Korea's so-called 'Yellow Envelope Act' is expected to be enacted imminently. It is set to introduce significant changes to trade union legislation in Korea. We take a look at the key provisions and what these mean for employers.
The Yellow Envelope Act passed through the Legislation and Judiciary Committee of the Korean National Assembly on 1 August 2025 and appears headed towards final passage this month. Further material changes to the legislation are unlikely, and the president has expressed his intention to sign the bill into law. This version of the bill is not identical to the version vetoed by former-president Yoon last year, but is very similar in its scope and approach.
This legislation will make significant changes to Korea's Trade Union and Labour Relations Adjustment Act (the "Union Act") which governs the formation, recognition, and activities of trade unions in Korea, as well as collective bargaining and industrial action.
Expanded scope of "employer" under the Union Act
One of the most significant changes to be introduced by the new legislation is the expansion of the definition of 'employer' under the Union Act. This will increase existing trade union obligations for organisations across Korea.
The current definition in the Union Act has traditionally been interpreted to refer to a legal employer that is in an employer-employee relationship with employees. The Yellow Envelope Act will expand this definition to also include "a person who, even if not a party to the employment contract, is in a position to substantially and concretely control and determine the working conditions of the workers [...]."
The effect of this would be to make a large customer or client the "employer" of its external suppliers' or contractors' employees for the purposes of the Union Act, if it substantially and concretely controls and determines their working conditions. In that case, the customer or client company would be subject to important legal obligations and restrictions in relation to any union representing the external suppliers' or contractors' employees:
- It would be obliged to collectively bargain in good faith with such a union.
- It would be prohibited from hiring replacement workers in the event of any lawful industrial action.
- It (and the responsible individuals) could be held liable for unfair labour practices towards such a union or such workers.
Permission for unions to include non-employee members
Under the current Union Act, only "employees" can be members of a union, and a union that allows non-employee members can be denied legal recognition. The Yellow Envelope Act removes this restriction, allowing unions to include non-employee members. This would prevent employers from attempting to deny recognition to unions that allow some non-employee members; though it appears that unions would still need to be established and led by employees.
Expanded justifications for industrial action
The current Union Act only allows a union to engage in industrial action due to an impasse in a dispute over the determination of working conditions such as wages, working hours, welfare, and dismissal. Other kinds of disputes are not a valid basis for industrial action. The Yellow Envelope Act will change this, allowing unions to engage in industrial action for a broader set of reasons. Under the new law, unions will also be allowed to engage in industrial action for disputes over clear violations of the collective bargaining agreement, or disputes over management decisions affecting working conditions, like restructuring.
Limiting liability for damages
Traditionally, courts have held unions and union members participating in illegal industrial action jointly and severally liable for damages incurred by the employer. This meant that employers could claim full compensation for damages from either the union or the individual union members involved. However, in 2023, the Supreme Court, while recognising the principle of joint and several liability, ruled to limit the scope of responsibility for individual union members based on the degree of their individual fault and contribution to the damages.
The Yellow Envelope Act effectively codifies that Supreme Court decision, limiting the damages individual union members can be responsible for. In addition, it includes several other exemptions and defences intended to limit or prevent liability by unions and union members for their actions, including:
- adding other "activities of a trade union" to the existing prohibition on claims for damages for legitimate "collective bargaining" and "industrial action" under the Union Act;
- exempting unions and workers from liability for damages if they inevitably caused the harm in defence of their interests, due to the employer's illegal act;
- allowing a union or workers to request a court to reduce or exempt the damages they are liable for based on factors such as economic status, dependents, and minimum living expenses;
- prohibiting the exercise of the right to claim damages for purposes such as endangering the existence of the union or impeding its operation; and
- expressly allowing the employer to exempt the union or workers from liability for damages even when they are found liable—effectively allowing management to agree to waive such damages without violating fiduciary duties.
Impact of the changes
Among the changes that will be made by the Yellow Envelope Act, the most significant will be the expansion of what constitutes an "employer" under the Union Act. This is expected to immediately result in various subcontractor unions demanding collective bargaining with prime contractors or dominant customers and clients. For large companies that rely on arguably dependent or controlled outside contractors, this will expose them to potential disputes over collective bargaining and unfair labour practices, as well as potential disruptions due to industrial action.
The involvement of a union representing an external contractor's employees, or even multiple such unions, will also make the legal process for unifying the bargaining channel more difficult and uncertain. Korean law allows multiple unions representing employees with respect to the same employer, but provides a procedure to unify bargaining through a single channel. The new law will create uncertainty over which unions actually have a right to bargain and how to unify the bargaining channel among all unions. It may also be complex for unified bargaining representatives to represent both company employees and external contractor employees.
Finally, unions will be legally allowed to engage in industrial action over a broader set of disputes, including disputes over management decisions like restructuring or relocation. Practically, unions were able to do this previously, but only by framing the dispute around other legitimate reasons for industrial action (even if those weren't the primary concerns). This may make it more challenging and risky for businesses to refuse to bargain over matters that have traditionally been considered management prerogatives.
Takeaway for employers
Companies that may be affected by this new legislation should begin to review their compliance footing soon. The legislation is to become effective six months after promulgation. If the bill passes the National Assembly and is passed into law soon, that will not leave much time for companies to evaluate their labour practices and relationships with outside contractors and determine whether any compliance steps or adjustments should be made.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
