing the 40-hour workweek, the answer had been “no”. Supreme Court precedents overturned the language of the LSA then in effect concerning leave, because there were so many instances where employers had interfered with the employee’s right to use leave.

But part of the Amendment’s objective was to regularize Korea’s working hours and leave system in line with standards in effect in most other countries around the world, and also to spur a leisure culture. Korea’s previous system had encouraged employees to “bank” their annual leave and request payment therefor, instead of using the leave.

So now under the Amendment use-it-or-lose-it leave is part of Korean law. So long as the Amendment is applicable to the workplace, and the employee is notified of the possibility of loss of leave, the leave may be forfeited.

The rule is the employer must notify the employee of leave forfeiture “two months” before forfeiture of the unused leave, after the employee has failed to designate dates for use of leave in response to the employer’s prior written recommendation of dates to use unused leave. If the employee knows of the loss of leave and still doesn’t take leave, that’s his problem.

The timing of the employer’s notice is not later than 10 days into the third month before the leave would lapse; the employee shall be afforded 10 days from receipt of the employer’s notice to respond in writing with a designation of leave dates. This means the first 20 days of the third month before leave lapses are the key days.

Leave in your company probably is calculated on an annual basis according to the calendar year ending Dec. 31, which is customary for most Korean companies. That means October 1-10 is the window to notify employees they may lose annual leave if they don’t use it. HR should send written reminders with suggested dates to use the unused leave during that period, and require employees to revert within 10 days with written confirmation of what dates they will take leave. Anyone who doesn’t respond shall be deemed to have forfeited the leave. This would all be worked out by the 20th and you could then generate letters (or e-mails—e-mail is written communication) to the affected employees.

As this takes place 60 days out, it seems a little short-fused and possibly heartless and an employer could adopt any softer practice you want to give employees more time to confirm their schedules, so long as the employer gives notice in the proper window.

Among its several changes, the Amendment also changed the accrual of annual leave, changing the base entitlement from 10 days to 15 days per year. And the rate of increase has changed, too—from one (1) day per year of service to a maximum of 20 days, to one (1) day per two (2) years of service after the first year to a maximum of 25 days.

From July 1, 2008 the Amendment is mandatory on all workplaces in Korea with 20 or more employees. Employers choosing to adopt the 2002 Amendment in their workplaces smaller than 20 employees shall need to amend their Work Rules, by agreement of the employees, or wait until the Ministry of Labor announces an implementation date for smaller workplaces. But for foreign investors getting set up in Korea the first time, it’s preferable simply to adopt the Amendment’s more employer-friendly provisions on working hours and annual leave entitlement from the get-go.

May 12, 2008 | Filed Under Employment Law | Leave a comment

Somehow I Don’t Think This is Going to Help

by Brendon Carr

Against the backdrop of plummeting foreign investment and the flight of Korean capital to better investment destinations, Strategy and Finance Vice Minister Choi Joong-kyung told the Korea Times that Pres. Lee Myung-bak’s “business-friendly” face doesn’t necessarily mean that Korea’s getting over its xenophobic attitude toward foreign investment:

“A friendly investor should walk hand in hand with the Korean economy for win-win results, but private equities are not such investors,” he added, suggesting that foreign PEFs are not in the friendly investors’ zone.

PEFs, including Lone Star, have been criticized here for using legal loopholes to avoid paying taxes on their capital gains. Lone Star, the largest shareholder of the Korea Exchange Bank (KEB), was recently found guilty of stock price manipulation involving its acquisition of KEB’s credit card unit.

The Lone Star case is one which is well-documented and known by all who follow Korean business. The “hand-in-hand with the Korean economy” bit is especially ridiculous when one consider’s Lone Star’s barely-majority stake in the bank. Who held the other shares? Why, Korea’s state-owned and government-controlled “policy banks” (Bank of Korea, the local equivalent of the Federal Reserve; and Korea Export-Import Bank) and some other individual investors. When Lone Star rescued the failing KEB and saved its share price, those government and individual shareholders who held the other half of capital benefitted as well. And since the bank didn’t go under, all those thousands of jobs were saved too. You can’t get much more “hand-in-hand” than that. Yet this point is persistently distorted for political gain.

