1.

Key Content and Practical Considerations

The Yellow Envelope Act encompasses major amendments, such as the (i) expansion of the scope of an “employer,” (ii) expansion of the scope of “union membership,” (iii) expansion of the scope of industrial disputes, and (iv) limitation on damages claims (for a more detailed overview of the key contents of the Yellow Envelope Act, please refer to our previous newsletter, Link). Although the Ministry of Employment and Labor is expected to issue interpretative guidelines in due course, the timing of such release remains uncertain. Accordingly, rather than waiting for such guidelines, businesses should take proactive steps from now on to prepare for the substantial impact the Yellow Envelope Act is set to have on existing labor-management relations starting in the first half of next year.

One of the most consequential changes is the expansion of the concept of an “employer,” which will include any entity that exerts “substantial and specific control” over the working conditions of the workers. This will create significant uncertainty, as there is no established legal standard for determining what level of control would constitute “substantial control.”

As a result, businesses with complex supply chains or corporate structures will now face a myriad of critical questions including the following: “At what point is a company legally obligated to negotiate with its subsidiary’s union?” “When must a prime contractor engage with its subcontractor’s striking workers?” “What is the extent of the prohibition on strike replacement when the subcontractor’s workers go on strike?” This ambiguity may also extend to parent-subsidiary relationships, or beyond typical contractor relationships, potentially affecting business models that engage freelance workers.
 

2.

Strategic Response

Given the structural shifts this amendment will bring, a “wait-and-see” approach is not advisable. While government agencies are expected to issue interpretive guidelines in the near future, businesses should act now to assess their risk exposure by analyzing legal precedents from courts and Labor Relations Commission rulings where the “substantial control” test was a factor. Such analyses, when paired with a thorough internal review of one’s business operations, subcontractor agreements, and parent-subsidiary governance, will enable the development of a tailored strategy to mitigate potential risks and exposure and prepare for Korea’s new labor relations landscape.