Ⅲ. The Small Amount Insolvency Payment Claim

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 wage. This is to preclude employers avoiding punishment if they do not pay the unpaid wage until they are prosecuted. In addition, the unpaid workers, regardless of their employer’s ability to pay their wage, can receive up to 10 million won in unpaid wage from the Wage Claim Guarantee Fund, after the Labor Office confirms that wage were not paid and a court has determined they are owed wage(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 wage. Herein, the following are the related legal preventive systems for unpaid wage and the Small Amount Insolvency Claim System in detail.

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 wage 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 is 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 confirmation from the court that a worker’s wage remain unpaid.

2. Requirements for Small Amount IPC Payments

According to the Wage Claim Guarantee Act(WCGA), payment of compensation through the Small Amount IPC requires the following.

(1) Requirement regarding the employer
The workplace where the unpaid worker was employed must have been in operation for at least six months at the time the worker’s employment ended, and have employed at least one permanent worker.

(2) Requirement regarding the worker(s) whose wage remain unpaid
The unpaid worker must file a lawsuit or an order for payment within two years from the date their employment ended with the related employer.

(3) Requirement to obtain legal authority
Workers should receive a judgment, payment order, or recommendation for implementation through the Legal Aid Corporation or a separate civil lawsuit.
Unpaid workers who meet the above requirements may enter a Small Amount IPC for up to 10 million won of the total unpaid amount of their last three months’ wage or suspension allowances and retirement allowances for the last three years.


3. Process of Making a Small Amount IPC

(1) Petitioning the Labor Office for unpaid wages

When a worker complains to the Labor Office about failing to receive wage owed, an investigation begins. The labor inspector begins by requesting attendance of the relevant parties to a hearing. If a settlement agreement is concluded between the parties or the unpaid wage are paid, the case is closed. If the unpaid wage are not paid, despite an order to do so from the labor inspector, the criminal punishment process begins. The worker can also sue the employer for the unpaid wage and therefore obtain the authority to receive the claimed wage if they wins the lawsuit.

(2) Free legal service from the Legal Aid Corporation

Workers who intend to receive a Small Amount IPC may be eligible for free legal services from the Legal Aid Corporation after receiving a Confirmation Certificate of Unpaid wage, and can take legal action along with the LAC to get the court’s confirmation on unpaid wage. Workers who are not eligible for free legal aid(those who earned an average monthly wage of more than 4 million won in the last three months) must make a Small Amount IPC upon obtaining a court’s order to receive unpaid wage during a civil lawsuit. The employee shall submit the Small Amount IPC to the Korea Labor Welfare Corporation within one year from the date authority to receive was obtained.

(3) Applying for an insolvency payment claim

If a worker applies for a Small Amount IPC with a Confirmation Certificate of Unpaid wage attached, the authority to receive unpaid wage, and a Confirmation Certificate issued by the Court, the Labor Welfare Corporation shall decide whether to pay the Small Amount IPC within 14 days of receiving the claim.

4. Differences from the Existing Insolvency Payment Claim System

(1) Criterion for payment

The existing general IPC system allows payouts only after a bankruptcy decision or commencement of rehabilitation proceedings for the workplace involved, or if the Labor Office confirms the existence of de facto bankruptcy or rehabilitation, even though such bankruptcy or rehabilitation has not been legally determined by the court. However, the Small Amount IPC can be received regardless of insolvency.
A worker whose employment has ended must first obtain a court order to receive unpaid wage from the employer.

(2) Eligible workers

Workers eligible for the general IPC are those whose employment ended within three years from one year prior to the date of filing for bankruptcy or rehabilitation. However, workers eligible for the Small Amount IPC are those who filed a lawsuit within two years after their employment ended.

(3) Requirement for the employer

The general IPC requires that the company must be de facto or legally bankrupt after operating for at least six months before the worker’s employment ended, while the Small Amount IPC requires that it was operating for at least six months before the worker’s employment ended.

(4) Applicable period

The general IPC shall be submitted within two years of the date of a declaration of bankruptcy or of the determination of bankruptcy, while the Small Amount IPC shall be submitted within one year from the date of final judgment by the court.

(5) Scope of payment

Both general and Small Amount IPCs are paid on behalf of the employer for the final three months’ wage(including suspension allowances) and the final three years’ retirement allowances. However, 1.8 million won to 3 million won per month(up to 18 million won) can be paid out under the general IPC, depending on age. The Small Amount IPC is based on the criteria of the general IPC as well, but the maximum payout is 10 million won, while the maximum amount per wage item(including suspension allowance) and retirement benefits is separated and shall not exceed 7 million won each.



5. Evaluation

Claims under the existing Insolvency Payment Claim system are required to have de facto or actual bankruptcy legally recognized. Claims under the new Small Amount IPC are likely to be received even if the above requirements are not met, since the key requirement is whether or not the right to receive unpaid wage is recognized by the court. Administrative proceedings for the payment of a Small Amount IPC are easier than under the existing IPC. Nevertheless, the fact that workers have to go through two or three administrative agencies until they can receive money in this way, and having to submit separate documents for each agency, is an obstacle to effective utilization of the Small Amount IPC system. Therefore, a one-stop service for the new system is needed, and can be achieved through active linkage between the Labor Office, the Legal Aid Corporation, and the Korea Labor Welfare Corporation.

As a way to rectify the problem for some workers of their wages remaining unpaid, there is a delayed payment interest system and no-punishment offenses that can be used within the legal framework. The delayed payment interest system involves levying an additional 20% in annual interest to the amount of unpaid wages, which should be described with delayed payment interest at the Labor Office’s issuance of an Unpaid Wage Confirmation Certificate. In cases of no-punishment offenses, criminal penalties are imposed on employers in the form of fines(rather than imprisonment), which can equal up to 20% of the total unpaid wages. Korea should introduce punitive fines as is done in the United States, charging fines several times higher than the actual unpaid wages, and promote the perception that work without wages is slave labor. In addition, the expanded Small Amount Insolvency Payment Claim system is groundbreaking in that it guarantees workers’ right to wages up to the general Insolvency Payment Claim’s payments. In the future, the maximum payout for the Small Amount IPC will need to be expanded again, and efforts made to improve its efficacy as a quick and convenient way for workers to receive wages they are owed.