L.A. Firm Shuts S. Korean Unit; Claims Left Hanging

A Los Angeles company has been accused of questionable ethics in abandoning operations at a manufacturing subsidiary in South Korea, leaving employees and creditors with $1.15 million in unsettled claims.

The dispute erupted into violence March 22, when more than 200 employees of Pico Korea Ltd., a maker of cable television components that is owned by Pico Macom Inc. of the Lake View Terrace district, stormed the offices of the American Chamber of Commerce in a downtown Seoul hotel, breaking down a thick glass door and sending panicked office workers scurrying out a window.

Riot police destroyed a wall to rout the protesters, who were demanding back wages and severance pay, before busing them back to their suburban factory. No arrests were made.

The workers, mostly young female assemblers, claimed that Pico’s two American managers in Seoul left the country on the sly in late February and early March and closed operations without prior notice during a wage dispute with the company union.

Officials of the U.S. firm said they were forced to break off negotiations and abandon the plant after militant members of the union held company executives hostage and made demands that would have nearly tripled their wage and benefits package--to the equivalent of $3.40 an hour. Wages and benefits for South Korean workers in industries of this type average a total of about $2 an hour.

Union representatives denied the company’s claims and accused Pico Korea managers of lying to them, of issuing a worthless check for payroll and of disregarding South Korean law.

Andrew Grossman, commercial attache at the U.S. Embassy in Seoul, corroborated the gist of the workers’ story and said he attempted to intervene to help them seek compensation--until communications broke down over last week’s incident.

“My concern was with the image of American investment and how this will hurt other American firms doing business here,” Grossman said. “But (the workers) resorted to violence, and no American will respond to violence.”

The conflict comes amid rising anti-Americanism in South Korea, which has ranged from protests over the U.S. military presence to denunciations of U.S. cigarette and beef imports. Labor disputes have flared recently at other U.S. companies with plants here, most notably at Motorola Korea Ltd., where violent confrontations between union and pro-management workers resulted in several injuries earlier this year.

The approximately 300 workers at the plant that Pico Korea operated for five years in Puchon, west of Seoul, were confused and frustrated this week, with no practical means of redress in sight.

“It’s a tragedy, but nobody will talk to them now,” Grossman said.

Kim Mi Sook, a union leader, said their last contact with company management was on the morning of March 22, when they received a facsimile message from the ultimate corporate parent, Pico Products Inc. of Liverpool, N.Y., asking if the labor union and creditors would be interested in taking over the plant and managing it themselves.

“We became enraged,” Kim said. “We went to the American Chamber of Commerce to stage a sit-in and ask for the help of American company presidents, when we were brutally beaten and taken away by the riot police.”

Chamber officials said Pico Korea was not a member of the organization.

Bernard K. Hitchcock, chairman of Pico Products and of Pico Macom, said in a telephone interview from his New York office that workers had held two American executives hostage on three separate occasions until the company conceded to union demands.

He accused the union, which was formed last November, of extorting wage increases of 10% and 12% a month.

“We abandoned the plant,” Hitchcock said. “We figured that was the safest way to operate.”

According to allegations by the labor union, the subsidiary’s president, James O’Connell, left the country in late February saying that he was going on a business trip, and never returned. Negotiations with the union over wage demands were suspended Feb. 28.

The remaining American executive, James P. Brainard, told workers to stop production March 2 and left South Korea the following day, the union says.

The union charged that a $45,000 check for factory payroll proved to be worthless, although a South Korean managing director received severance pay and Pico Korea paid a fee to a local law firm, Shin & Kim.

Labor Costs a Factor

The company hired Shin & Kim to settle wages and liquidate assets, but Pico’s Korean lawyers apparently resigned after an unfriendly confrontation with the workers, said Marion P. Spina, an American attorney based in Seoul who, with the Embassy’s Grossman, had attempted to assist in resolving the matter before last week’s violence.

“It would be quite unusual for a Korean attorney to get involved in a business matter, especially one as messy as this,” Spina said. “It’s very easy to believe that these Americans pulled a fast one, that they saw their labor costs were so high they weren’t going to make any money for several years and they decided to bail out.”

Spina said he was concerned about the negative impression Pico’s handling of the liquidation would make at a time when labor relations are going through a crucial period of transition, along with democratization and social change in South Korea.

“The lesson is, ‘Yes, it’s true, the system is stacked against you, and even in a very clear case like this, there is no justice,’ ” Spina said.

Hitchcock, however, said he is still trying to resolve the situation.

“Now I’m trying to find somebody to take control and liquidate the assets and distribute the funds,” he said. “I had hoped the situation would cool down so we could clear things up without risk to someone’s life.”

Hitchcock said the plant’s equipment and inventory of finished goods are worth about $1 million, enough to cover any liabilities. He said the employees are owed only one week’s wages.

The union, however, maintains that workers were not paid for the entire month of February and that the company is required to make severance payments under South Korean law.

The union claims that the workers are owed about $444,000 in wages, severance pay and other labor costs, and says the company owes creditors about $706,000. Assets in the form of finished goods, raw materials, equipment and refundable rental deposits total about $260,000, the union reckons.

Pico Products, the ultimate parent, is listed on the American Stock Exchange and had sales of $15.8 million but a loss of $2.8 million for the six months ended Jan. 31.

Pico Macom, the California subsidiary directly responsible for managing Pico Korea, recently withdrew plans to sell 1 million shares of common stock because of poor market conditions and the problems with the Korean plant, Hitchcock said.

He said the plant’s productivity dropped despite wage increases, resulting in a January operating loss of $167,000. He said the cost of labor as a percentage of sales rose to 74% in January from 20% before the workers organized.

The Korean plant was the only company-owned offshore production site, said Michael Holland, president of Pico Macom. The company subcontracts production of other electronic systems and components to manufacturers in Taiwan, China and the Philippines, he said.

Karl Schoenberger reported from Seoul and Nancy Yoshihara from Los Angeles.