Foreign chambers of commerce call for clarity in industrial accident law

New risk for CEOs feared to curb further investments

By Kim Bo-eun

Foreign firms share the view that industrial accidents need to be prevented, but concerns prevail over a strengthened law that will go into effect later this month, given that many of the key terms remain vague and open to interpretation while placing the burden of responsibility on top executives. Under the new law, CEOs can be held criminally liable for serious industrial accidents, in the case that their workplaces did not have the required safety measures in place.

The Serious Accident Punishment Act going into effect on Jan. 27 states that the owner or chief manager of a business can face a minimum one-year prison term or a maximum fine of 1 billion won ($841.49 million) in the case that an industrial accident involving a death occurs when a workplace doesn’t take the required safety measures. The cited safety measures include: setting up a team dedicated to workplace safety, identifying safety risks and addressing them, setting aside and executing a budget for workplace safety and having a manual to follow if a serious accident occurs. But detailed clauses are yet to be drawn up, which leaves room for various interpretations.

A recent survey of 121 foreign firms in Korea by the Korea Enterprises Federation (KEF) shows that 58.7 percent cited an unclear definition of “chief manager” and “required measures” as their greatest concerns ahead of the law going into effect.

“We are concerned about CEOs becoming criminally liable, irrespective of safety precautions in the case in which a serious accident occurs,” Jeffrey Jones, a board member of the American Chamber of Commerce (AMCHAM), said. AMCHAM is the largest foreign chamber here, with 800 member companies.

The international lawyer and former AMCHAM board chairman stated that this concern is because, even if the law states that companies with safety precautions in place will be exempted from punishments, the vague terms of the law leave room for subjective interpretations.

“When an accident occurs, public sentiment can play into how prosecutors and courts deal with the case. There needs to be a lot of clarity and predictability. There needs to be clear and absolute terms to prevent this from happening,” he said.

Executives of foreign invested companies are seen at Cheong Wae Dae for a meeting with President Moon Jae in on March 28, 2019. Cheong Wa Dae Press Corps.

The Serious Accident Punishment Act is the first law that will hold CEOs accountable for accidents that occur at workplaces with no precautionary measures in place. Penalties against CEOs are a great risk for foreign firms, given that they can bar the executives from returning to their home countries. These penalties can serve as a deterrent for foreign companies seeking business opportunities, in addition to the already heavy regulatory environment that is often cited.

The same survey by the business lobby KEF shows that 45.5 percent of foreign firms believe that the law diminishes Korea’s attractiveness as an investment destination. The figure is more than double the 16.5 percent that responded that the regulation would work in Korea’s favor. The remaining 38 percent were neutral about the effect of the law.

In addition, 52.1 percent of foreign companies stated that they would consider downscaling their operations here or hold off on new investments in the event that their CEOs were punished due to the law.

The Korean-German Chamber of Commerce and Industry (KGCCI), the second-largest foreign business lobby here, shared the same concerns.

“Concerns have been voiced by KGCCI’s member companies, particularly by these active in the manufacturing sector, often producing very specific sophisticated goods and using the latest technology,” KGCCI President & CEO Martin Henkelmann, who is also an attorney, said.

“German companies take safety issues and complying to all rules and regulations very seriously. Nonetheless, companies worry about the circumstances that can trigger their liability, about the high obligations and about the severity of the punishment, potentially even for managers who made reasonable efforts to avoid the accident and who are far away from the site where the accident occurs.”

The foreign chambers have been hosting briefing sessions for member firms. They have also been reaching out to the government to deliver their concerns about uncertainties in regulations and about obligations that go beyond the efforts that companies, particularly SMEs, are able to make.

In the KEF survey, 47.1 percent of foreign firms proposed that businesses be offered the chance to take corrective measures before a case is prosecuted.

The law has also been criticized for exempting or allowing a grace period for small businesses, which have been the most prone to accidents, according to data. Data from the Ministry of Labor and Employment shows that 80 percent of deaths from industrial accidents last year occurred at companies with less than 50 workers.

The act will go into effect for companies with at least five workers but less than 50 in 2024. The law will not apply to workplaces with less than five workers, on the grounds that punitive measures could disable the businesses from operating.