YOON&YANG

On August 24, 2025, the National Assembly passed the amendment to the Trade Union and Labor Relations Adjustment Act (such amendment, the “Yellow Envelope Act”) at its plenary session. The Yellow Envelope Act broadens the definition of “employer” to include not only parties to employment agreements but also entities exercising “substantial control,” expands the subject of labor disputes to encompass managerial and business decisions, and significantly limits the liability for damages arising from unlawful strikes. Speculated to take effect around March 2026 (6 months following promulgation), the Yellow Envelope Act is expected to fundamentally reshape labor relations going forward.

1. Key Provisions of the Amendment

2. Anticipated Impacts on Labor Disputes

3. Suggested Actions and Strategies

1. Key Provisions of the Amendment

• Expanded Scope of “Employer”: Entities that are not direct parties to an employment agreement but exercise substantial and specific control over, or determine, the working conditions of subcontractor employees will now be deemed employers. As a result, principal contractors, platform operators, and franchisors may become subject to collective bargaining obligations.

• Broadened Scope of “Labor Dispute”: The grounds for strikes, which had previously been limited to the “determination of working conditions,” have been expanded to include “managerial and business decisions affecting working conditions” as well as “clear violations of collective agreements” by employers. Accordingly, matters such as corporate restructuring, M&A transactions, and workplace relocations may now fall within the scope of labor disputes.

• Limited Scope of Liability for Damages Resulting from Industrial Action

As its name stems from a civil campaign of voluntarily donating small moneys in yellow envelopes to help employees who were subject to a huge amount of liabilities to the company arising out of strikes, the Yellow Envelope Act provides for various limitations, exemptions and reductions of liabilities or compensation amounts.    

• Purpose-based Limitation: Employers are expressly prohibited from seeking damages where the purpose of the claim is to endanger the existence of trade unions or to interfere with union activities.

• Self-defense Exemption: Unions or employees will be exempt from liability for damages where harm to the employer is unavoidable in defending against the employer’s unlawful acts.

• Individualized Liability Assessment: Where liability for damages is recognized, courts must assess the fault ratio of each of the employee on an individual basis, taking into account each union member’s role within the union, degree of participation, wage level, and extent of involvement in causing the damage occurred.

• Reduction/Exemption of Damages Compensation: Unions or employees held liable for damages may apply to the courts for a reduction or exemption of the amount of damages compensation. In making such determinations, courts shall consider factors such as each employee’s economic status, family support obligations, and the minimum living standards guarantee.

• Voluntary Exemption: Employers are provided with the legal basis to voluntarily exempt unions or employees from liability for damages arising out of collective bargaining, strikes or other union activities.

2. Anticipated Impacts on Labor Disputes

• Surge in Collective Bargaining Demands on Principal Contractors: A surge is expected in cases where subcontractor unions directly designate principal contractors as their counterparties in collective bargaining.

• Increased Strikes over Managerial Decisions: Managerial decisions such as investments, restructuring, and production line adjustments which would affect the working conditions may now serve as grounds for strikes, potentially intensifying workplace labor conflicts.

• Potential Disputes on Interpretation of Abstract Terms: As the Yellow Envelope Act revises or introduces certain provisions without providing detailed interpretive guidance, a significant increase is anticipated in litigation over what constitutes “substantial control” as well as the scope and criteria for reduction/exemption of liability for damages.

3. Suggested Actions and Strategies

Companies should prepare for the Yellow Envelope Act by implementing comprehensive response strategies including the following:

• Preemptive Review of Control and Decision-making Structures: Reassess wages, working hours, and work instruction frameworks for subcontractor employees, and proactively eliminate unnecessary risk factors that could give rise to recognition of “substantial control”

• Strengthen Bargaining Response Systems: Evaluate potential bargaining obligations in advance, reinforce dedicated bargaining organizations, and develop strategies to respond to procedures for the unification of bargaining channels

• Improve Managerial Decision Processes: Review managerial and business decisions that may impact working conditions and mitigate disputes by strengthening consultation procedures with unions

• Strengthen Preventive Measures: Reinforce preventive frameworks such as labor-management councils and grievance-handling systems, given the limitations on post-dispute remedies and damage claims

• Monitor Legal Developments: Closely follow judicial interpretations and emerging precedents concerning “substantial control” and the standards for reducing damage compensation, while building internal response capabilities

• Establish Long-term Labor Relations Strategies: View the amendment as part of an institutional shift in response to evolving employment structures and expand efforts to protect subcontractor employees’ rights in line with ESG and supply chain management perspectives

The Yellow Envelope Act represents not merely a procedural reform but a pivotal shift that simultaneously reshapes corporate management rights and the structure of union rights. Companies should take advantage of the six-month grace period following the Yellow Envelope Act’s promulgation to promptly review governance frameworks, strengthen bargaining systems, and establish dispute-prevention processes, while also developing long-term strategies to proactively address the evolving labor relations landscape.

Yoon & Yang’s Employment and Labor Practice is comprised of highly experienced attorneys, certified public labor attorneys, and foreign attorneys. We deliver comprehensive advisory services and legal representation across the full spectrum of corporate HR and labor management matters. 

We take pride in approaching every engagement from the client’s perspective—proactively leading the dialogue on rapidly evolving labor issues, identifying emerging challenges, and developing practical, strategic solutions. Leveraging our accumulated insights and in-depth knowledge, we provide clients with timely, business-focused advice. 

With extensive experience across all areas of labor and employment law, our team effectively manages both individual and collective labor relations. We regularly handle disputes involving dismissal, disciplinary measures, wages, and discrimination, as well as large-scale collective matters such as industrial actions and other forms of labor disputes. Our goal is to help clients navigate complex labor environments with clarity, confidence, and foresight. Please feel free to get in contact with one of our key contacts if you have any queries.