[Yellow Envelope Act Implementation ①] Still the Boss Without Paying Wages?... Redefining the 'Employer' Standard

The Actual Employer Bears Responsibility for Labor Negotiations
"Ambiguity in Employer Scope Requires Accumulated Case Law"
Government to Continuously Monitor On-Site Disputes and Bargaining Situations

The core of the revised Labor Union Act (commonly called the "Yellow Envelope Act"), which will take effect on March 10, is that it redefines the criteria for "who constitutes the employer." Now, the determination of an employer is no longer limited to the party listed as the employer in the employment contract. If an entity has the actual and specific authority to control or determine working conditions—such as wage levels, work methods, and personnel allocation—they are considered an employer, even if there is no contractual relationship. The intent is to identify the party responsible for bargaining and legal obligations based on substance, not form. In other words, the party that exercises real decision-making power must participate in negotiations and bear the corresponding legal responsibilities.

"The Actual Employer Is Responsible for Bargaining"

The Yellow Envelope Act centers on three main points: ▲ expansion of the definition of an employer ▲ expansion of the scope of labor disputes ▲ limitation of excessive damage claims. Among these, the expansion of the employer definition represents the most significant change, as it fundamentally shifts the starting point of labor-management relations. The scope of the employer is a precondition for other provisions, since it must be established who the negotiating party is before discussing the right to strike or liability for damages.

The provision expanding the scope of employers is stipulated in Article 2, Paragraph 2 of the revised law. Going forward, employers will find it difficult to avoid bargaining obligations simply because they do not have a contractual relationship. Especially considering the prevalence of primary contractor–subcontractor structures in industry, the impact is significant because the party that actually influences working conditions and the party responsible for bargaining have now been aligned. By codifying what had previously been recognized only in a limited way through court rulings, the law now provides a crucial legal basis for reshaping bargaining tables in practice.

This provision reflects the reality of South Korea's industrial structure, where multi-level subcontracting is common and large corporations typically divide production processes among several partner companies. For example, if Company A, a large corporation, produces automobiles and outsources parts manufacturing to Partner Company B, legally, the employer for Company B's workers is B's management, with whom employment contracts exist. However, the unit price for parts is actually determined by Company A, which in turn affects Company B's ability to meet labor costs. Nevertheless, negotiations had to be held with Company B's management, resulting in a split between decision-making power and bargaining responsibility.

The revised law aims to close this gap. In the past, the employer who was party to the employment contract was the starting point for determining employer status, but now, if the primary contractor is substantively involved in the wages, personnel, or work methods of subcontracted workers, it can be recognized as an employer. It is no longer possible to determine responsibility based solely on contract wording; instead, actual chains of command, evaluation structures, and methods of setting prices—all concrete forms of influence—will be comprehensively considered.

However, some point out that the phrase "actual and specific control" is abstract. The Ministry of Employment and Labor explained in its interpretive guidelines that this refers to "structural control," meaning situations where the primary contractor restricts the subcontractor's discretion over staffing, working hours, work methods, or wages. However, labor unions have objected, saying this could narrow the scope of employer responsibility, while management is concerned that employer liability might expand to include demands for safety and quality control. In practice, the specific scope will likely be determined on a case-by-case basis by the Labor Relations Commission. Some within the government acknowledge that a certain level of abstraction in the guidelines is unavoidable. A Ministry of Employment and Labor official stated, "The wording of the Yellow Envelope Act is the result of our best efforts," but also noted that "even the scope of the term 'clear' in the guideline 'in case of a clear violation of the employer’s collective agreement' will become more specific as case law accumulates."

How Will Actual Bargaining Proceed?... Dual-Track Bargaining Structure

The government has established a dual-track bargaining structure. According to the "Primary–Subcontractor Win-Win Bargaining Procedure Manual," the primary contractor’s union will negotiate with the primary contractor as before, while the subcontractor’s union will form a separate bargaining unit to negotiate directly with the primary contractor. Recognizing that the structures and interests determining working conditions differ between primary and subcontracted workers, the two bargaining units are fundamentally separated. Therefore, when a subcontractor’s union requests bargaining with the primary contractor, there is no need for a separate application to separate the bargaining unit from the primary contractor’s union. The two units are considered distinct from the start.

However, if there is more than one subcontractor’s union, a "single bargaining channel" procedure must be followed. To prevent confusion when multiple unions each request bargaining, the subcontractor unions must either select a representative union or form a joint bargaining delegation so that negotiations are conducted through a single channel. When a subcontractor’s union requests bargaining with the primary contractor, the primary contractor must announce this fact at the workplace for seven days. During this period, any other subcontractor’s unions can indicate their intention to participate. If multiple unions are involved, a process to select a representative union is initiated; if there is only one union, this step is skipped.

If the primary contractor claims it is not the employer, the Labor Relations Commission will determine "employer status." If recognized as an employer, collective bargaining will commence. Conversely, if the primary contractor fails to announce the bargaining request or refuses to negotiate after being recognized as an employer, the subcontractor’s union can file a request for corrective action with the Labor Relations Commission. Failure to comply with a corrective order may result in sanctions for unfair labor practices. The government anticipates that employer status determinations will be a key issue and has allowed for an extension of the Labor Relations Commission’s decision period.

Nonetheless, there are predictions that considerable confusion will be inevitable in the early stages of the law’s implementation. Lee Byunghoon, Professor Emeritus of Sociology at Chung-Ang University, commented, "Since this law will have a significant impact on the landscape of labor-management relations, there is a high likelihood that some confusion and conflict will arise after March 10. It would be fortunate if negotiations proceed in an orderly manner, given the accumulated grievances and demands of subcontracted workers, but in some cases, there is a possibility that these could erupt suddenly and explosively."

The government has designated the first three months after the law’s implementation as an intensive management period and plans to continuously monitor disputes and bargaining situations on the ground. During this period, it will actively provide interpretive guidelines and bargaining manuals to workplaces to minimize confusion. In addition, it plans to rapidly accumulate and share examples of employer status determinations through the Judgment Support Committee—comprising external experts—and consultations with relevant ministries. The government also intends to operate a continuous communication channel among labor, management, and government to mediate initial conflicts in real time.

Kim Younghoon, Minister of Employment and Labor, is speaking at the meeting of related ministers on the enforcement of the revised Labor Union Act held at the Government Seoul Office in Jongno-gu, Seoul on March 4, 2026. Photo by Jo Yongjun

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