Separation of Principal and Subcontractor Bargaining: Hypothetical Scenarios Reveal Increased Burden from Divergent Demands [Will the Yellow Envelope Act Be Effectively Implemented?] ③

Key Issue: Determining the Principal Contractor's "Substantial and Specific Control"
Various Bargaining Unit Separations Possible Depending on Commission's Decision
Principal Contractor Faces Greater Burden with Multiple Bargaining Tables
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If the Yellow Envelope Act (the amendment to Articles 2 and 3 of the Labor Union and Labor Relations Adjustment Act) goes into effect in March next year, whether or not bargaining units between primary contractors and subcontractors are separated is expected to become a key variable shaping future labor-management relations. According to the amended enforcement decree of the Labor Union Act announced by the government, unification of bargaining channels is the principle. However, if labor and management fail to reach an agreement, the Labor Relations Commission may exercise its authority to separate bargaining units based on the amended law.

The critical issue lies in whether the primary contractor is deemed to have “substantial and specific control” over subcontracted workers. The Labor Relations Commission will use this as a basis to examine the working conditions and interests of the subcontractor’s union and decide whether to approve their request to separate bargaining from the primary contractor’s union. If the separation is approved, the primary contractor must prepare for bargaining from the agenda-setting stage. Based on expert opinions, we have outlined hypothetical scenarios for labor-management bargaining following the enforcement of the amended law in March next year.

Primary Contractor Facing Multiple Bargaining Tables Due to Separation of Bargaining Units

Immediately after the Yellow Envelope Act comes into full effect in March 2026, a hypothetical scenario unfolds where the mid-sized auto parts manufacturer AK Motors (a fictional primary contractor) faces its first bargaining dispute with the union of in-house subcontractor D Partners. The D Partners union claims that the primary contractor exercises substantial control over their working conditions and demands direct bargaining. In contrast, AK Motors refuses and requests that the D Partners union proceed with the unified bargaining channel process together with the primary contractor’s union.

In this case, it is highly likely that the D Partners union will file an application with the Labor Relations Commission to separate the bargaining unit. They may argue that subcontracted workers and regular employees of the primary contractor cannot be grouped into a single bargaining unit due to differences in job duties, working arrangements, and employment structures. The Labor Relations Commission must listen to both unions and begin a formal review. The core of the review will be the extent of the primary contractor’s control over the subcontractor’s working conditions. The commission will need to closely investigate the degree of the primary contractor’s involvement in areas such as work schedules, allocation of work volume, safety management systems, and process changes at the subcontractor.

Future scenarios will diverge significantly depending on the commission’s decision. If the commission determines that the job content and structure for determining working conditions between the primary contractor’s and subcontractor’s unions are significantly different, it may decide to separate the bargaining units. In this case, AK Motors would be required to conduct independent bargaining with the D Partners union, separate from its own union. If the primary contractor refuses to bargain, it may be deemed an unfair labor practice and become subject to guidance or legal action.

Experts say this could become the most realistic dispute structure following the implementation of the Yellow Envelope Act. This is because the scope of bargaining rights, employer responsibilities, and interests differ between the primary contractor’s and subcontractor’s unions, making separation inevitable. Kim Kichan, a professor at Korea University of Technology and Education, said, "Subcontractor unions will try to make various bargaining demands to the primary contractor, and in the process, they may operate separately from the primary contractor’s union. If such a case arises in one place, it is bound to spread further in the future."

In this scenario, the primary contractor will be burdened with operating multiple bargaining tables within a single workplace. Among the bargaining agenda items raised by the subcontractor’s union, those in which the primary contractor is substantively involved-such as ▲occupational safety and health ▲work processes ▲allocation of work volume ▲work speed ▲work intensity-will likely require the primary contractor to negotiate directly. Professor Kim explained, "As various bargaining demands are made to the primary contractor, negotiations could continue throughout the year."

If, however, the commission finds that the differences in interests are not significant and rejects the request for separate bargaining, the D Partners union will have to enter the unified bargaining channel process with the primary contractor’s union. In this case, the bargaining influence of the minority subcontractor union will be greatly diminished, and the bargaining structure will effectively remain centered on the primary contractor and its union. If there are multiple unions, the primary contractor’s union will serve as the bargaining representative and take the lead in negotiations.

One Primary Contractor, Increased Burden from Multiple Subcontractors

The situation becomes even more complex if there are multiple subcontractor unions at a single workplace. For example, in addition to the D Partners union, if there are two more subcontractor unions (from companies E and F) at AK Motors, and all of them demand independent bargaining, the commission may determine that the job duties, interests, and characteristics of the D, E, and F unions are significantly different and thus require separate bargaining units for each. In that case, AK Motors, as the primary contractor, would have to bargain separately with all three unions.

A Ministry of Employment and Labor official stated, "It is difficult to generalize because various characteristics must be considered," but added, "For example, if there are three subcontractor unions within a primary contractor, there could be three bargaining units, two, or even just one overall." The decision is entirely up to the commission. If the commission allows each subcontractor union to bargain individually with the primary contractor, the primary contractor must comply.

In this situation, the primary contractor must coordinate demands at different tables. There is also the risk that agreements reached at one table may lead to additional demands at another. Since the three subcontractor unions have different job duties, working conditions, and interests, their demands may differ, and the primary contractor must reach separate agreements with each. This process is highly likely to raise issues of fairness. An agreement with one union could trigger additional demands from others, potentially leading to a chain reaction of strikes. A labor sector official pointed out, "It will be difficult for the primary contractor to satisfy the differing demands of each subcontractor union, which could significantly increase the burden of bargaining and the risk of disputes."

Provided by the Ministry of Employment and Labor

‘Industrial Safety’ May Become a Key Issue in Bargaining

Some in management circles predict that if full-scale bargaining begins in the early stages of the Yellow Envelope Act’s implementation, “industrial safety” will likely emerge as a major issue. This is because industrial safety is a representative area where the primary contractor’s “substantial control” is broadly recognized. Considering that the working environment and safety management system for subcontracted workers are largely determined by the primary contractor’s instructions on work speed and placement of safety equipment, the commission is likely to broadly recognize the primary contractor’s duty to bargain on industrial safety issues, linking the Occupational Safety and Health Act and the Serious Accidents Punishment Act.

Shin Ilsik, an attorney at Yulchon LLC, explained, "The Yellow Envelope Act expands the concept of labor disputes to include a union’s claims that the employer has clearly violated collective bargaining agreements on matters specified in Article 92, Paragraph 2, Subparagraphs (a) through (d) of the Labor Union Act," "and if the primary contractor cannot immediately implement or clarify the implementation of safety and health measures included in a collective agreement, the subcontractor union may use this as grounds to launch a strike or other industrial action."

An attorney specializing in labor law, who requested anonymity, said, "Even when working under the same conditions, primary contractor employees may have proper safety facilities while subcontracted workers do not, which could lead to demands for safety budgets and equipment," adding, "There are precedents in which primary contractor control over industrial safety has been recognized, so this scenario is realistic."