SM, HYBE, and three other entertainment companies prepared self-correction plans regarding allegations of violations of the Subcontracting Act, and the Korea Fair Trade Commission accepted these plans and finalized the consent decision. Changes in the opaque contract practices in the entertainment industry are expected through the introduction of standard contracts, improvement of contract management systems, and the establishment of cooperation funds.
On the 24th, the Korea Fair Trade Commission announced that it had finalized consent decisions regarding the violations of the Subcontracting Act by five entertainment companies. Consent decisions are a system that concludes a case without determining whether a violation occurred if the business prepares self-correction plans for victim protection and prevention of recurrence. This is the first time consent decisions have been applied in the manufacturing and service sectors.
The five entertainment companies were investigated for allegations of not issuing contracts in advance or delaying their issuance while outsourcing the production of albums, goods, performances, and video content to small and medium-sized enterprises since July 2023. In response, they prepared self-correction plans and applied for consent decisions during the Korea Fair Trade Commission's investigation process in April and May of last year.
According to the correction plans finalized by the Korea Fair Trade Commission, these corporations will promote the introduction of standard contracts and household contracts, establish an electronic contract system, improve internal contract management systems, and strengthen education on the Subcontracting Act. Considering the industry’s characteristics, where production details often change, a method will also be introduced to first sign household contracts and then transition to official contracts.
A cooperation fund will also be established. Each company will grant 200 million won, totaling 1 billion won, to support the purchase of filming equipment and safety equipment for subcontractors.
The Korea Fair Trade Commission determined that the self-correction plans presented by the five entertainment companies balance the anticipated level of sanctions in case of illegal judgment, and are effective in improving transaction order and protecting subcontractors. The commission plans to monitor the implementation of the correction plans in conjunction with the Korea Fair Trade Mediation Agency and induce improvements in contract practices throughout the entertainment industry.
A representative of the Korea Fair Trade Commission said, “Due to the nature of the entertainment industry, where contract terms frequently change, a culture of issuing advance contracts has not been established,” adding, “As a result, small production companies have always been exposed to transaction instability and the risk of disputes.”
He further emphasized, “This consent decision will not only contribute to substantial improvements in transaction order, including the introduction of standard contracts and household contracts, but will also encompass improvements in the contract signing and management system and employee training, serving as a catalyst for creating a fair and cooperative K-entertainment ecosystem.”