South Korea bans subcontracting in public sector, mandates 2-year contracts and job succession

Guidelines protecting contracted workers in public sector take effect Wednesday

Subcontracting to require external review panel, contracting agency approval

Labor costs to be managed in dedicated accounts; violators face bidding bans

Employment and Labor Minister Kim Young-hoon announces the "Public Sector Contracting Operations Improvement Plan" at a labor safety ministerial meeting held at Government Complex Seoul, attended by related ministries including the Ministry of Economy and Finance, Ministry of Interior and Safety, Ministry of Trade, Industry and Energy, Ministry of Climate, Environment and Energy, Ministry of Land, Infrastructure and Transport, Ministry of Oceans and Fisheries and Ministry of Planning and Budget. The government announced that day that subcontracting in the public sector would in principle be prohibited. [Provided by the Ministry of Employment and Labor]

Companies awarded public sector contracts will in principle be barred from subcontracting the work to other firms. Public sector service contracts must be set for a minimum of two years under normal circumstances, and workers must retain their jobs even when the contracting company changes.

The Ministry of Employment and Labor said the "Guidelines for Protecting Contracted Workers in the Public Sector" will take effect Wednesday.

The guidelines consolidate and strengthen two existing frameworks: the "Guidelines for Protecting Working Conditions of Service Workers" and the "Guidelines for Protecting Working Conditions of Privately Commissioned Workers." They apply whenever central government agencies, local governments, education offices, public institutions, local public enterprises, public sector subsidiaries and local investment and endowment agencies enter into contracting, service or commission agreements with private firms.

The core principle is that primary contractors must perform the work themselves. A company that wins a contract from a public institution must carry out the work directly. Subcontracting is permitted only as an exception — when new technology or specialized expertise is required, or when the nature of the work is temporary or intermittent and direct performance is significantly difficult.

Even when subcontracting is unavoidable, the primary contractor must first pass a review by a "Subcontracting Appropriateness Review Committee" and obtain approval from the contracting agency. The committee must have at least five members, including at least two external members who must account for at least 40 percent of the total. The contracting agency must notify the contractor in writing of its decision within 10 days of receiving an approval request.

Job security protections for contracted workers are also being strengthened. Contracting agencies must set contract terms of at least two years unless there are special circumstances. Primary contractors must align the duration of individual employment contracts with the length of the service contract.

Employment succession when a contractor changes is now mandatory. A mere "best-efforts" clause — the kind previously used in guidelines — will no longer be considered sufficient for compliance. Refusing to retain workers on the basis of subjective evaluations or union activity will also be prohibited.

Wages for contracted workers will be calculated using the prevailing market labor rate rather than the minimum wage. For simple labor services such as cleaning and security, the daily wage of 95,767 won ($71) surveyed in the first half of this year for unskilled workers will serve as the base pay standard for the second half.

The minimum award rate for simple labor services in the facilities sector has been raised by 2 percentage points, from 87.995 percent to 89.995 percent. For simple labor service contracts or negotiated contracts with subsidiaries that have converted workers to permanent employment, the contract amount may no longer be reduced by applying a discount to the estimated price.

Labor costs must be paid through a dedicated account separate from other contract expenses. Primary contractors may use labor cost funds only for wages and retirement benefit reserves — they may not redirect the funds to company profits, general administrative expenses or retained earnings. Contracting agencies must collect wage payment statements and insurance premium receipts from primary contractors each quarter to verify actual payment.

Disparities in welfare benefits and working conditions are also being addressed. When contracted workers work at the same location as the contracting agency's own employees, they must be guaranteed equal access to facilities including cafeterias, restrooms, parking lots, commuter buses and rest areas. A joint consultative body — comprising representatives of the contracting agency, the primary contractor and workers from both sides — must also be established and convened quarterly.

Companies that violate the guidelines face contract termination and bidding restrictions. A contractor that breaches its labor conditions pledge and fails to remedy the violation within a 10-day correction period may have its contract terminated. Companies subject to the National Contract Act face a three-month bidding ban, while those under the Local Contract Act face a ban of one to three months.

Each public institution must conduct its own compliance review at least once a year. The government plans to reflect compliance performance in management evaluations of public institutions and local public enterprises. The guidelines apply to contracts put out to tender or concluded through negotiated contracts from Wednesday onward.

fact0514@heraldcorp.com