As for the tax angle, this too is a red herring and the constant kvetching is not good for Korea’s reputation with investors. Tax structuring is done by lawyers and accountants who read and understand the applicable tax laws and put together the investment vehicles to comply with laws. That Korea hates its own laws and constantly grouses about foreigners who follow the laws does not help the perception of “rule of law”.

On question regarding Korea’s reputation for xenophobia, the policymaker said, “What we don’t like is speculative investors, such as those pursuing only short-term speculative gains in the currency markets.”

“We welcome all the foreign investors coming to seek long-term investment gains,” he added.

Choi doesn’t seem to get that all investment is speculative. Investors make an educated guess about how their investments will perform based on market conditions and the investor’s expected management input. Being against speculators is anti-business. Oh, and how to parse this guy’s last statement? Just so long as you don’t try to take your profits home, Mr. Foreign Investor.

Is this really the way things are going to go? I was hopeful for the LMB government, but the more things progress (with guys like Choi flapping their gums) the more it appears the plan is not globalization of the Korean economy and a fair marketplace, but merely an end to some of the more overt and egregious harassment of Korean tycoons while harassment of unlucky foreign capital continues.

What a disappointment. Koreans really deserve better than this—their leading companies can and do successfully compete in a global marketplace outside Korea. More Korean companies ought to have the opportunity to sharpen their game against the best fair competition even in their home market.

May 11, 2008 | Filed Under Foreign Investment, Hub of Hubs, Lone Star | 4 comments

Korea Gets Serious About Child Support Order Enforcement

by Brendon Carr

It’s not business law, but I think this is an interesting tidbit. Today’s Law Times, Korea’s legal-industry newspaper, carries an article headlined “Child Support Orders Ineffective”—over a story telling us, well, how ineffective are the child-support orders issued by the Korean court in divorce cases. But there is good news: Legal reforms being proposed by the government will strengthen (commence) enforcement of these orders, which previously were widely disregarded. According to the Law Times, almost 2/3 of spouses weren’t paying properly:

현행 가사소송법은 부부가 재판상 이혼을 하면서 조정이나 판결에 의해 양육비 지급의무를 부담하고서도 이를 제대로 이행하지 않을 경우 법원이 당사자의 신청에 의해 ‘이행명령’을 내릴 수 있도록 하고 있다. 또 당사자가 이행명령에 정당한 이유없이 불응하면서 양육비를 계속 지급하지 않는 경우에는 100만원 이하의 과태료를 부과하고, 3기 이상 의무를 이행하지 않는 경우에는 30일의 범위 안에서 감치에 처하도록 하고 있다.

Now where a party subject to a child-support obligation pursuant to a divorce decree or agreement does not pay support as required, the other party may request the court to issue an “enforcement order”. If a party fails to respond to a court enforcement order without justifiable reasons, and persistently does not pay support, an administrative penalty of up to W1 million (about US$1025) may by imposed. In the case of three or more failures, detention of up to 30 days may be imposed.

그러나 이혼한 여성 상당수는 전 남편으로부터 자녀양육비를 제대로 받지 못하고 있는 것으로 나타났다. 지난 2001년 가정법률상담소가 실시한 설문조사에서 이혼하고 자녀를 혼자 양육하고 있는 여성 91명의 41.9%가 약정이나 판결대로 양육비를 지급받지 못하고 있으며, 19.4%가 불규칙하게 지급받고 있다고 응답했다. 응답자의 61.3%가 양육비를 제대로 지급받지 못하고 있는 셈이다.

