Understanding the Yellow Envelope Act Properly
Bongsoo Jung (Korean labor attorney, KangNam Labor Law Firm)

I. Purpose of the Introduction of the Yellow Envelope Act
During the Yoon Suk-yeol administration, the Yellow Envelope Act passed the National Assembly twice but was not enacted due to the President’s exercise of the veto power. Following the change of administration through the early presidential election on April 10, 2025, and with the inauguration of the Lee Jae-myung administration on June 3, 2025, the Yellow Envelope Act was relaunched as the government’s first labor legislation initiative. It subsequently passed the plenary session of the National Assembly in August 2025 and was formally enacted. After a six-month grace period, the Act is scheduled to take effect on March 10, 2026.
Recently, on December 26, 2025, the Ministry of Employment and Labor announced its interpretation guidelines for the Yellow Envelope Act. In response, conservative media outlets such as Chosun Ilbo and JoongAng Ilbo have repeatedly criticized the Act as an anti-market piece of legislation. However, the Yellow Envelope Act is closer to the legislative codification of legal principles established in existing Supreme Court precedents concerning the exercise of the three fundamental labor rights guaranteed by the Constitution. Nevertheless, concerns have been raised about increased uncertainty in labor-management relations. Accordingly, it is necessary to properly understand the intent and purpose of the Yellow Envelope Act in order to ensure a stable and smooth implementation.
The current labor laws are grounded in the Constitution. Article 10 of the Constitution provides that “all citizens shall have dignity and worth as human beings and shall have the right to pursue happiness.” In addition, Article 32(3) of the Constitution stipulates that “standards for working conditions shall be determined by law so as to ensure human dignity.” This provision constitutes the legislative purpose of the Labor Standards Act. Furthermore, Article 33(1) of the Constitution provides that “workers shall have the right to independent association, collective bargaining, and collective action for the purpose of improving working conditions,” and accordingly, the Labor Union Act was enacted to guarantee the three fundamental labor rights.
Under this constitutional framework, the Labor Standards Act sets the minimum standards for working conditions, and criminal penalties are imposed where these standards are not met. The reason the Constitution guarantees the three fundamental labor rights is that, without labor unions, employers would merely comply with the minimum standards prescribed by the Labor Standards Act, making it difficult for workers to achieve improvements in their working conditions. For this reason, labor law establishes both the Labor Standards Act, which governs individual employment relationships, and the Labor Union Act, which governs collective labor-management relations, in order to enable the exercise of constitutionally guaranteed rights.
Since the IMF foreign exchange crisis in 1997, employment flexibility has been institutionalized in Korea, leading to an expansion of the dual structure of the labor market. Although protection laws for irregular workers were introduced in 2007, the industrial dual structure was not improved and instead became even more pronounced. In particular, even when performing the same work at the same factory, there is a significant disparity in wage levels between employees of the principal contractor and those of subcontractors.
The Yellow Envelope Act is a nickname for the amendments to Article 2 (Definitions—expansion of the scope of “employer” and expansion of the concept of labor disputes) and Article 3 (Limitation on damages) of the Labor Union Act. Its origin is related to the corporate restructuring of SsangYong Motor in 2009. In April 2009, the court-appointed receiver of SsangYong Motor announced that, in order to normalize management, 2,646 employees—37% of the total workforce of 7,135—would be laid off. In response, the labor union occupied the Pyeongtaek plant and went on strike in May 2009, carrying out a total factory occupation strike for 76 days until August. In 2014, the court ordered the workers who participated in the SsangYong Motor strike to pay KRW 4.7 billion in damages. The incident that gave rise to the name of the Act occurred when a citizen sent a yellow salary envelope to The Hankyoreh newspaper, saying, “I want to contribute even KRW 47,000.” Tragically, as a result of provisional seizures imposed on the property of all union members who participated in the factory occupation strike, approximately 30 of the workers dismissed from SsangYong Motor took their own lives. If the Yellow Envelope Act had existed at that time, the factory occupation by the SsangYong Motor labor union in opposition to the employer’s mass layoffs would have been deemed a lawful strike, and provisional seizures of the participating union members’ property arising from the strike would not have been permitted.
The key amendments introduced by the Yellow Envelope Act can be summarized into three main points. First, it expands the concept of “employer” to enable collective bargaining between principal contractors and subcontractor labor unions. Second, it expands the concept of labor disputes to include business management decisions that affect working conditions and violations of collective agreements by employers. Third, it establishes provisions setting standards for determining individual workers’ respective shares of liability when recognizing liability for damages arising from industrial action, allowing claims for reduction of damages, and providing grounds for exemption from liability for damages.
Next, I will examine the main contents of the Yellow Envelope Act in detail and specifically consider the future changes it may bring to the labor market.

