Understanding the Yellow Envelope Act

Bongsoo Jung (labor attorney, KangNam Labor Law Firm)

I. Purpose for Introduction of the Yellow Envelope Act (Revised Articles 2 and 3)
During the Yoon Suk-yeol administration, the Yellow Envelope Act passed the National Assembly twice but was not enacted when the previous President exercised his veto. With the Lee Jae-myung administration coming in through the early presidential election on April 10, 2025, and with inauguration of his administration on June 3, 2025, the Yellow Envelope Act was reintroduced as the government’s first labor legislation initiative. It subsequently passed during 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 continue to criticize 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 to ensure implementation that is both stable and smooth.
Current Korean labor laws are grounded in the Constitution. Article 10 of the Constitution states that “all citizens shall have dignity and worth as human beings and shall have the right to pursue happiness.” 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 Trade Union and Labor Relations Adjustment Act (hereinafter, the “TULRAA”) 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 see improvements in their working conditions. For this reason, Korean labor law establishes both the Labor Standards Act, which governs individual employment relationships, and the TULRAA, which governs collective labor-management relations, in order to enable the exercise of constitutionally guaranteed rights.
Since the Asian Financial Crisis of 1997 (known locally as the IMF Crisis), employment flexibility has been institutionalized in Korea, leading to an expansion of the dual structure of the labor market. Although protective laws for irregular workers were introduced in 2007, the industrial dual structure 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 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 TULRAA. Its origin is related to the corporate restructuring of SsangYong Motor in 2009. In April of that year, 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, completely shutting down the factory for 76 days until August. In 2014, the court ordered the workers participating 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 weekly magazine SisaIN, saying, “I want to contribute KRW 47,000.” Tragically, as a result of provisional seizures imposed on the property of all union members who participated in the factory occupation, approximately 30 of the workers dismissed from SsangYong Motor ended 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.
There are three key amendments introduced by the Yellow Envelope Act. 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 share when recognizing liability for damages arising from industrial action, allowing claims for reductions of damages, and providing grounds for exemption from liability for damages.
Next, I will examine the main details of the Yellow Envelope Act and specifically consider the changes it may bring to the labor market.

II. Expansion of the Concept of “Employer” under the Trade Union and Labor Relations Adjustment Act

1. Necessity for Legislation and Background to Its Introduction
In 2022, the 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, subcontracted workers’ wages continued to remain low. In response, the subcontracted labor union occupied the dock with a sit-in protest. During the strike, a union executive drew media attention by constructing a steel structure and entering it, thereby prolonging the strike. Following the strike, the principal contractor filed a claim for KRW 47 billion in damages against the subcontractor 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 be deemed an employer if it is found to be 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 contractor–subcontractor relationships. In this regard, a recent court decision holding that a principal contractor was in reality an employer who bore the obligation to engage in collective bargaining with a subcontractor labor union states as follows:
“Whether a principal contractor qualifies as an employer that bears the obligation to engage in collective bargaining under the TULRAA 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 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 Trade Union and Labor Relations Adjustment 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 question of who qualifies as an employer between principal contractor and subcontractor, the Ministry of Employment and Labor announced interpretation guidelines for the amended TULRAA on December 26, 2025. In addition, through the Enforcement Decree of the TULRAA announced on December 2, 2025, procedures for a single bargaining channel system were introduced.
The Ministry of Employment and Labor decided to use the terminology whereby, in principal contractor–subcontractor relationships, workers with a direct employment relationship are associated with a “contractual employer,” while parties with no contractual relationship but who are able to substantially and specifically control or determine the working conditions of the workers concerned are referred to as “non-contractual employers.” 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.”
In reflection of 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, a 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 overall assessment.
Even where an in-house subcontractor labor union demands collective bargaining, the current TULRAA has introduced a single bargaining channel system (Article 29-2). 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 TULRAA, 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. Additional Matters Included in the Concept of “Labor Dispute”

1. Necessity for Legislation and Background to 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 its demand, the strike is deemed unlawful. In practice, disputes have frequently arisen between employers and labor unions, with employers asserting that strikable matters are confined 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 serving to restrict exercise of the three fundamental labor rights. Accordingly, there has been a need to clearly define the concept of “labor dispute” that does not infringe on these constitutionally guaranteed 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 equal footing. This principle is reflected in provisions such as Article 4 (Determination of Working Conditions) and Article 94 (Procedures for Amending Rules of Employment) of the Labor Standards Act, and Article 30 (Principles of Collective Bargaining) and Article 33 (Effect of Collective Agreements) of the TULRAA.
In fact, judicial precedent has 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))
“Labor dispute” has been defined as “a state of conflict arising from disagreements regarding claims concerning the determination of working conditions—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 accident 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. 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 working status to regular employment, 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 have already been agreed upon. In other words, disputes on rights have also been expanded to fall within the scope of collective bargaining, and legislation now permits lawful strikes in such cases.

IV. Limitation on Claims for Damages

1. Necessity for Legislation and Background to Introduction
One of the areas most significantly expanded by this legislative amendment is the limitation on employer ability to claim civil damages. 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 normal livelihoods. Recent Supreme Court precedents have limited liability for damages by participants in industrial action, applying responsibility for unlawful industrial actions to individual union members in a more specific manner. The present legislation may also be regarded as reflecting these judicial precedents. The Supreme Court held as follows: “For union members who participated in 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 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 individual union members are involved in the labor union’s decision-making or execution of the action may vary greatly. To treat the scope of liability for damages by the labor union as a whole—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 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) Labor unions and 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 occurrence of the damage, wage levels and the amount of damages claimed, as well as cause(s) 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 to grant such reduction for each liable party, and if so, to what extent, after 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) Employers are prohibited from exercising a right to claim damages for the purpose of jeopardizing the existence of a labor union, obstructing its operations, or interfering with labor union activities of its members and causing them harm (new Article 3(6)).
(7) Employers 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 Amendments Comprising the Yellow Envelope Act
The changes introduced by the amendments making up the Yellow Envelope Act are intended to restore the balance of power between labor and management, 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, their three fundamental labor rights as guaranteed by the Constitution, are, in actuality, difficult to protect. Through the Yellow Envelope Act, it is hoped that, as labor and management negotiate working conditions, opportunities will open for workers of principal contractors and subcontractors 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, Plant A, located in Wonju, Gangwon Province, was sold to a German automotive parts company, with a “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 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 difference a labor union can make.