It’s emerging that divorced women don’t receive proper child-support payments from their former husbands. According to a 2001 survey by the Family Law Counseling Center of 91 divorced women raising children along, 41.9% weren’t receiving the child support payments according to their divorce decree or support agreement; 19.4% responded that they received payments irregularly. This means that 61.3% of respondents reported not receiving proper support payments.

The 30 days’ detention looks interesting, as ordinarily the court hasn’t had a contempt power. Now it appears some form of contempt power is being implemented.

This is a proposal currently being raised to solicit public comment. The statute would be passed in the autumn for effectiveness probably in the new year, if not killed during the comment period.

May 8, 2008 | Filed Under Criminal Law | 4 comments

Foreign Schools in Korea: Book Early to Avoid Disappointment

by Brendon Carr

Not being able to enroll your kids in an English-speaking school is a worry for every parent, but this story in the JoongAng Ilbo’s English edition made me smile:

Korea’s notorious lack of convenient services for foreigners has claimed another. The latest victim in the long list of displeased expatriates is none other than the former chairman of the American Chamber of Commerce in Korea.

The problem, which has traveled by word-of-mouth among foreign business professionals here, began when Jeffrey Jones, 56, a current attorney at Kim and Chang, attempted to enroll his two sons at a popular local foreign school.

As one of the most influential business professionals in Korea, he didn’t think he’d have any problems gaining his sons a spot in school. After all, he was the first foreigner to work on a committee for deregulation of the Korean government, and he’s been credited for attracting a large amount of foreign investment here.

But then the school put Jones’ sons on a waiting list, saying they currently had no openings for new students. Jones was not available for comment at press time.

Why am I pleased to see this? It doesn’t have anything to do with the subject of the story, but I am a populist. The fact that Jeffrey Jones is or is not a powerful figure—whether he’s “attracted a large amount of foreign investment” (and that voodoo power appears to be fading), or works for a large law firm or the Korean government—should be of no relevance to the admission of his children to a wait-listed foreign school. There are published rules and everyone on the list should get the same fair shake. That Jeff’s kids got stiffed indicates that whichever school stiffed them is concerned about such fairness. Since this sort of egalitarianism is not how Korea usually operates, it’s heartening news to a populist.

However, there is the other question, which is Why on Earth is this in the newspaper? My kid got blanked by Seoul Foreign School at kindergarten time, and we simply enrolled at Early Childhood Learning Centre, a fine Montessori school. But for some reason, we didn’t make the paper. Now, my kids are enrolled at Yongsan International School and we love it there. That’s not news either.

For those of you coming to Seoul, note this lesson: No matter who you are, contact the admissions offices of the foreign schools as early as possible, and get onto the waiting list.

UPDATE 5/9—Now the Chosun gets in on the action. The Koreans are chasing foreign investment away by Jeff Shock! It’s all anyone can talk about. They’ll rue the day they treated Jeff Jones like an ordinary person…

For those of you losing sleep over the issue, the Chosun reports that Jones’ older, seven year-old son has been granted a place in one of the foreign schools (his stay on the waiting list sure was short...), leaving only the little one out in the barren wilderness. Whew. That is a big relief.

May 8, 2008 | Filed Under Hub of Hubs, Personal | 6 comments

Foreign Investment in Korea Continues to Plummet

by Brendon Carr

The Korea Times has a must-read article describing how foreign investors have had enough of Korean double-talk on foreign-investment friendliness and are withdrawing their investments from Korea. Net FDI—that is, the amount of incoming foreign direct investment as against foreign investments cashed out and withdrawn from Korea—has fallen steadily from almost $10 billion in 2004, to negative $670 million for the first quarter of 2008.

Asia’s most widely-quoted economist Andy Xie offers the following insight why:

“Korea has become less friendly to foreign investment in the past five years as it recovered from the financial crisis,” Andy Xie, an analyst of the Shenzen Development Bank (SDB) in China, who is the former Morgan Stanley chief economist overseeing the Korean economy and financial markets, told The Korea Times.