II. Expansion of the Concept of “Employer” under the Labor Union Act

1. Necessity for Legislation and Background of Its Introduction
In 2022, a labor union of a subcontracting company at Daewoo Shipbuilding & Marine Engineering went on strike demanding wage increases. At that time, due to a downturn in the shipbuilding industry, the wages of subcontracted workers had been reduced by 30% and had remained at that level for more than eight years. Even after the shipbuilding industry entered a new boom cycle, subcontracted workers’ wages continued to remain low. In response, the subcontracted labor union staged a sit-in protest by occupying the dock. In particular, during the strike, a union executive drew media attention by constructing a steel structure and entering it, thereby prolonging the strike. Following this strike, the principal contractor filed a claim for KRW 47 billion in damages against the subcontracted labor union. This case served as a catalyst for recognizing that the principal contractor was in a position to determine substantive wage increases for subcontracted workers.
The Supreme Court has recognized that a principal contractor may qualify as an employer by finding that it is in a position to exercise substantive and specific control over the basic working conditions of subcontracted workers. Following this decision, a series of court precedents have continued to recognize the employer status of principal contractors in principal–subcontractor relationships. In this regard, a recent court decision holding that a principal contractor qualifies as an employer bearing the obligation to engage in collective bargaining with a subcontracted labor union states as follows:
“Whether a principal contractor qualifies as an employer that bears the obligation to engage in collective bargaining under the Labor Union Act with respect to subcontracted workers within the workplace should be determined based on factors such as whether the principal contractor is in a position to substantively and specifically control or decide matters that are the subject of the bargaining demand, whether the labor provided by the subcontracted workers is essential to the principal contractor’s business operations and is incorporated into its business system, and whether there is a necessity and appropriateness for collectively determining the working conditions of the subcontracted workers through collective bargaining with the principal contractor. In making such a determination, comprehensive consideration should be given to the extent to which the subcontracted workers’ tasks account for the business conducted by the plaintiff company at the relevant workplace, the working methods of the subcontracted workers and the degree of the plaintiff company’s direct or indirect involvement therein, and the relationship between the plaintiff company and the subcontracting company.” These criteria have been presented by the courts as the standard for such determinations.

2. Changes Introduced (Article 2(2) of the Labor Union Act)
Under this legislative amendment, a new provision has been introduced to the definition of “employer,” stipulating that “even a person who is not a party to an employment contract shall be deemed an employer to the extent that such person is in a position to substantially and specifically control or determine the working conditions of the worker.” Accordingly, where a principal contractor is in a position to substantially and specifically control or determine the working conditions of workers employed by a subcontractor, the principal contractor is deemed to be an employer.
With respect to the issue of who qualifies as an employer between a principal contractor and a subcontractor, the Ministry of Employment and Labor announced interpretation guidelines for the amended Labor Union Act on December 26, 2025. In addition, through the Enforcement Decree of the Labor Union Act announced on December 2, 2025, procedures for the single bargaining channel system were introduced.
The Ministry of Employment and Labor decided to use the terminology whereby, in principal–subcontractor relationships, workers who have a direct employment relationship are associated with a “contractual employer,” while a party that has no contractual relationship but is able to substantially and specifically control or determine the working conditions of the workers concerned is referred to as a “non-contractual employer.” In the phrase “a person who is in a position to substantially and specifically control or determine the working conditions of the worker,” the term “substantial” refers to cases where a non-contractual employer directly controls or determines the working conditions of the relevant workers pursuant to a subcontracting agreement, work orders, or similar instruments, or where the non-contractual employer, through management systems or electronic devices it operates, effectively controls or determines the workers’ working conditions. The term “specific” means that even if the non-contractual employer does not control or determine all working conditions comprehensively, it is sufficient that the employer can control or determine particular working conditions, such as working hours or welfare benefits.
The Ministry of Employment and Labor adopted as its standard the Supreme Court precedent stating that “the scope includes not only persons who have a relationship of subordination with the worker, but also those who are in a position to substantially and specifically control or determine matters to such an extent that they may be regarded as assuming part of the authority and responsibility of an employer who hired the worker with respect to basic working conditions.”
Based on judicial precedents, the Ministry of Employment and Labor categorized the assessment into five factors: (1) whether the non-contractual employer substantially and specifically controls or determines working conditions; (2) whether the business of the contractual employer is essentially and systematically incorporated into the business of the non-contractual employer; (3) whether the contractual employer is economically dependent on the non-contractual employer; (4) whether the non-contractual employer has influence or control over the employment relationship (working arrangements) of the relevant workers; and (5) whether there is a necessity and appropriateness for collective bargaining. It explains that these factors should be comprehensively considered.
Accordingly, the determination of employer status is, in principle, made on the basis of the amended statutory provisions, focusing on the existence of substantial and specific control or determination over working conditions. In making such a determination, it is required that there exist not merely sporadic or temporary involvement, but a structural relationship—such as a transactional relationship—that continuously restricts or controls the contractual employer’s autonomy in determining working conditions. Such structural control over the determination of working conditions is regarded as a core consideration in the assessment. In addition, factors presented in prior court decisions, such as whether the contractual employer’s business is incorporated into that of the non-contractual employer and whether the contractual employer is economically dependent on the non-contractual employer, are to be considered as supplementary indicators, and employer status should be determined through an overall assessment.
Even where an in-house subcontracted labor union makes a demand for collective bargaining, the current Labor Union Act has introduced a single bargaining channel system (Article 29-2 of the Labor Union Act). Accordingly, even if there are multiple subcontracting companies within a single workplace, it can be expected that a single bargaining channel will be formed through the single bargaining channel system and that a collective agreement will be concluded. Under the amended Enforcement Decree of the Labor Union Act, while voluntary unification of bargaining channels is the principle during the bargaining channel unification process, it is stipulated that, where separation of bargaining units is necessary, such separation may be effected through the Labor Relations Commission.

