Could Complying with the Yellow Envelope Act Lead to Violations of the Dispatch Act?

Negotiation Table as Evidence of Illegal Dispatch
Counterargument: "Autonomous Bargaining Is Different from Command and Supervision"

With the implementation of the Yellow Envelope Act (the amended Labor Union and Labor Relations Adjustment Act) scheduled for March 2026, concerns are being raised that companies, in their efforts to comply with this law, may end up violating the Act on the Protection, etc. of Dispatched Workers (the Dispatch Act). If a principal contractor directly determines the wages or other employment conditions of subcontracted workers, it could infringe on the managerial independence of the subcontractor, increasing the risk that a subcontracting relationship may be reclassified as a dispatch relationship. Experts advise that even when negotiating with subcontractor unions, companies should be careful not to expand the scope of negotiations into personnel and labor management.

On the 24th of last month, the National Assembly plenary session passed the "Partial Amendment to the Labor Union and Labor Relations Adjustment Act (Yellow Envelope Act)." Photo by Yonhap News

The greatest concern is that if the principal contractor repeatedly negotiates with the subcontractor union on a wide range of issues, there may later be grounds for a violation of the Dispatch Act.

Even if a contract is formally a subcontract, if it is substantively a dispatch relationship, it is considered a disguised subcontracting arrangement. In such cases, both the principal and the subcontractor can face up to three years in prison or a fine of up to 30 million won (Article 43 of the Dispatch Act). Illegally dispatched workers must be directly employed.

If the principal contractor goes beyond simply providing bonuses or welfare benefits to subcontracted workers and actually determines wage increases and payment methods, this could become problematic. In 2013, the Supreme Court presented "managerial independence" as a criterion for determining a dispatch relationship, along with the purpose of the contract and the nature of the subject matter (2011Da60247). If the subcontractor is reduced to merely a middle manager for the principal contractor, the legal entity of the company cannot be recognized. Negotiations under the Yellow Envelope Act could potentially lead to such situations. Subsequently, the Supreme Court further detailed the criteria into five categories, identifying the principal contractor's command and supervision as the most important factor (2010Da106436).

Allegations of "illegal dispatch" have already surfaced. On August 27, just three days after the Yellow Envelope Act passed the National Assembly, the Hyundai Steel Irregular Workers' Branch (a subcontractor union) under the Korean Confederation of Trade Unions filed a complaint against Hyundai Motor Group Chairman Chung Euisun and others for alleged violations of the Dispatch Act.

Lee Sewon (age 51, Judicial Research and Training Institute class 37), managing attorney at Law Office Seohwadam, commented, "Once negotiations begin, we will be forced to revisit the issue of managerial independence, which many did not previously consider problematic."

However, there is considerable opposition to this view. Some argue that "autonomous bargaining," as guaranteed by law, is fundamentally different from unilateral "command and supervision" by the principal contractor. Kwon Dooseop (age 55, class 29), an attorney at Law Firm Yeoneun, stated, "Since agreements are reached autonomously as guaranteed by the Yellow Envelope Act, the possibility of illegal dispatch is actually reduced. From the workers' perspective, there is less room to claim illegal dispatch, meaning they lose a potential bargaining chip." This is similar to the context of the Industrial Safety and Health Act. Since 2019, principal contractors have been required to directly engage in and consult on safety issues concerning subcontracted workers, but this does not serve as grounds for illegal dispatch.

Given the possibility of conflicting interpretations, confusion in the field is likely to persist until the Supreme Court issues a ruling on the matter. A labor law attorney, who requested anonymity, said, "Even the fact that wages are determined through negotiations under the Yellow Envelope Act can lead to different interpretations-some may argue it increases the risk of illegal dispatch, while others may say it reduces it. Ultimately, it is an issue for the courts to decide."

In this situation, where there is no clear answer, experts advise that the "red lines" in negotiations must be strictly observed. According to a 2014 administrative interpretation by the Ministry of Employment and Labor, it is permissible for the principal contractor to determine bonuses for subcontracted workers. However, if the principal contractor directly evaluates performance, manages attendance, or imposes disciplinary actions or training, these actions infringe on the subcontractor's exclusive authority over personnel and labor management, and may be considered evidence of disguised subcontracting.

Park Seongdong, Legal Times Reporter

※This article is based on content supplied by Law Times.

This content was produced with the assistance of AI translation services.