“Koreans may disagree but this view is widely shared in the international community,” he added.

“Korea’s development model is based on developing indigenous firms to conquer foreign markets, very similar to the Japanese model,” he added. “The opening to FDI during and after the crisis was out of necessity. Korea was down and needed the money. When Korea recovered, it reverted.”

This is the Lone Star Effect in action. Lone Star bought, at the government’s urging, a failing Korean bank and rescued the bank. But nobody told Korea that Lone Star would be doing it for a profit! Profit by a foreign investor is a difficult pill to swallow.

The [Bank of Korea] said that for investment promotion, the government needs to relax more regulations.

“Reforming regulations is the most urgent task for Korea to attract more foreign investment,” [BOK senior economist Lee Won-joon] said.

“If Korea is to become a major FDI destination, it should create a more foreign-friendly business environment by removing red tape and tackling its key competitive disadvantages, such as labor market rigidity,” he added.

Well, sure. But these are the exact same prescriptions which have been bandied about for the 11 years I’ve been working here as a lawyer, and if anything, in the labor aspect things have gotten worse. Labor-market rigidity will never be addressed, not until the economy has completely melted down. It’s like the third rail of Korean politics.

And i don’t think mere deregulation will be enough to draw new foreign investments. A real social change will be necessary. I’m reversing the order in the story, but I think Andy Xie nails it:

“I don’t think Korea can change in the near future to reverse the poor FDI trend,’’ Xie said.

“Korea may be unwilling to make the changes to attract FDI,” he added. “Korea may never become a truly open economy. The mere fact that people always talk about foreign versus local means that the economy cannot be truly open.”

As a signal of which direction things are going, the government apparently plans to renegotiate its just-concluded “deal” on re-opening the Korean market to US beef. Still optimistic that Congress will approve the KORUS Free Trade Agreement?

Now, the Lone Star case was a little bit special in that it involved purchase of Korea Exchange Bank, a large commercial bank occupying one of the commanding heights of the Korean economy—and a sector which is highly unionized. Korean trade unions are nests of Marxist xenophobes, which made the Lone Star KEB investment sure to attract all the worst responses this country can muster.

And Korea responds differently to foreign investment when it comes with “meddling” in management. Foreign portfolio investors generally have a great time of things, so long as they’re willing to sit down and shut up. When a foreign investor takes a 5% stake in a listed company, for example, the investor must publicly declare whether or not the investor intends to interfere with management.

But the government and legal system are supposed to moderate such instincts, not exacerbate and validate them. That’s the reason why foreign investors have lost interest in Korea. Most of them do just fine. But all of them fear having a target painted on their back by a reckless government, and then finding the courts more eager to appease public feeling than uphold the rule of law. L’affaire Lone Star has done considerable damage to foreign confidence in this country, and it will take many years for people to forget.

Thanks, Roh Moo Hyun!

To be honest, though, the damage done by Roh’s 386 gang of crypto-Communists is not the only factor. As BOK economist Lee Won-joon noted, and Pres. Lee Myung-bak echoed in his earliest public statements as President-elect and President, the general attitude of the government and its employees toward doing their jobs is appalling. Government in Korea is a severe cramp on productivity, and urgent deregulation is a necessity to reverse not just the foreign investment decline, but the flight of Korean corporations to better investment destinations. There is simply too much hassle on investors of all nationalities. Fix that, and one day the foreign investors might come back.

UPDATE 5/7: Over at the Marmot’s Hole, a California-based Korean-American asset manager banker posting under the name “WangKon936” offers up some counter-points—Warren Buffett says good things about Korea and invests his money here (hmm), and some website recommends Korea as a contrarian play because, as the article notes, the government is so “anti-business, which has scared investors off”.

May 6, 2008 | Filed Under Deregulation, Economic News, Foreign Investment | 7 comments