Seoul: The revised Trade Union and Labor Relations Act, popularly referred to as the "Yellow Envelope Act," has officially come into force. While labor groups see it as a significant advancement for workers' rights, critics express concerns about its potential to destabilize labor-management relations in the country. The Korean Confederation of Trade Unions had previously announced plans for a general strike in July against prime contractors that decline to negotiate with subcontractors' unions, indicating possible labor unrest.
According to Yonhap News Agency, the business community is apprehensive, as the law has commenced without a clear definition of who qualifies as an "employer" in union negotiations. The act expands the definition to include anyone who can substantially influence working conditions, even if they are not directly involved in the employment contract. This allows subcontractors' unions to demand negotiations with prime contractors, potentially altering established management rights based on Supreme Court precedents.
The act's broad provisions could impact key business decisions such as mergers, asset sales, and overseas plant expansions if these are perceived to affect working conditions. The Fair Trade Commission reported that mergers, acquisitions, and other transactions reviewed by regulators last year amounted to approximately 52 trillion won ($35 billion). These deals may now be subject to labor union influence.
Traditionally, strikes over corporate restructuring or layoffs were considered illegal, but the Yellow Envelope Act is poised to change that perspective. This shift could delay or discourage significant business decisions, complicating efforts to implement effective restructuring or maintain industrial competitiveness. Companies contemplating increased production in the US in response to rising tariffs may find such moves hampered by unions, potentially affecting domestic employment.
The law limits companies' ability to claim damages for losses resulting from illegal strikes, while unions face minimal liability even if a strike causes business losses. It stipulates that unions and workers will not be liable for damages if employer losses occur while safeguarding workers' interests against illegal employer actions.
The act's ambiguous terms are expected to incite disputes and lead to a surge of litigation, with courts ultimately deciding the extent of the new regulations. The government is urged to develop clear guidelines and eliminate uncertainty with fair and consistent standards.
As the business environment continues to deteriorate amid rising protectionism and Middle Eastern instability, domestic legal uncertainty could further jeopardize corporate survival. The repercussions of strikes or hard-line labor actions disrupting production will likely impact not only companies but also workers and the broader economy. If labor demands become excessive, companies may seek ways to operate independently.
With potential declines in subcontracts due to process automation or artificial intelligence adoption, subcontractor workers might face adverse effects. It is critical for unions to recognize that their existence depends on the survival of companies, emphasizing the need for restraint and support for labor-management coexistence in challenging times.
To curb unreasonable demands from subcontractors' unions, the government must adopt a firm and disciplined approach. The Korea Eximbank reported that 3,444 firms relocated abroad from January to September last year, surpassing the full-year total of 3,045 firms for 2024. Excessive corporate regulations, including the Yellow Envelope Act, are cited as reasons for companies opting to relocate abroad.
The current tilt of labor relations in favor of unions necessitates addressing workplace confusion to ensure the law's proper implementation and creating a balanced playing field. Without legal and institutional measures to tackle structural problems and mitigate the law's adverse effects, the exodus of domestic and foreign-invested companies from Korea could accelerate.