Hello. This is Attorney Lee Young-kyung from Cheongchul Law Firm.
With the fair trade specialists from Cheongchul Law Firm, who are the agents of numerous companies and the Fair Trade Commission, we will examine the press release from the Fair Trade Commission today. We will look into the case where YooRatech Co., Ltd. had unfair deductions from subcontract payments and faced corrective orders and fines from the Fair Trade Commission.
This posting is based on the Fair Trade Commission's press release dated October 16, 2024, and please note that the final disposition may change due to disputes through administrative litigation by the parties involved.
Facts
YooRatech Co., Ltd. is an automotive parts manufacturing and sales company established on May 7, 1987, with total assets of 129.2 billion won and sales of 174.3 billion won as of 2020. As a mid-sized company with significant status in the domestic automotive parts manufacturing industry, it has established business relationships with numerous partner companies.
This company has been entrusting the manufacture of 'wiring harnesses', a part of automotive wiring systems, to subcontractors since 2012. Specifically, it has outsourced the cutting, crimping, and assembly of wiring harnesses to subcontractors. The wiring harness is a key component of the wiring system that supplies power needed to operate all electrical components in a vehicle and transmits electrical signals to each electronic control module.
The specifics of the problematic actions are as follows:
① YooRatech applied for negotiations to lower the temporary price with the subcontractors for 17 items among the existing transaction items, citing errors in price calculations. Here, a temporary price refers to a temporarily agreed price during negotiations on unit price per item between YooRatech and the subcontractors when disagreements arise, pending further negotiations and finalization.
② Specifically, the first temporary price agreement was made for one item on April 8, 2020, and the agreement for the remaining 16 items was made on September 25, 2020.
③ YooRatech applied these temporary prices retroactively to the quantities ordered before the agreement was established, with the retroactive period spanning a minimum of 25 days to a maximum of 60 days. This resulted in a total unfair deduction of 75,190,609 won (including VAT) from the subcontractor.
Judgment of the Fair Trade Commission
The Fair Trade Commission determined that YooRatech's actions violated Article 11, Paragraph 1, and Paragraph 2, Item 2 of the 「Subcontract Transaction Fairness Act」. The specific contents of the relevant laws are as follows:
Subcontract Transaction Fairness Act (Subcontract Act) Article 11 (Prohibition of Price Reduction) ① The primary contractor shall not reduce the agreed subcontract price when outsourcing manufacturing, etc. However, the primary contractor may reduce the subcontract price if it proves a legitimate reason. ② Any of the following acts by the primary contractor shall not be considered acts based on legitimate reasons. 1. (Omitted) 2. In the case where an agreement on price reduction between the subcontractor and the primary contractor has been established, applying the content of that agreement retroactively to the portions ordered before the agreement was established, thereby reducing the subcontract price. 3. ~ 9. (Omitted) ③ (Omitted) ④ If the primary contractor pays an amount reduced without legitimate reason after 60 days from the date of receipt of the subject matter, it shall pay interest at a rate determined and publicly announced by the Fair Trade Commission considering economic circumstances, up to 40% annually, based on the overdue interest rate applied by banks under the "Banking Act". Delayed Interest Rates for Advance Payments and Others I. Delayed Interest Rates for Advance Payments and Others The delayed interest rate applicable for delays in advance payments, etc., under Article 6 (Payment of Advance Payments) Paragraph 2, Article 11 (Prohibition of Price Reduction) Paragraph 4, Article 13 (Payment of Subcontract Payments, etc.) Paragraph 8, and Article 15 (Payment of Refunds, etc.) Paragraph 3 is set at an annual rate of 15.5%. |
Based on these laws, the Fair Trade Commission decided the following sanctions:
Order to pay the unfairly reduced subcontract price of 75,190,609 won and delayed interest (15.5% annually).
Order to prevent recurrence.
Imposition of a fine of 670 million won.
Implications
The key significance of this case is that it clarifies the legal limits of applying temporary prices, which frequently arise in subcontract transactions.
First, the Fair Trade Commission clearly stated that retroactively applying temporary prices solely on the grounds of price calculation errors is not allowed. This means that even if the primary contractor claims the legitimacy of retroactive application due to calculation errors, it is not recognized as a legitimate reason under subcontract law.
Second, it demonstrated that even if the retroactive application period is relatively short (25 to 60 days), it could still result in a legal violation. This suggests that the length of the retroactive application period does not affect the determination of legality in cases of subcontract price reduction.
Third, it clarified that price reductions carried out under the guise of temporary prices could essentially constitute unfair reductions of subcontract payments. This is expected to be an important criterion in similar future cases.
The Fair Trade Commission has announced its intention to strengthen monitoring of unfair practices in subcontract transactions and to continue strict law enforcement following this case. Therefore, primary contractors need to approach price adjustments with greater caution, especially when they involve retroactive applications, thorough prior reviews are essential.
Cheongchul Law Firm has extensive experience and expertise in responding to investigations related to subcontract law, as well as handling administrative litigation cases. If you are considering related issues, please feel free to contact us.
Cheongchul Law Firm will be your strong legal partner. If you need to consult with an attorney, please contact us right away.
Related work cases that are good to see together
