Hello, I am Law Firm Cheongchul Attorney Lee Young-kyung.
According to the Act on Fair Transactions in Subcontracting (Subcontracting Act), subcontracting transactions include manufacturing consignment, repair consignment, construction consignment, and service consignment. Among these, regarding construction consignment, there is a question of whether only transactions between businesses with licenses or registrations as prescribed by relevant laws are applicable as construction consignment under the Subcontracting Act. This is because cases often arise where subcontracting is done to businesses without licenses or registrations.
[Question]
Does the subcontracting law only apply to construction consignments between registered businesses according to construction and related laws?
[Answer]
To put it simply, yes, it does.
The Subcontracting Act contains various provisions regarding the application requirements of the Subcontracting Act in Article 2's definitions.
Determining whether or not the Subcontracting Act applies is often more than half the issue in resolving questions concerning the Subcontracting Act, and the question regarding construction consignment is no exception.
1) Article 2, Paragraph 9 of the Subcontracting Act
⑨ In this Act, “construction consignment” means when a business subject to any of the following (hereinafter referred to as “construction business”) entrusts all or part of the construction work corresponding to its business to another construction business or a construction business entrusts a construction work prescribed by presidential decree (minor construction) to another business. 1. Construction businesses as defined in Article 2, Item 7 of the Construction Industry Basic Act 2. As defined in Article 2, Item 3 of the Electric Works Act 3. As defined in Article 2, Item 4 of the Information and Communication Construction Business Act 4. Those registered as fire facilities contractors under Article 4, Paragraph 1 of the Fire Facilities Construction Business Act 5. Other businesses designated by presidential decree |
From this, we can see that construction consignment consists of two types: ① the construction business consigning construction work to another construction business, and ② the construction business entrusting 'other businesses' with construction works designated by presidential decree.
The construction business referred to here is a registered business that has been ‘registered’ according to the Construction Industry Basic Act, Electric Works Act, Information and Communication Construction Business Act, and Fire Facilities Construction Business Act. Referring to Article 2, Paragraph 7 of the Enforcement Decree of the Subcontracting Act, which defines 'the other businesses designated by presidential decree', it also means registered businesses under the Housing Act, Environment Technology and Industry Support Act, Sewage Act, Management and Use of Livestock Excreta Act, Energy Efficiency Act, Urban Gas Business Act, and Liquefied Petroleum Gas Safety and Business Act.
Thus, it is clearly confirmed that type 1 of construction consignment, which is when a construction business entrusts another construction business, is only possible for registered businesses by the text itself. In that case, in type 2, when a construction business entrusts 'construction work designated by presidential decree' to 'other businesses', doesn’t it mean that ‘other businesses’ do not have to be construction businesses?
'Other businesses', that is, subcontractors, may also qualify as subcontractors under the Subcontracting Act, even if they do not correspond to a registered 'construction business.' However, in this case, it must meet the criteria for 'minor construction' according to Article 2, Paragraph 6 of the Enforcement Decree of the Subcontracting Act in accordance with Article 8 of the Enforcement Decree of the Construction Industry Basic Act and Article 5 of the Enforcement Decree of the Electric Works Act. This means it applies only to small-scale construction.
2) Related Cases
Considering that the intention of the Subcontracting Act is to protect subcontractors, there may be some aspects where such application requirements feel somewhat unfair.
In this regard, the Supreme Court stated, “Article 2, Paragraph 9 of the Act on Fair Transactions in Subcontracting defines ‘construction consignment’ as the act of a ‘construction business’ as prescribed therein entrusting all or part of the construction work to another construction business, and a construction business entrusting construction work designated by presidential decree to other businesses. It is interpreted that this refers to cases where, among construction businesses defined in each item of Article 2, Paragraph 9 of the same law, all or part is entrusted to another construction business within the same industry (excluding minor construction designated by presidential decree).”
Additionally, if a registered business is not a subcontractor, it will not fall under subcontracting transactions under the Subcontracting Act, and even if the subcontractor reports to the Fair Trade Commission, a decision of non-examination can be made. In a case where a subcontractor filed a constitutional petition seeking cancellation of the non-examination decision by the Fair Trade Commission, the Constitutional Court also confirmed that there was no illegality in not considering the transaction with a subcontractor that was not a registered business as a subcontracting transaction (construction consignment).
Constitutional Court Decision 2023. 7. 20. Decision 2020HunMa295 Full Bench [Cancellation of Non-Examination Decision]
[…] “To fall under the ‘construction consignment’ defined by the Subcontracting Act, both the main contractor and subcontractor must be registered as construction businesses corresponding to the content of the construction works in accordance with the Construction Industry Basic Act, unless it falls under minor construction defined in the Enforcement Decree of the Construction Industry Basic Act (Article 2, Paragraph 9 of the Subcontracting Act). This is intended to prevent poor construction due to indiscriminate subcontracting with unregistered businesses and clearly establish the responsibility for such construction, thereby protecting the lives and property of the people (see Constitutional Court 2022. 9. 29. 2019HunBa206).
The claimant has not registered as a construction business under the Construction Industry Basic Act, and thus this transaction does not fulfill the requirements for ‘construction consignment’ as defined in Article 2, Paragraph 9 of the Subcontracting Act. Nevertheless, interpreting that this consignment is subject to ‘service consignment’ simply because it is for the repair of defects in a building contradicts the intention of the Subcontracting Act, which requires both the main contractor and the subcontractor to be registered as construction businesses corresponding to the content of the construction work. |
Therefore, it is essential to clearly verify whether both the main contractor and subcontractor are registered businesses and the scale of the construction in advance. It is advisable to conduct reviews of such subcontracting-related issues through experts with rich experience in dealing with the Fair Trade Commission and related matters.
Law Firm Cheongchul provides comprehensive advice on the Subcontracting Act to numerous companies, based on expertise and experience accumulated through collaboration with large domestic law firms such as Kim Jang Law Office, Taepyeongyang, Gwangjang, Sejong, and Yulchon, as well as in-house counsel at large corporations.
If you work with Cheongchul, we will be a strong ally who accurately understands the essence of the case and effectively communicates your position.
