SOUTH KOREA Trends and Developments Contributed by: Sang Hoon Lee and William Kim, Lee & Ko
Possible “extreme” scenarios under the Yellow Envelope Act The Act’s expansions could enable novel labour strat - egies, leading to complex disputes. Below are illustra - tive scenarios highlighting potential risks. • Scenario 1 – Principal entity A, facing demands from subcontracted entity B’s labour union, agrees to a collective bargaining agreement (CBA) includ - ing a 50% salary increase. However, entity A then enforces the original subcontract terms on entity B without additional compensation, expecting entity B to absorb the costs alone. This could trigger disputes between entity A and entity B and expose entity A or B to direct liability under the broadened “employer” definition. • Scenario 2 – To mitigate liability risks, principal entity A ceases engaging subcontracted entities altogether. This leads to the collapse of thousands of subcontracted businesses dependent on out - sourcing, resulting in massive job losses, economic harm and disrupted livelihoods across supply chains. • Scenario 3 – During a global corporate deal involving company X transferring a Korean busi - ness unit to buyer Y, ten unionised employees are set for automatic transfer under Korean law. The union strikes over minor changes in terms/condi - tions, demanding bonuses for transferees and compensation for remaining employees’ increased workload or reduced job security. The expanded dispute scope could legitimise such actions, delay - ing the deal. • Scenario 4 – A company disciplines one union member and offers a modest separation package. The union, viewing this as a precedent harming members’ benefits amid restructuring, strikes for a higher standard package. The Act’s provisions on disputes and limited damages could embolden the union, prolonging the action.
These scenarios underscore the potential for height - ened tensions between principals, subcontractors and unions, delaying benefits for workers while increasing operational disruptions. Outlook: adaptation and strategic responses The Yellow Envelope Act heralds a period of height - ened legal scrutiny, requiring companies to reas - sess labour strategies and compliance. Case law is expected to evolve over the coming years, clarifying ambiguities, but businesses should avoid becom - ing precedent-setting cases by seeking institutional knowledge and close legal support. While the Act may spark more disputes – between unions, principals and subcontractors, or subcontractor unions and princi - pals – it could inadvertently delay intended union ben - efits amid litigation. Nevertheless, there is room for optimism. Companies have historically adapted to pro-labour reforms, such as the Serious Accidents Punishment Act (SAPA) and the 52-hour workweek limit, through innovative mod - els and compliance frameworks. Legal professionals are actively working on creative and legal strategies to address seemingly unreasonable scenarios under this law, reviewing past practices for guidance on future responses. As with previous changes, it is anticipated that businesses will develop new approaches over time, fostering resilience while awaiting judicial clarity. By focusing on proactive negotiations, documenta - tion and risk mitigation, employers can navigate this landscape effectively.
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