A franchisee of the coffee chain Paik's Coffee, who received a 5.5 million won settlement from a part-time employee for allegedly drinking beverages without permission, has ultimately had their franchise agreement terminated.

Theborn Korea has notified the Paik's Coffee store located in Cheongju, North Chungcheong Province, of the contract termination due to violations of the Franchise Business Act, and has sent a certified letter ordering the store to close by July 13.

Theborn Korea stated that the results of a special inspection by the Ministry of Employment and Labor regarding the franchisee, identified as A, served as the basis for the decision to terminate the contract.

A representative from Theborn Korea explained, "Following the incident in Cheongju, the entire 'Paik's Coffee' brand became a target of criticism, causing serious damage to the brand's reputation and credibility," adding, "Franchisee A was fined for workplace harassment and violations of the Labor Standards Act, which caused a significant obstacle to the franchise business."

Previously, Theborn Korea had imposed a one-month business suspension on A's store in March.

The controversy arose when it was revealed that in December of last year, franchisee A sued a part-time employee, B, for professional embezzlement after B took three drinks worth 12,800 won on their way home, and subsequently received 5.5 million won from B under the guise of a settlement.

At the time, A pressured B, who was a student preparing for college entrance exams, by saying, "If the head office digs into this, it will constitute theft and you won't be able to go to college," forcing the settlement.

It is reported that B, who dreams of becoming a teacher, paid the money out of fear of having a criminal record.

After the controversy grew, A belatedly returned the settlement money to B.

As the incident sparked significant public outcry, a related complaint was filed with the Ministry of Employment and Labor in March, leading to a government-led special inspection. The investigation confirmed that A had violated laws, including drafting illegal employment contracts and withholding wages, leading to criminal charges.

During this process, it was also revealed that A had operated a single business location by splitting it into two separate entities—a coffee shop and a dessert shop—each with fewer than five employees.

Since businesses with fewer than five employees are exempt from the obligation to pay additional allowances for overtime, night, or holiday work under the Labor Standards Act, it was confirmed that A had withheld approximately 3 million won in wages from a total of 49 employees through this "business splitting" tactic.

Reported by Kim Minjeong | Video by Jang Yujin | Graphics by Lee Jeongju | Produced by SBS Digital News