III. Addition of Matters Included in the Concept of “Labor Disputes”

1. Necessity for Legislation and Background of Its Introduction
Whether a matter falls within the scope of collective bargaining constitutes an important issue in labor–management negotiations. Where a matter is classified as a mandatory subject of bargaining, a labor union may lawfully engage in a strike. However, if a labor union demands bargaining over a matter that is not a mandatory subject of bargaining for the employer and undertakes a strike for the purpose of enforcing such demand, the strike is deemed unlawful. In practice, disputes have frequently arisen between employers and labor unions, with employers asserting that strikes are unlawful by narrowly confining strikeable matters to those directly related to workers’ working conditions. This has often led labor disputes away from autonomous resolution and instead resulted in liability for damages arising from unlawful strikes, thereby operating as a factor that restricts the exercise of the three fundamental labor rights. Accordingly, there has been a need to clearly define the concept of “labor disputes,” which serves as a limiting factor on the exercise of the constitutionally guaranteed three fundamental labor rights.
Korea’s labor law is centered on the principle of labor–management autonomy, under which labor unions, as collective bodies of workers, and employers determine working conditions on an equal footing. This principle is reflected in provisions such as Article 4 of the Labor Standards Act (Determination of Working Conditions), Article 94 of the same Act (Procedures for Amending Rules of Employment), Article 30 of the Labor Union Act (Principles of Collective Bargaining), and Article 33 of the same Act (Effect of Collective Agreements).
In fact, judicial precedents have also held that matters such as mergers, splits, transfers, and sales, where they are directly related to workers’ working conditions, constitute subjects of collective bargaining.

2. Changes Introduced (Article 2(5))
The concept of a “labor dispute” has been defined as “a state of dispute arising from disagreements regarding claims concerning the determination of working conditions—such as wages, working hours, welfare benefits, dismissal, the status of workers, and other treatment—or business-related decisions that affect working conditions, as well as from an employer’s clear violation of a collective agreement with respect to the matters set forth in items (a) through (d) of Article 92(2).” Through this definition, the scope of lawful industrial action has been expanded (Article 2(5)). Items (a) through (d) of Article 92 refer to: (a) matters concerning wages, fringe benefits, and retirement allowances; (b) matters concerning working and rest hours, holidays, and leave; (c) matters concerning grounds for disciplinary action and dismissal, and important procedures related thereto; and (d) matters concerning occupational safety and health and disaster compensation.
Under the previous framework, labor disputes that could give rise to lawful industrial action were limited to disagreements arising during collective bargaining over claims concerning the determination of working conditions, such as wages, working hours, and treatment of workers. However, the present legislation has added three additional categories to the matters over which labor disputes may lawfully arise. First, matters concerning the status of workers have been included. Previously, only matters directly related to working conditions were covered; under the amendment, issues related to workers’ status—such as the conversion of non-regular workers to regular positions, ensuring fairness in disciplinary or promotion systems, and extension of the retirement age—are also included. Second, matters concerning business management decisions of enterprises that affect working conditions—such as mass layoffs and mergers and acquisitions—have been included, thereby allowing lawful strikes through labor disputes in relation to such decisions. Third, where an employer violates key provisions of a collective agreement, lawful industrial action is permitted. Previously, labor disputes were, in effect, limited to disputes of interest. Under the amendment, however, workers are granted the right to strike in response to an employer’s violation of the terms of a collective agreement that has already been agreed upon. In other words, disputes of rights have also been expanded to fall within the scope of collective bargaining, and legislation now permits lawful strikes through labor disputes in such cases.

