One Month After Yellow Envelope Act: Steel, Shipbuilding, and Automotive SMEs Face Imminent Shock

1,077 Unit Unions Demand Negotiations
Concerns Over SME Damages Such as Severed Business Ties
Impact Expected on Franchise Small Business Owners

As one month has passed since the implementation of the Yellow Envelope Act (amendments to Articles 2 and 3 of the Trade Union Act), conflicts between primary contractors and subcontractor unions over collective bargaining are spreading nationwide, and the damage to small and medium-sized enterprises (SMEs) is becoming increasingly visible. The union-related risks that originated with large corporations are now spreading along a multi-level structure, reaching even the subcontracted SMEs.

According to the office of Kim Sohee, a member of the People Power Party, as of April 22, since the Yellow Envelope Act came into effect on March 10, a total of 1,077 unit unions have demanded collective bargaining from 393 primary contractors that qualify as SMEs. Among these companies, only 37 (9.4%) have publicly announced that they received such demands. This suggests that many companies are either unprepared or lack the capacity to engage in negotiations to find a compromise.

As subcontractor unions intensify their demands for bargaining, most companies are resisting these demands and holding out, causing conflict and tension to accumulate. So far, large corporations with many subcontractors have borne the initial burden of collective bargaining demands, but there is growing concern that the impact will likely spread to numerous SME partners as well.

In particular, a significant impact is expected in pyramid-structured industries such as steel, shipbuilding, and automobile parts manufacturing, which operate through first- to third-tier supplier networks. This is because the criteria the government uses to determine who is an employer—namely 'structural control' and 'economic dependency'—are especially high in these sectors. Yang Okseok, Director of Human Resources Policy at the Korea Federation of SMEs, said, "If large enterprises move to reduce orders or reorganize their partners to preemptively block potential union risks at existing partners, it is only a matter of time before the damage spreads to SMEs."

There are also signs that the ripple effects may extend to small business owners. Recently, collective bargaining conflicts between BGF Retail and the Cargo Truckers Solidarity Union have led convenience store owner-operators to report damages such as disruptions in logistics and declining sales. If demands for negotiations become more widespread, small business owners who operate franchises and dealerships via logistics and distribution networks are likely to be exposed to broad-based harm. Since bargaining power weakens further down the supply chain, the shock may be felt even more acutely.

Roh Minseon, a research fellow at the Korea Small Business Institute, stated, "As primary contractors' responsibilities increase, institutional safeguards must be put in place to prevent the burden from being shifted to partner firms," adding, "It is necessary to establish mechanisms to adjust the overall transaction structure, such as enhancing the effectiveness of the supply price indexation system, to manage instability throughout the supply chain."

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