Talent management agency SM Entertainment, which manages popular boy/girl bands such as TVXQ, Girls' Generation and Super Junior, has been ordered by the Fair Trade Commission to rectify contractual terms signed with its entertainers after controversy over unfair conditions.

The controversy started at the end of last year when fans of TVXQ reported SM's allegedly unfair contract to the FTC. When the watchdog launched a probe, SM voluntarily changed the terms of its contract, shortening the legally binding time frame from between 10 and 13 years to seven.

"Considering that SM Entertainment voluntarily rectified its unfair practice, it was let off with a warning," the FTC said. But the FTC ordered SM Entertainment to scrap a clause that unilaterally forces an entertainer to extend his or her contract by three years regardless of individual circumstances.

SM also promised to voluntarily rectify its policy of charging entertainers exorbitant penalties for breaking their contracts and compelling them to follow a schedule set by the agency.

Currently if entertainers want to end their contract before it expires, they are required to pay three times the amount of money SM Entertainment has invested in them or twice the estimated loss of earnings for the agency. But from now on, it will calculate the cancellation charge based on the average monthly sales generated by the entertainer multiplied by the remaining months of the contract.

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