"100 Days" of the Yellow Envelope Act: Door Opens for Primary-Subcontractor Negotiations, But Risks Intensify

Door Opened for Subcontractor Bargaining, but Strike Risks Intensify
Hanwha Ocean-Welive Branch: Regional Labor Relations Commission Ruling Contradicts the Labor Ministry's Interpretation
"Corporate Resources Will Be Consumed Defending Against Conflicts"

It has been 100 days since the implementation of the so-called “Yellow Envelope Act,” an amendment to the Trade Union Act, yet conflicts and confusion are spreading across various industrial sites. The labor authorities have determined that employees of subcontractors providing cafeteria and commuter bus services are effectively employed by the primary large corporations, signaling a strong backlash. By recognizing not only manufacturing subcontractors but also non-manufacturing and support subcontractors as parties for collective bargaining, there are rising concerns about a surge in collective bargaining demands.

The key points of the Yellow Envelope Act, which took effect on March 10, can be summarized in two main aspects. First, it aims to reasonably adjust liability for damages incurred during collective bargaining actions, such as strikes, and to restrict excessive claims for damages. Additionally, to fundamentally prevent illegal strikes and lawsuits for damages, the law allows subcontracted workers to legally negotiate with primary contractors who have substantial control in the labor relationship.

However, the recent conflicts in the industry are less about the clauses limiting liability for damages and more about the expanded definition of “employer.” Even if there is no direct employment contract, if the primary contractor has a substantial and specific influence on the working conditions of subcontractor employees, it is also recognized as an employer. Issues that had previously been considered the domain of partner companies—such as wages, working conditions, contract fees, work methods, safety management, personnel allocation, and production schedules—are now the responsibility of the primary contractor.

By recognizing primary contractors as employers if they “substantially and specifically control or determine” working conditions or work environments, even without a direct employment contract, the law has introduced ambiguity regarding the standard. As it becomes unclear who the actual employer is, there is a growing risk that subcontractor unions will simultaneously demand negotiations with the primary contractor. If the primary contractor refuses, it could face criminal charges for unfair labor practices.

Yonhap News Agency

A notable example is the recognition of employer status for Hanwha Ocean by the Welive branch, a partner company responsible for cafeteria and laundry services, allowing them to negotiate directly with Hanwha Ocean. The business community is concerned that, if the scope of collective bargaining counterparties expands to include not only direct production subcontractors but also indirect support partners, confusion surrounding collective bargaining across the entire industry will intensify.

There are growing concerns that the institutionalization of constant collective bargaining and the unlimited expansion of primary contractor liability will exponentially increase business management costs.

Song Heonjae, a professor at the University of Seoul, pointed out, “Flexible global production structures that utilize in-house subcontracting or outsourcing will now face constant legal disputes and the risk of criminal prosecution if they refuse collective bargaining. Not only will the flexibility of business planning be severely constrained, resulting in greater structural inefficiency, but administrative and legal expenses will surge, causing limited resources to be exhausted on conflict defense costs rather than on expanding future assets.”

This financial burden is expected to encourage investments in smart factories, industrial robots, and automation facilities. An industry representative commented, “With demands for profit-sharing, such as the ‘N% performance bonus’ controversy, expanding, labor-management negotiations are also rapidly changing in new forms. Determining how to structure production methods and supply chains has now become a major challenge.”

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