Monthly Contributions

Improvement of Subcontract Workers’ Working Conditions

through Exercise of the Three Labor Rights
                            Bongsoo Jung, Labor Attorney / KangNam Labor Law Firm

I. Introduction

Current Korean labor law is based on the Constitution of the Republic of Korea. Article 10 of the Constitution stipulates 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 provides that “Standards of working conditions shall be determined by Act in such a way as to guarantee human dignity.” This clearly sets forth the purpose of enactment of the Labor Standards Act (LSA). Furthermore, Article 33(1) of the Constitution stipulates that “Workers shall have the right to independent association, collective bargaining, and collective action in order to improve working conditions.” The Labor Union and Labor Relations Adjustment Act (LUA or Labor Union Act) was enacted to give concrete effect to these three labor rights.

The Labor Standards Act establishes the minimum standards for working conditions, and criminal penalties are imposed when these standards are not met. For its part, the Labor Union Act guarantees the three labor rights to individual workers?subordinate as they are in the employment relationship?thereby enabling them to form labor unions, negotiate on equal footing with employers (capitalist), and, if necessary, take collective action, such as going on strike, to establish fair regulations between labor and management.

However, why were the three labor rights stipulated in the Constitution? Without labor unions, employers tend to set working conditions only in accordance with the LSA, and workers are less able to ensure improvements in their working conditions. Modern Western civil law is based on the principles of absolute ownership, freedom of contract, and liability for fault, all grounded in individual freedom and equality. When these principles of civil law are applied, workers?being engaged in subordinate labor?may be dismissed if they demand better working conditions, and therefore cannot achieve improvements in their working conditions. Accordingly, as workers became exposed to low wages, long working hours, and the threat of industrial accidents, they recognized that working conditions could not be improved without collective unity and began to organize. In the early 20th century, organized groups of workers began opposing business owners. Consequently, the order of modern civil law itself could not be sustained without guaranteeing workers’ human rights and welfare. Therefore, in order to see justice and implement substantive improvements for workers, the three labor rights were guaranteed as fundamental rights under the Constitution.[1] Germany recognized workers’ freedom of association in the 1919 Weimar Constitution.[2] For its part, the United States codified the right to organize, the right to collective bargaining, and the right to collective action in the Wagner Act of 1935.

How do workers benefit from the Constitution guaranteeing the three labor rights for workers? These rights guarantee that workers may independently unite to establish labor unions to improve their working conditions, engage in collective bargaining with employers to conclude collective agreements, and, in that process, undertake collective actions such as strikes or slowdowns to secure more favorable bargaining outcomes. Since these three labor rights are fundamental rights guaranteed by the Constitution, labor unions?being collective bodies of workers exercising such rights?may demand direct collective bargaining with employers on an equal footing. An employer failing to respond to such attempts to bargain constitutes an unfair labor practice and the employer becomes liable for criminal punishment as well as subject to orders for remedy by the Labor Relations Commission. Furthermore, labor unions may collectively engage in industrial actions (such as strikes) to achieve better working conditions. Although such actions may interfere with the employer’s normal business operations and could otherwise incur civil or criminal liability, they are protected under the Labor Union Act because they involve the exercise of constitutionally guaranteed fundamental rights. Ultimately, because employers have no choice but to bear the damage caused by collective strikes, they reach agreements at an appropriate level. The final agreement that resolves such labor-management conflicts is the collective agreement, which can be regarded as the highest-level norm in labor-management relations.

Therefore, as described above, the role of labor unions is to present a direction for resolving conflicts between labor and management. In April 2026, there were two notable labor-related news events concerning POSCO. On April 8, POSCO announced that it would directly hire 7,000 workers from subcontractors supporting its operations. Then, eight days later, on April 16, the Supreme Court recognized 223 workers from in-house subcontractors of POSCO as employees in a lawsuit confirming their status as workers.[3] In other words, POSCO hired 7,000 in-house subcontracted workers as regular employees in order to block lawsuits seeking confirmation of employee status.[4] This case originated from lawsuits filed by in-house subcontracted workers starting in 2011, who experienced significant difficulty and disadvantage over the approximately six years until the Supreme Court’s final decision. If the current “Yellow Envelope Act” had been implemented earlier and subcontractor unions had been able to improve their working conditions through collective bargaining with the principal employer, POSCO, it would seem that those workers would have had to endure less hardship.

In this regard, the specific details of labor-management autonomy, in which labor and management can determine working conditions on an equal footing through negotiations between management and labor unions, will be examined (II). In addition, the expanded application of the three labor rights to subcontracted workers through the “Yellow Envelope Act” will be reviewed (III).

