South Korea: An Employment Overview

Key Provisions and Implications of “Yellow Envelope Act”

In August 2025, Korea’s National Assembly passed amendments (the “Amendment”) to the Trade Union and Labor Relations Adjustment Act (the “Trade Union Act”), commonly referred to as the “Yellow Envelope Act.” The law is scheduled to take effect on 10 March 2026. The stated aim of the Yellow Envelope Act is to strengthen the bargaining rights of subcontracted workers and to more robustly protect employees’ rights to engage in industrial actions (strikes). Because the Amendment articulates very abstract standards, there were calls for interpretive guidance. Responding to this need, the Ministry of Employment and Labor (MOEL) issued an interpretive guideline in December 2025. Below, we summarise the key features of the Amendment, anticipated developments, and recommended corporate responses.

Key amendments

First, the Amendment expands the scope of “employer” to include “any person who is in a position to substantially and specifically control or determine the working conditions of employees” rather than the generally accepted definition of “employer” as a contracting party to the employment contract. This means a contractor company could be deemed a “non-contracting employer” of a subcontractor’s employees if such conditions are met.

With respect to the meaning of a “person who substantially controls an employee’s working conditions,” MOEL has indicated that this refers to a person exercising “structural control” over working conditions. If a principal contractor in practice determines core aspects of subcontracted workers’ conditions – such as working hours, break times, work schedules, and the work environment – or if it fundamentally and continuously limits the subcontractor’s discretion to decide these matters independently, the principal’s “structural control” over subcontracted workers’ working conditions may be recognised. MOEL also stated that, in addition to structural control, it will consider whether the subcontractor is organisationally integrated into the principal’s business and whether the subcontractor is economically dependent on the principal when assessing the existence of “substantial control.”

Second, under the current provisions of the Trade Union Act, strikes are only permitted for matters related to the “determination” of working conditions. The Amendment expands permissible subjects of industrial action (strikes) to include business and management decisions that affect working conditions and instances where the employer clearly violates the terms of collective bargaining agreements regarding wages, working hours, dismissal, safety and health, etc.

There has been debate over what, specifically, constitutes “business and management decisions that affect working conditions.” In its recent guidance, MOEL clarified that not every business or management decision can legitimately be the subject of a strike; only decisions that cause substantial and concrete changes to working conditions may be targeted. Accordingly, where the impact on working conditions is merely potential or speculative, it is difficult to regard the matter as a legitimate subject of industrial action. That said, the guidance remains somewhat abstract, and there will be clarity only as court cases accumulate.

Third, the Amendment recognises labour unions with non-employee members. Previously, if a labour union had non-employee members, it would not be recognised as legitimate.

Finally, the Amendment has made it more difficult for employers to seek compensation from labour unions or employees for damages caused by labour unions’ illegal strikes. Employers are prohibited from exercising their right to claim compensation for damages based on the purpose of obstructing labour union activities, and labour unions are exempted from liability for damages if they inevitably inflict damages on the employer while resisting the employer’s illegal acts. Even when liability is recognised, the amount of damages is determined individually for each employee by considering factors such as each individual member’s role within the labour union and level of participation in the illegal strike, thereby limiting the liability of union members for illegal strikes. Furthermore, both labour unions and employees liable for damages may request a reduction in the compensation amount from the court.

Anticipated future developments

Once the Amendment takes effect on March 10th, we expect that there will be a significant increase in cases where a subcontractor’s labour union requests collective bargaining with the principal contractor. In response, the principal contractor will often refuse such demands, arguing that they are not in a position to exercise substantial and specific control over the working conditions of the subcontractors’ workers. This will lead to numerous disputes over the issue of “employer” status. The question of whether such employer status exists will be decided by the Labor Relations Commission in the first place, and if the Commission recognises the principal contractor’s employer status but the principal contractor does not comply, there is also a possibility that it will face criminal penalties for an unfair labour practice.

In addition, because claims for damages arising from unlawful industrial action will be restricted, there is a higher likelihood of frequent strikes at the workplace, as well as illegal industrial action or occupation of the workplace. Also, labour unions may strike in opposition to management decisions, such as mergers and acquisitions, restructuring, and investments, which were previously not subject to legitimate strikes. In particular, if a contractor company is recognised as the employer of subcontractor’s workers, the subcontractor’s labour union may also conduct strikes in response to the management decisions of the contractor company, such as the replacement of subcontractors.

Possible response measures

In connection with the Amendment, companies should keep the following in mind.

First, companies should review in advance whether they could be viewed as being in a position to substantially and specifically control or determine the working conditions of subcontractor employees in case of a demand for bargaining from the subcontractor’s labour union. In particular, taking into account that whether “substantial control” exists will be assessed on an agenda‑by‑agenda basis in bargaining, companies should evaluate, for each prospective agenda item that a subcontractor union is likely to raise, whether the principal’s “substantial control” would be recognised.

Second, companies should prepare a bargaining strategy in advance for how they will respond if a subcontractor’s labour union requests collective bargaining. Based on the assessment of substantial control noted above, companies should determine which of the union’s proposed agenda items they will agree to negotiate and which they will decline. In addition, the recently announced Enforcement Decree of the Trade Union Act would authorise the Labor Relations Commission, in its broad discretion, to determine the bargaining unit when a subcontractor’s union seeks to establish a separate bargaining unit. Accordingly, companies should develop a strategy for the position they will take in any bargaining-unit determination process. To support such preparations, it may be necessary to strengthen the organisation responsible for collective bargaining including additional training and possibly headcount.

Third, when making management decisions, companies should assess in advance whether such decisions will affect working conditions. If management determines that such decisions are likely to affect working conditions, it would be prudent to consult closely with the labour union, if possible. In particular, despite MOEL’s guidance, there remains significant uncertainty as to which management decisions can be the subject of bargaining and strikes. Companies should therefore make decisions cautiously while monitoring how the case law develops.

Fourth, companies must prepare in advance for strikes. It is necessary to review the scope of possible labour union activities during a strike, the scope of the employer’s countermeasures, and to consider in advance methods for collecting evidence to substantiate an illegal strike.

Fifth, since the Amendment only expands the scope of “employer” and does not revise the entire Act, various interpretations will likely emerge regarding the amended Act in the future. It is important for companies to diligently monitor the development of these interpretations.