1.

Principles for determining employer status

The principles for determining employer status in the Draft Guidelines largely align with the analysis we have previously shared in our newsletters and webinar.

The Draft Guidelines distinguish between a “Contracting Employer” (i.e., one who has signed a direct employment contract) and a “Non-Contracting Employer” (i.e., newly expanded category of an employer who has no direct employment contract with workers). Under this framework, employer status is determined not by the existence of a contract, but by the ability to exercise substantial and specific control and determination over a worker’s working conditions—a concept that extends beyond the traditional relationship between a prime contractor and a subcontractor.

To determine whether a party qualifies as a Non-Contracting Employer, the Draft Guidelines propose a comprehensive evaluation based on core factors, such as: (i) whether there is structural control over working conditions; (ii) whether there is organizational integration and control of work; and (iii) whether there is economic dependence. These factors mirror the standards for substantial and specific control that we have previously discussed: namely, whether the subcontractor’s work is permanent and essential to the prime contractor; whether the subcontractor is integrated into the prime contractor’s business structure; whether working conditions are effectively dictated by the service agreement; and whether the prime contractor is the party capable of satisfying the union’s bargaining demands.

Regarding structural control over working conditions, the Draft Guidelines indicate that such control is likely to be recognized when the work of the prime contractor and subcontractor is closely aligned or the work processes are interdependent. Examples include:
 

• Synchronization: When the subcontractor’s working hours (shifts, overtime, holidays) are structurally determined by the prime contractor’s production methods or shift cycles.

• Direct management: When the prime contractor determines work allocation, sequence, or methods through detailed work orders or management systems.

• Integration: When the production lines of the prime contractor and subcontractor are mechanically or systematically linked.

 The Draft Guidelines also provide examples of when a prime contractor may be deemed an employer based on specific subject matters:
 

• Safety: Employer status may be recognized if the prime contractor controls the facility where both parties’ employees work; if the authority to determine and execute structural safety improvements primarily lies with the prime contractor; or if the prime contractor holds decision-making power over safety budgets.

• Welfare: For benefits such as commuter buses or break rooms, employer status is likely to be found if the prime contractor substantially determines whether subcontractor employees can access these facilities or influences the standards for their use.

• Wages and Hours: Employer status may be recognized if the prime contractor holds substantial decision-making power over work schedules, break times, or overtime. It may also apply if the prime contractor effectively determines labor costs based on the headcount or hours of deployed workers, or if it directly suggests wage increase rates or allowance standards.
   

2.

Criteria for determining subjects of labor disputes

Regarding “managerial decisions affecting working conditions,” the Draft Guidelines explain that if the implementation of a managerial decision causes substantial and specific changes to working conditions—such as transfers or layoffs—it becomes a subject of collective bargaining. Consequently, if such bargaining breaks down, it becomes a valid ground for industrial action. Therefore, while a managerial decision aimed at corporate reorganization (e.g., mergers, spin-offs, business transfers, or sales) may not, on its own, be a subject of collective bargaining, it becomes subject to bargaining and potential labor disputes if:
 

• Decisions made during its implementation cause substantial and specific changes to employee status or working conditions (e.g., layoffs or restructuring-related transfers); or

• Such changes to working conditions are objectively anticipated.

Furthermore, industrial action is permitted where there are “disagreements regarding claims concerning the determination of employee status.” Examples of such subjects include:
 

• The establishment of systems or criteria for converting non-regular employees to regular employee status;

• The establishment of promotion criteria; and

• The establishment of criteria for extending the retirement age.
   

Finally, examples of “manifest violation of a collective bargaining agreement” include:
 

• The employer admits to violating the agreement but fails to rectify it; or

• The fact of the violation is objectively confirmed during mediation by the Labor Relations Commission or during labor-management guidance provided by a regional Labor Office.
   

3.

How businesses can prepare for the “Yellow Envelope Act”

The Draft Guidelines are currently under administrative notice. Unlike in the past, the MOEL plans to actively solicit feedback during this period and finalize its guidelines through further discussion. However, given that the core principles regarding employer status and the subjects of industrial action in this draft remain largely consistent with our previous analysis, it is possible that the guidelines will be finalized without major changes. Therefore, prime contractors should proactively identify which working conditions of subcontractor employees they currently control or determine, and prepare accordingly before the Yellow Envelope Act takes effect.

Furthermore, to prepare for potential scenarios involving negotiations with multiple labor unions, businesses must fully understand the procedures for establishment of a single bargaining channel and separation of bargaining units by referring to the legislative notice of the Enforcement Decree of the Trade Union and Labor Relations Adjustment Act announced last month.