 

II. Legal Structure and System of Labor-Management Autonomy
1. Constitutional Rights of Labor Unions

The Constitution guarantees the three labor rights as fundamental rights of the people. The constitutional significance of this lies in enabling the creation of a social countervailing force in the form of workers’ organizations, thereby achieving a social balance in the formation of labor-management relations and ensuring substantive autonomy between labor and management regarding working conditions.[5] In other words, since employers possess the means of production and generate profit through the work of their workers, individual workers do not, in reality, have bargaining power. Accordingly, a labor union becomes a collective body of workers that, as a lawful organization, can negotiate working conditions with the employer on an equal footing with that employer. In this regard, the state guarantees that labor unions can determine working conditions through fair negotiations with employers. This is the meaning of the three labor rights as stipulated in the Constitution.

 

2. Judicial Precedents and Ministry of Labor Guidelines Recognizing the Expansion of Employer Status

Korean labor law has adopted a labor-management autonomy system in determining working conditions, which is a historical product for industrial peace. Article 4 of the LSA (Determination of Working Conditions) provides that “Working conditions shall be determined freely by workers and employers on an equal footing,” thereby basing things on the principle of equality between labor and management. The Act requires, in almost all labor-related provisions, agreement or consultation with a labor union representing the majority of workers.

Article 24(3) of the LSA (Restriction on Dismissal for Managerial Reasons) stipulates that “An employer shall notify, at least 50 days prior to the intended date of dismissal, and shall consult in good faith with a labor union organized by a majority of the workers at the relevant business or workplace (or, if there is no such labor union, a person representing the majority of the workers, hereinafter referred to as the ‘workers’ representative’) regarding measures to avoid dismissal under paragraph (2) and the criteria for dismissal.” Written agreements with the workers’ representative are also required when various situations exist, such as flexible working hour systems, substitution of leave usage, and substitution of annual paid leave.[6] In addition, amendments to the rules of employment are legally effective only when consent is obtained from the majority union at the workplace in some cases, or its opinion is heard in others.

 

3. Peaceful Labor-Management Relations through System of Labor-Management Autonomy

The system of labor-management autonomy is realized not only through guarantee of the three labor rights under the Constitution, but also through the requirement of consent from the majority labor union in individual labor-management relations. Where an employer unilaterally changes the working conditions stipulated in the rules of employment, if a majority labor union exists at the workplace, the employer must determine such changes through agreement or consultation with that union through collective bargaining. If this requirement is violated, the company’s rules have no legal effect.

Furthermore, businesses or workplaces employing 30 or more workers are legally obligated to establish and operate a labor-management council composed of an equal number of representatives from labor and management by selecting a workers’ representative. If the employer unilaterally determines working conditions, the purpose for running a company (to earn a profit) can too easily interfere with the need for workers to have humane working conditions.

 

III. The “Yellow Envelope Act” and Expanded Application of the Three Labor Rights

1. Background to Introduction of the “Yellow Envelope Act”

In Korea, after the 1997 IMF foreign exchange crisis, employment flexibility was institutionalized, leading to the expansion of a dual structure in the labor market. Although the Act on the Protection of Fixed-Term and Part-Time Employees was introduced in 2007, the dual structure of the industry was not improved but rather further expanded. In particular, when performing the same work in the same factory, there is a significant difference in wage levels between employees of the principal contractor and those of subcontractors.

The “Yellow Envelope Act” is a nickname for amendments to Article 2 (Definitions?Expansion of the Scope of “Employer,” Expansion of the Concept of Labor Disputes) and Article 3 (Limitation of Damages) of the Labor Union Act. Its origin is related to the restructuring of SsangYong Motor in 2009. In April of that year, the court-appointed administrator of SsangYong Motor announced that, in order to normalize management, it would reduce its workforce by 2,646 employees, which was 37% of its total 7,135 employees. In response, the labor union occupied the Pyeongtaek factory in May 2009, carrying out a 76-day general strike until August. In 2014, the court ordered the workers who participated in the strike to pay KRW 4.7 billion in damages. This triggered an incident in which a citizen sent a yellow salary envelope to the Hankyoreh newspaper, saying, “I would like to contribute even KRW 47,000.” At that time, the provisional seizure of property against all union members who participated in the factory occupation strike led, tragically, to more than 30 dismissed workers of SsangYong Motor taking their own lives. If the “Yellow Envelope Act” had existed at that time, occupation of the factory by the SsangYong Motor labor union in opposition to the employer’s redundancy dismissals, would have been considered a legitimate strike, and provisional seizure of the participating union members’ property resulting from the strike would not have been permitted.

In 2022, a labor union of a subcontractor of 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% for more than eight years. Even though the shipbuilding industry had recovered by the time of the strike, the wages of subcontracted workers remained low, and in response, the subcontractor labor union occupied a dock and staged a sit-in protest. During occupation of the dock, a union official built a steel structure and stayed inside it, prolonging the strike and drawing media attention. After this strike, the principal contractor filed a claim for KRW 47 billion in damages against the subcontractor union.[7]

This case served as an opportunity to recognize that the principal contractor is in a position to determine the substantive wage increases of subcontracted workers.