IV. Limitation on Claims for Damages

1. Necessity for Legislation and Background of Its Introduction
One of the areas most significantly expanded by this legislative amendment is the limitation on employers’ civil claims for damages. In particular, the reason this law came to be commonly known as the “Yellow Envelope Act” is that workers have long suffered due to employers’ excessive civil claims for damages. Under the previous framework, if a labor union engaged in even a single unlawful strike, both the labor union and its members bore civil liability, and all union members who participated in the unlawful act were subject to joint and several liability of an improper nature. As a result, many union members who participated in a strike but had little or no direct involvement in the unlawful conduct were nonetheless burdened with the same civil liability, making it difficult for them to maintain a normal livelihood. Recent Supreme Court precedents have limited liability for damages of participants in industrial action by applying responsibility to individual union members in a more specific manner with respect to unlawful industrial action. The present legislation may also be regarded as reflecting these judicial precedents. The Supreme Court held as follows: “For union members who participated in the execution of an unlawful industrial action in accordance with the instructions of a labor union that decided upon and led such action, once an industrial action has been decided by majority vote and the policy has been set, it is in reality difficult to expect individual union members to refuse to follow the union’s instructions even if they harbor doubts as to the legitimacy of the action. Requiring union members, in the midst of an urgent industrial action, to individually judge the legitimacy of the action risks weakening workers’ right to organize. Even otherwise, the degree to which union members are involved in the labor union’s decision-making or execution of the action may vary greatly among individuals. To treat the scope of liability for damages of the labor union—which decided upon and led the unlawful industrial action—and that of individual union members as identical, without taking any of these circumstances into account, not only risks undermining the constitutionally guaranteed rights to organize and to collective action, but also runs counter to the fundamental principle of the damages system, which is the fair and equitable allocation of loss. Accordingly, the extent to which liability should be limited for individual union members must be determined by comprehensively considering factors such as the individual’s position and role within the labor union, the circumstances and degree of participation in the industrial action, the extent of contribution to the occurrence of the damage, the realistic wage level, and the amount of damages claimed.”

2. Details of the Amended Limitations on Claims for Damages (Article 3)
(1) Where an employer suffers damage as a result of collective bargaining, industrial action, or other activities of a labor union conducted under this Act, the employer is prohibited from claiming compensation for such damage against the labor union or workers (Article 3(1)).
(2) It is provided that a labor union or workers shall not be liable for damages where they have unavoidably caused damage to the employer in order to defend the interests of the labor union or workers against the employer’s unlawful acts (new Article 3(2)).
(3) Where a court recognizes liability for damages on the part of workers, it shall determine the proportion of liability by taking into account factors such as the individual’s position and role within the labor union, the circumstances and degree of participation in the industrial action, the extent of involvement in the occurrence of the damage, wage levels and the amount of damages claimed, as well as the cause and nature of the damage (new Article 3(3)).
(4) Labor unions and workers are permitted to request a reduction of the amount of damages from the court, and the court shall determine whether and to what extent to grant such reduction for each liable party by considering factors such as the economic condition of the party liable for damages, family relationships including support obligations, and the guarantee of minimum subsistence and maintenance of livelihood (new Article 3(4)).
(5) Notwithstanding the Personal Guarantee Act, a personal guarantor shall not be liable for damages arising from industrial action or similar activities (new Article 3(5)).
(6) An employer is prohibited from exercising a right to claim damages for the purpose of jeopardizing the existence of a labor union, obstructing its operation, or interfering with labor union activities of its members and causing them harm (new Article 3(6)).
(7) An employer may exempt a labor union or workers from liability for damages or other responsibilities arising from collective bargaining, industrial action, or other labor union activities (new Article 3-2).

V. Implications of the Amendments to the Yellow Envelope Act
The changes introduced by the amended Yellow Envelope Act are measures intended to restore the balance of power between labor and management by enabling labor and management to autonomously resolve issues through the principle of labor–management autonomy, thereby promoting the improvement of workers’ working conditions as guaranteed by the Constitution. Despite concerns raised by the business community, improving the working conditions of non-regular workers or in-house subcontracted workers is not easy without the activities of labor unions. For this reason, the three fundamental labor rights are guaranteed by the Constitution. Through the Yellow Envelope Act, it is hoped that, as labor and management negotiate working conditions, opportunities will open for principal-contractor and subcontracted workers within a single workplace to receive equal treatment.
Based on practical experience, I would like to emphasize the importance of labor unions. As an illustrative example, a U.S.-based foreign automotive parts manufacturing Plant A located in Wonju, Gangwon Province, was sold to a German automotive parts company, Plant B, located in Anseong, Gyeonggi Province. At the time, the workers at Plant A were members of a labor union and received average monthly wages exceeding KRW 5 million. In contrast, workers at Plant B earned average monthly wages only slightly above the minimum wage and, even with overtime work, received barely around KRW 3 million per month. After the two companies merged and a labor union was established at Plant B, wages immediately increased by 50%. This case once again highlights the importance of labor unions.