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. Germany
recognized workers’ freedom of association in the 1919 Weimar Constitution.
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.
In other words, POSCO hired 7,000 in-house subcontracted workers as regular
employees in order to block lawsuits seeking confirmation of employee status.
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.
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.
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.
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
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.
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.”
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.
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