 

2. Collective Bargaining by Subcontractor Labor Unions

Under the expanded concept of “employer,” even if there is no contractual employment relationship, the principal contractor shall be regarded an employer if it is in a position to actually and concretely control and determine the working conditions of the subcontractor’s employees. In other words, a labor union composed of subcontracted workers may request collective bargaining with the principal contractor and conclude a collective agreement. In this process, if the principal contractor, as the employer, refuses the request for collective bargaining from the subcontractor union, this will constitute an unfair labor practice. In response to a principal contractor’s unfair labor practices, not only can an application for remedy be filed, but criminal punishment may also be sought. Accordingly, the principal contractor must fulfill its obligations as an employer under the expanded concept of the term.

In this regard, Article 29-2 of the LSA stipulates that, where two or more labor unions are established or joined by workers in a single business or workplace regardless of organizational form, the labor unions shall designate a bargaining representative labor union and request bargaining through that representative. Therefore, while a subcontractor labor union has the right to request collective bargaining, it is also obligated to establish a single bargaining channel when making such a request. Notwithstanding this provision, where separate bargaining is necessary due to significant differences in working conditions or employment types within the workplace, the subcontractor labor union may engage in separate bargaining with the approval of the Labor Relations Commission. In particular, since subcontractor labor unions are composed of workers from various subcontracting companies, it is expected that there will be many applications for the separation of bargaining channels.

 

3. “Affirmative Employment Improvement Measures” to Improve the Treatment of Subcontracted Workers[8]

When subcontracted workers file a lawsuit against the principal contractor to confirm their status as employees, it usually takes at least five years to reach a final decision. During that lengthy period, most of the workers have changed jobs, resulting in little practical benefit. In a case involving the Hyundai Mipo Dockyard pretending to be using subcontractors, when a subcontractor labor union was established, the subcontracting company ceased operations on January 31, 2003. As a result, 30 workers filed a lawsuit to confirm their status as employees of the principal contractor, and on July 10, 2008, the Supreme Court ruled that an implied employment relationship with the principal contractor did indeed exist.[9] But this took five years to resolve. In a similar case involving Hyundai Motor, 15 workers were dismissed on February 2, 2005 for engaging in labor union activities within the subcontracting company. On February 23, 2012, the Supreme Court recognized that Hyundai Motor was indeed the employing company of those subcontractor workers, but had disguised the relationship as “subcontracting.”[10] This case took seven years. The POSCO in-house subcontracting case, mentioned earlier herein, took six years before final resolution by a Supreme Court decision.

A way for in-house subcontracted workers to improve their working conditions is to establish a labor union and request collective bargaining with the principal contractor. Collective bargaining between the principal contractor and the subcontractor labor union is a forum for determining working conditions between equal parties; therefore, if the principal contractor does not accept the matters proposed in collective bargaining, the subcontractor labor union may go on strike to gain an advantage in negotiations. Through this, they may be able to demand wage increases equivalent to those of the principal contractor’s regular employees. If workers belonging to a subcontractor labor union are able to secure wage increases from the principal contractor, there would be no need to file a lawsuit to confirm their status as employees of that principal contractor. Therefore, through the “Yellow Envelope Act,” it is expected that the working conditions of workers belonging to subcontractor labor unions will significantly improve.

 

IV. Conclusion

The Constitution protects the three labor rights as fundamental rights of the people. If only the principles of modern civil law were recognized, the working conditions of workers who depend on subordinate relations for their livelihood would remain at the minimum standards set by the Labor Standards Act, and the resulting social polarization would lead to social instability. Historically, due to the unique nature of labor-management relations, the Constitution recognizes groups of workers engaged in subordinate labor and protects labor unions in order to achieve labor-management peace.

In Korea, following the 1997 IMF foreign exchange crisis, a large number of regular workers were laid off, and those positions were filled with fixed-term, contract, or in-house subcontracted workers. For subcontracted workers who perform the same work but receive only about 50% of the wages of regular employees, the recently amended “Yellow Envelope Act” can serve as an important turning point in reducing the gap in working conditions with those of workers employed by the principal contractor. Although the Act on the Protection of Fixed-Term and Part-Time Employees was introduced in 2007, many principal contractors changed the employment status of existing non-regular workers to in-house subcontracted workers or various other forms of non-regular employment status. Through the “Yellow Envelope Act,” it will be possible to improve working conditions only by identifying the real employer and engaging in collective bargaining with that employer. The “Yellow Envelope Act” enables subcontracted workers’ unions, through labor unions guaranteed by the Constitution, to demand collective bargaining from the principal contractor. Going forward, it is hoped that, based on the principle of determining working conditions on an equal footing between labor and management, collective bargaining between principal contractors and subcontractor labor unions will lead to a mutually beneficial labor-management relationship.