|Preventing Unpaid Wages and the Small Amount Insolvency Payment Claim System
Providing work not meant to be on a voluntary basis and not receiving wages is slave labor. Thus, delaying payment of wages is a serious offense and subject to imprisonment for up to three years or a fine of up to 30 million won. Delayed payment of wages is punishable for each violation towards individual workers, so if the employer delays payment of wages to a large number of workers, that employer will face heavy penalties. Despite these strong penalties, it is not easy to settle problems related to unpaid wages. Even if a worker who was not paid complains to the local Employment Labor Office (hereinafter referred to as “Labor Office”), and the Labor Office confirms that the wages remain unpaid and the employer is punished, the worker still has to take separate legal action to receive the unpaid wages. If the employer does not have any property, the employer can receive a certain amount of money for the most preferential wages from the Wage Bond Guarantee Fund. Receiving unpaid wages through civil litigation and the Insolvency Payment Claim System is a complex process and takes a long time, which is not helpful in practical terms.
To resolve these problems, a new payment solution has been proposed in addition to legal preventive measures. A high rate of 20% interest is placed on employers to facilitate their payment of delayed wages. This is to preclude employers avoiding punishment if they do not pay the unpaid wages until they are prosecuted. In addition, the unpaid workers, regardless of their employer's ability to pay their wages, can receive up to 10 million won in unpaid wages from the Wage Claim Guarantee Fund, after the Labor Office confirms that wages were not paid and a court has determined they are owed wages (for which they can receive assistance from the Legal Aid Corporation if they are eligible). This is called the Small Amount Insolvency Claim System. The maximum payout was increased from 4 million won to 10 million won on July 1, 2019, which will assist greatly with resolving financial problems related to unpaid wages. Herein, I will examine the related legal preventive systems for unpaid wages and the Small Amount Insolvency Claim System in detail.
II. Preventive Measures for Delayed Payment of Wages
1. High interest levied
The Labor Standards Act: Article 37 (Late Payment Interest on Unpaid Wages)
(1) An employer who fails to pay all or part of the wages or benefits (only those paid in a lump sum) pursuant to Article 36 or subparagraph 5 of Article 2 of the Employee Retirement Benefit Security Act, respectively, within fourteen days from the day when the cause for payment occurs, shall pay late payment interest for the number of days from the date following expiry of the fourteen day period until the payment is made, at a rate up to 40/100 and as prescribed by Presidential Decree in consideration of financial conditions, including the late payment interest rate applicable among banks under the Banking Act.
(2) If an employer delays payment of wages due to a natural disaster, armed conflicts or other reasons prescribed by Presidential Decree, the provisions of paragraph (1) shall not apply to the period during which such reasons continue to exist.
In order to prevent delayed payment of wages and early liquidation of unpaid wages, the Labor Standards Act was amended in 2005 to create a "Late Payment Interest System for unpaid wages." If an employer fails to pay all or part of wages and retirement benefits owed within 14 days of the required date of payment, the employer shall pay the late payment interest rate prescribed by Presidential Decree (currently 20% per year) for the number of days payment was delayed, starting from the day following the required date of payment. This high interest rate helps to prevent an employer from intentionally paying back wages only when he/she is forced to, and without consequences. If an employer delays payment of wages due to a natural disaster, armed conflict or other reasons such as legal or actual bankruptcy, this provision shall not apply to the period during which such reasons continue to exist.
The late payment interest system levies a much higher rate of interest (20% annually) than the statutory interest of 6% a year, as a way to induce quick payment. However, if the employers do not have any money or assets to effect payment, there is no way to protect the affected workers’ rights, no matter how high the interest rate. The reasons why 20% annual interest payment is not used well on unpaid wages is as follows. First, there is no penalty for failing to pay the late payment interest, unless the worker takes the employer to civil court. Second, workers tend to agree to withdraw their complaints if they simply receive their unpaid wages. Third, the Labor Inspector only considers whether the unpaid wages have been paid when determining punishment, and not the interest for delaying payment, since there are no items related to delayed payment interest in the “Official Document on Details of Unpaid Wages”. Delayed payment interest is only considered in civil lawsuits for unpaid wages, meaning there is very limited effectiveness in preventing wage payment delays.
2. No-punishment offenses against one’s intention
The Labor Standards Act: Article 109 (Penal Provisions)
(1) Any person who violates the provisions of Article 36, 43 (Payment of Wages), 44 (Payment of Wages in Subcontract Businesses), 44-2 (Joint Responsibility for Paying Wages in the Construction Industry), 46 (Allowances during Business Suspension), or 56 (Extended Work, Night Work and Holiday Work) shall be punished by imprisonment of up to three years or by a fine not exceeding thirty million won.
(2) Prosecution against a person who violates the provisions of Article 36, 43, 44, 44-2, 46 or 56 shall not take place against the clearly expressed wishes of the victim.
No-punishment offenses against one’s intention is a system where imprisonment of up to three years or a fine of up to 30 million won is imposed on employers who have delayed payment of wages in principle, but the Ministry of Employment and Labor (MOEL) does not prosecute if it is against the clearly expressed wishes of the related worker(s). Employers were forced to solve voluntary liquidation of unpaid wages through agreement with workers by paying unpaid wages instead of suffering criminal penalties. However, if a large number of workers whose wages remain unpaid, the employer shall be deemed to have committed the same offense against each unpaid worker. Accordingly, in order to avoid penalties according to the no-punishment offenses system, written consent from all unpaid workers must be obtained.
III. The Small Amount Insolvency Payment Claim (IPC)
1. Purpose for introduction
The existing insolvency payment claim system is limited to those who were employed by companies declared legally bankrupt, but does not apply to employees who have not received their wages from a company that is still operating. To better implement the basic purpose of the Wage Claim Guarantee System and improve the livelihoods of unpaid workers, the Small Amount Insolvency Payment Claim System (Small Amount IPC System) was introduced on January 20, 2015. For those unpaid workers whose employment ended with companies still in operation, a certain amount of the insolvency payment can be paid when the court order to secure the execution rights such as the final judgment and payment order was secured. The Small Amount IPC System is simpler than the existing general IPC System, which helps to protect, in actual terms, the rights of unpaid workers. While the general IPC system requires that the company has gone bankrupt, compensation through the Small Amount IPC System only requires confir