Hello, I am Um Sang-yoon, a lawyer at Cheongchul Law Firm.

Recently, there have been significant changes in the regulations regarding subcontracting transactions. First, the amendment to the 'Act on the Fairness of Subcontract Transactions' (hereinafter referred to as the 'Subcontract Act'), which will be effective from April 2025, has explicitly nullified the judicial validity of unfair clauses. In addition, the Korea Fair Trade Commission has clarified through the revised 'Notice on Unfair Clauses' and 'Guidelines for Reviewing Unfair Clauses', to be implemented from May 1, that the 'retention money' setting practice, which has been pointed out as a chronic issue, may fall under unfair clauses. This article will comprehensively review the main contents and implications of the amendments to the Subcontract Act and related regulations.

[Amendment of the Subcontract Act: Explicit 'Judicial Nullity' of Unfair Clauses]

The core content of the revised Subcontract Act, effective from October 2, 2025, is to explicitly define the legal validity of unfair clauses. Previously, it was clear that unfair clauses were subject to sanctions by the Fair Trade Commission, but there was room for interpretation regarding their judicial validity between the contracting parties.

The amended Subcontract Act (Article 3-4, Paragraph 3) explicitly states that unfair clauses are null and void only to the extent specified. Specifically,

1.       Unfair clauses defined in Article 3-4, Paragraph 2, Subparagraphs 1 through 3 of the Subcontract Act (e.g., shifting costs not included in writing, shifting responsibility costs of the prime contractor, shifting costs other than those listed in the bid, etc.) will be null and void by their nature.

2.       Other unfair clauses defined in the Enforcement Decree of the Subcontract Act and the Notice on Unfair Clauses (Article 3-4, Paragraph 2, Subparagraph 4 delegation) will be null and void only to the extent that they are significantly unfair to one side of the parties.

This amendment to the Subcontract Act is meaningful in that it reduces the incentive for prime contractors to set unfair clauses and lowers the burden of proof for subcontractors in the event of a dispute.