Hello. This is attorney Lee Young-kyung of Cheongchul Law Firm.

Today, on the subject of the document-issuance duty under Article 3 of the Subcontract Transactions Fair Trade Act (the “Subcontract Act,” 하도급거래 공정화에 관한 법률), we examine a recent case in which the Korea Fair Trade Commission (KFTC) imposed a corrective order and a penalty surcharge of about KRW 52 million on a principal contractor engaged in manufacturing household heating equipment, on the ground that signatures and name-and-seal entries were missing from its unit-price agreements. While there is no dispute that the principal contractor actually issued subcontract documents such as unit-price agreements, the case offers an important practical lesson: if issuance is not recognized as a “lawful issuance of a document,” it is ultimately treated as non-issuance and becomes subject to sanctions. This column is based on a KFTC press release.

[Question]

Where a principal contractor prepared and sent a unit-price agreement recording the agreed unit prices with the subcontractor, but the agreement (i) lacked the principal contractor's corporate seal, (ii) was signed only by a staff member with no authority to represent the company, or (iii) used a form that contained only the subcontractor's signature field with no signature field for the principal contractor from the outset — can the document-issuance duty under Article 3 of the Subcontract Act still be deemed fulfilled?

[Answer]

No, it cannot. Article 3(2) of the Subcontract Act requires the principal contractor and the subcontractor to “sign or affix their name and seal” on the document, and the Subcontract Transactions Fair Trade Guidelines (하도급거래공정화지침) III. 3. (6) expressly states that “issuing a document without the name-and-seal of both parties is regarded as non-issuance.” In this case, after confirming that 436 of the unit-price agreements the principal contractor issued to numerous subcontractors over about three years contained such missing signatures or name-and-seal entries, the KFTC declined to recognize them as lawful issuance, treated them as a violation of Article 3 of the Subcontract Act, and imposed a corrective (recurrence-prevention) order and a penalty surcharge of about KRW 52 million.

1. Overview of the Case (Anonymized)

The principal contractor, Company A, manufactures and sells household heating equipment. From around June 17, 2021 to around June 14, 2024, over about three years, it commissioned 98 subcontractors to manufacture parts used in producing household heating equipment, such as ignition transformers, heating supply pipes, temperature sensors, and thermal fuses. During this period, a total of 436 of the unit-price agreements that Company A issued to its subcontractors were found to be missing the principal contractor's signature or name-and-seal.

2. Relevant Statutes – Subcontract Act Article 3, Enforcement Decree Article 3, and the Subcontract Transactions Fair Trade Guidelines

Article 3 of the Subcontract Act requires a principal contractor to issue a document when commissioning manufacturing and the like to a subcontractor, and imposes a duty to “sign or affix a name and seal” on that document; Article 3 of the Enforcement Decree and the Guidelines specify the required entries and the criteria for assessing lawful issuance.

Case law likewise holds that the purpose of mandating the signature and name-and-seal of both parties on the document is “to prevent disadvantages to the subcontractor arising from unclear contract terms by using the document as clear evidence should a legal dispute later arise, and at the same time to prevent ex post disputes between the parties” (see Seoul High Court Decision 2003Nu17773, affirmed by Supreme Court Decision 2004Du12780).

3. Three Specific Types Treated as Non-Issuance

In this case, the three types the KFTC declined to recognize as “lawful issuance” and instead treated as non-issuance are as follows.

(1) Where the corporate seal was omitted from the signature field at the bottom of the unit-price agreement before it was sent.

(2) Where a staff member with no authority to represent the company signed only with his own name before sending it.

(3) Where the unit-price agreement form itself contained only the subcontractor's signature field and had no signature field for the principal contractor from the outset.

In all of these cases, the signature or name-and-seal of both parties was not in place, and they were therefore treated as non-issuance under Subcontract Transactions Fair Trade Guidelines III. 3. (6).

4. The KFTC's Determination and Sanctions

The KFTC viewed Company A's repeated omission of signatures and name-and-seal entries on its unit-price agreements over about three years as a violation of Article 3 of the Subcontract Act (breach of the document-issuance duty), and to prevent the recurrence of the same or similar violations, it imposed a recurrence-prevention order together with a penalty surcharge of about KRW 52 million.

Meanwhile, recognizing that the current ceiling on penalty surcharges is low relative to the gravity of the violations and thus limits the effectiveness of sanctions, the KFTC is pursuing an amendment to the Public Notice on the Criteria for Imposing Penalty Surcharges on Subcontract Act Violators (하도급법 위반사업자에 대한 과징금 부과기준에 관한 고시), aimed at raising the base amount of fixed penalty surcharges and rationalizing the imposition criteria (administrative pre-announcement from April 30 to May 20, 2026). Under the proposed amendment, the imposition rate would rise from 60–80% to 90–100% for very serious violations, and the base amount would rise from KRW 0.9–2 billion to KRW 1.8–2 billion, with overall reinforcement.

5. Implications – Practical Points for Principal Contractors

This case carries significant practical meaning in that the problem was not that subcontract-related documents such as unit-price agreements were “not issued,” but that they were “issued with missing signatures or name-and-seal entries.” Points for principal contractors to note are as follows.

① Review the document form itself: It is necessary to check in advance whether the forms of subcontract-related documents such as unit-price agreements, purchase orders, and contracts contain signature and name-and-seal fields for both parties (principal contractor and subcontractor). A form that provides only the subcontractor's signature field risks being treated as non-issuance in itself.

② Verify the person authorized to sign and seal: A unit-price agreement signed only with a staff member's own name may be assessed as lacking “authority to represent the company.” The signature of an authorized person (the representative director or a duly delegated person) or the corporate seal must be in place.

③ Risk of repeated, customary omission: Where the number of documents issued is large and the same form is used repeatedly, a single omission can expand into hundreds of violations. In this case as well, a total of 436 omissions were confirmed over about three years, resulting in a corrective order and a penalty surcharge.

④ Responding to the trend of stronger penalties: As the criteria for imposing penalty surcharges under the Subcontract Act are being amended toward higher levels, the surcharge burden for the same or similar violations is likely to increase considerably compared with the past. Principal contractors should make even greater efforts at prevention by reviewing their internal compliance systems.

Cheongchul Law Firm is composed of attorneys with extensive experience representing companies before the Korea Fair Trade Commission in investigations and hearings across the fields under the KFTC's jurisdiction, including the Subcontract Act, the Fair Trade Act, and the Franchise Business Act. If you have any questions regarding the document-issuance duty under Article 3 of the Subcontract Act, reviews of Subcontract Act compliance systems, responses to KFTC investigations and hearings, or lawsuits seeking cancellation of penalty surcharge dispositions, please do not hesitate to contact Cheongchul Law Firm.