In a story that has gripped both labor advocates and the public, a series of labor violations at franchise cafes and restaurants in Cheongju, South Korea, have come to light following a much-publicized dispute over three cups of coffee. The Ministry of Employment and Labor’s two-month special inspection, announced on June 8 and June 9, 2026, has exposed widespread wage theft, illegal contract clauses, and poor labor management practices across 33 franchise outlets, including the well-known Paik’s Coffee chain.
This sweeping investigation was sparked by a March 2026 incident that quickly went viral online: a Paik’s Coffee franchise owner in Cheongju accused a young part-time worker of stealing three drinks, demanded a hefty settlement of 5.5 million KRW, and, with the involvement of another store owner, even filed a criminal complaint for theft. According to KBS, the controversy escalated after the accused worker was pressured into admitting the alleged theft, and both owners later withdrew their complaints, returning the money and issuing apologies as public outrage grew.
But as the Ministry of Employment and Labor dug deeper, it became clear that the infamous “three drinks theft” was only the tip of the iceberg. The Ministry’s inspection revealed that the owner in question had been operating two separate businesses—a coffee shop and a dessert shop—under different registrations. This tactic, known as “business splitting,” was used to falsely present the stores as small businesses with fewer than five regular employees, thereby sidestepping legal obligations to pay overtime, night, and holiday wage premiums. As reported by IMBC and Labor Today, the owner ultimately delayed payment of about 3 million KRW in wages for 49 workers, including overtime and other allowances.
Further scrutiny uncovered that the labor contracts at these stores contained illegal penalty clauses. Notably, workers were required to pay damages calculated from sales losses if they breached their contracts, and those who resigned within three months of hiring would receive only 90% of their earned wages. The Ministry concluded that these clauses violated Article 20 of the Labor Standards Act, which prohibits employers from stipulating advance penalty or damage amounts in employment contracts. As a result, the franchise owner was criminally charged for these infractions, a move that, according to The Kyunghyang Shinmun, signals a tougher stance from authorities.
The investigation didn’t stop at a single franchise. The Ministry expanded its review to 33 franchise cafes and restaurants in Cheongju, examining labor practices from April 2025 through March 2026. The findings were damning: across all outlets, about 130 part-time workers were owed a total of 7 million KRW in unpaid wages. Violations included failing to write or update labor contracts—especially when workdays or hours changed—neglecting to provide wage statements, omitting legally mandated break times, and underpaying retirement benefits. As KBS reported, some stores did not specify break times in contracts, failed to maintain worker and wage records, and neglected to provide the required 30-minute breaks for every four hours worked.
Anonymous surveys conducted by the Ministry among 123 young workers in these outlets painted an even bleaker picture. Many reported never receiving updated contracts when their schedules changed, not getting wage statements, and missing out on night work allowances. Some said they worked alone, making it impossible to take breaks, while others described being forced to work on holidays or having their wages docked for early departures. These accounts, highlighted by The Kyunghyang Shinmun, underscore systemic issues in labor management within the franchise sector.
In response to these violations, the Ministry issued correction orders and fines. Two stores that failed to keep proper labor documents were fined around 1 million KRW each, and all other outlets were ordered to rectify their practices by the end of June. The Ministry also announced plans to strengthen its oversight: in future incidents involving unpaid wages, a full investigation will be conducted, and certified labor attorneys will provide on-site consulting to businesses that employ large numbers of young workers.
The Minister of Labor, Kim Young-hoon, was unequivocal in his stance. As quoted in Labor Today, he stated, “We will respond strictly through supervision and other measures against illegal acts that infringe on the legitimate rights and interests of young workers. We will also strengthen education and publicity activities so that small business owners do not break the law out of ignorance, and take steps to prevent conflicts between small business owners and young workers.”
For many, the Cheongju scandal has become a symbol of the broader challenges facing part-time workers in South Korea’s booming franchise industry. The practice of “business splitting” to avoid labor laws is not new, but this case has thrown it into sharp relief. Under Korean law, businesses with fewer than five regular employees are exempt from certain labor protections, including overtime and night shift premiums—a loophole that some owners have exploited by registering separate business units under different names or business numbers. The Ministry’s finding that the Paik’s Coffee owner was, in reality, running a single business with more than five employees means that all workers at both the coffee and dessert shops are entitled to the full range of legal protections.
The scandal has also sparked debate over the use of penalty clauses in labor contracts. While some business owners argue that such clauses are necessary to protect against sudden resignations or losses, labor experts and authorities maintain that they place an unfair burden on employees, especially young part-timers who already face job insecurity. As the Ministry’s actions demonstrate, the law is clear: advance penalties or damages for breach of contract are forbidden, and employers who include them risk criminal charges.
Meanwhile, the broader inspection of Cheongju’s franchise sector has revealed that these problems are far from isolated. Most outlets inspected had poor record-keeping, failed to pay proper allowances, and neglected to provide adequate breaks or retirement benefits. The Ministry’s commitment to stricter enforcement and education aims to address these issues, but many observers note that real change will require ongoing vigilance and cultural shifts within the industry.
As the dust settles on the “three drinks” affair, the message from authorities is unmistakable: wage theft, contract manipulation, and labor rights violations will no longer be tolerated, and both workers and employers must be fully aware of their legal obligations. For the young part-timers at the heart of this story, and for others across the country, the hope is that these events will mark a turning point toward fairer, more transparent workplaces.