Yellow Envelope Act Takes Effect Today... Subcontractor Unions Gain Path to Negotiations with Principal Companies

With the enforcement of the so-called "Yellow Envelope Act" (amendment to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act) on March 10, changes are beginning to take place in labor relations within the primary contractor and subcontractor structure. For the first time, a legal framework has been established that enables subcontractor labor unions to demand direct negotiations with the primary contractor companies that have a substantive influence over their working conditions.

The Ministry of Employment and Labor announced that the amended Trade Union and Labor Relations Adjustment Act will come into effect starting today. After being promulgated on September 9 last year and following a six-month grace period, the law is now being fully enforced. The government explained that this measure aims to institutionalize dialogue between labor unions and the actual decision-makers of working conditions within the complex employment structure of primary contractors and subcontractors.

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The key aspect of the amended law is the expanded definition of "employer." Now, even if an entity is not a direct party to the employment contract, it can be recognized as an employer if it has substantial control or decision-making authority over working conditions, such as wage levels, work methods, or workforce allocation. As a result, the legal grounds for subcontractor labor unions to demand negotiations with primary contractors who exert influence over working conditions have become clearer.

The government explained that the background for the amendment was the separation of negotiation responsibilities and actual decision-making authority within the primary contractor and subcontractor structure. There have been ongoing concerns that, in an industrial structure where multi-layered subcontracting is common, the entities influencing working conditions and those holding legal responsibility for negotiations are not the same. The amended law seeks to bridge this gap by stipulating that negotiation responsibility should be determined not by formal contract, but by the standard of substantive influence. If a primary contractor is substantially involved in matters such as subcontractor workers’ wages, workforce management, or work methods, it can be recognized as an employer.

The scope of issues subject to labor disputes has also been expanded. Managerial decisions impacting working conditions or clear violations of collective bargaining agreements can now also be grounds for labor disputes. The government explained that this can include situations such as mass layoffs or job reassignments during restructuring processes.

The system of liability for damages resulting from industrial action is also changing. When a court recognizes liability for damages, it must now determine the proportion of liability based on factors such as the roles and participation levels of union members, as well as wage levels. Labor unions or workers may request a reduction in compensation amounts. A new provision has also been introduced that allows employers to be exempted from liability for damages.

Kim Young-hoon, Minister of Employment and Labor, is speaking at the ministerial meeting 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 Cho Yongjun

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In practice, the negotiation structure will operate on a "two-track" basis. The primary contractor’s labor union will continue negotiating with the primary contractor as before, while the subcontractor labor union will form a separate bargaining unit to negotiate directly with the primary contractor. However, if there are multiple subcontractor labor unions, a process of "single negotiation window" must be followed, either by designating a representative union or establishing a joint bargaining delegation. If the primary contractor claims not to be an employer, the Labor Relations Commission will determine employer status.

However, there are forecasts that some confusion will be inevitable in the early stages of implementation. This is because the standard for determining employer status-"substantial and specific control"-is seen as abstract. Management circles see the unpredictability regarding the timing and scope of negotiation demands as a burden, while labor circles point out that the single negotiation window process and the Labor Relations Commission’s determination procedures could become additional barriers to exercising bargaining rights.

To minimize confusion in the initial phase of the law’s enforcement, the government plans to operate a "Collective Bargaining Determination Support Committee." Legal experts and others will participate to provide standards for determining employer status in primary contractor and subcontractor relationships. In addition, the government will enhance understanding of the system through briefings and regular seminars, form dedicated teams at local offices to guide the bargaining process between primary and subcontractor labor, and provide on-site support. The first three months after implementation will be designated as an intensive management period, during which field disputes and negotiation situations will be continuously monitored.

Minister of Employment and Labor Kim Younghun stated, "Institutionalizing dialogue between primary and subcontractor labor relations will break the vicious cycle of conflict and serve as an opportunity to restore trust," adding, "The government will also ensure that the system is firmly established in the field through consistent principles and support."

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