Five major entertainment companies in South Korea, including Hybe, SM Entertainment, YG Entertainment, JYP Entertainment, and Starship Entertainment, have prepared a mutual growth plan to improve outsourcing contract practices and have applied for a consent decree with the Fair Trade Commission.
The Fair Trade Commission announced on the 11th that it has decided to initiate the consent decree process after reviewing the application submitted by the five companies and accepting their voluntary correction plan.
A consent decree is a system that allows a business to promptly conclude a case without the Fair Trade Commission determining the legality if the business proposes its own plans for restoration and compensation for damages. This system was introduced with the 2022 amendment of the Subcontracting Act, and this is the first case in the manufacturing and service subcontracting sector.
According to the Fair Trade Commission, the five companies were under investigation for alleged violations of the Subcontracting Act as they outsourced album, merchandise production, and video and performance production to external companies without issuing advance contracts and contracted verbally. In response, the five companies submitted voluntary correction plans and requested a consent decree procedure before the Fair Trade Commission sent their examination report between April and May of this year.
The mutual growth plan they submitted includes the drafting and distribution of standard and preliminary contracts, establishment of a contract system based on electronic signatures and electronic contract management, posting of a subcontracting transaction guide on the website and internal training, and contribution of 2 billion won each, totaling 10 billion won, in mutual growth grants.
The Fair Trade Commission explained the reason for initiating the consent decree process by stating, “The entertainment industry has lacked a contract issuance culture due to the characteristic of having contract terms frequently change, which made it difficult for contractors to receive compensation upon contract changes or terminations,” and added that “this mutual growth plan will be a first step in improving these practices.”
However, the initiation of the consent decree process does not immediately exempt the companies from sanctions. Once a provisional consent decree reflecting the mutual growth plan is prepared, it will undergo stakeholder opinion collection and consultations with the prosecution and other related agencies, before a final decision is made by the Fair Trade Commission's subcommittee. If rejected, the process may return to sanction procedures.
A representative from the Fair Trade Commission noted, “We hope that the practice of no work being done without a contract will become entrenched with this improvement,” adding, “there will be positive changes across the entire entertainment industry.”