There Is No Time to Wait and Watch Companies’ Response to the Yellow Envelope Law

Monthly Labor Law, November 2025 Issue, vol.0

It has been two months since the so-called Yellow Envelope Act (the bill to amend Articles 2 and 3 of the Labor Union Act) passed the plenary session of the National Assembly on August 24, 2025. Even before the bill passed, global corporations have been diagnosing issues related to the presence of substantive controlling interests and implementing improvement measures based on the standards set forth in case law. However, many companies still seem to be either waiting for the Ministry of Labor’s guidelines and observing the situation, or hesitating because they are unsure of what to do right now, despite feeling anxious that something must be prepared. However, with less than five months remaining until the law takes effect, I believe there is not much time for companies to prepare in order to minimize the impact of the Yellow Envelope Act. Then, what and how should companies prepare for the Party now?

Is the diagnostic checklist sufficient?

Within the industrial ecosystem structured as primary and subcontracted, many companies that are either in the highest position or are engaged in lawsuits related to their status as employers under the Labor Union Act are already preparing to substantially improve their controlling power. It is likely that, as a sign of “substantive and concrete domination and decision-making,” case law mentions certain standards, and this process would involve creating a diagnostic tool by checking them and then removing or mitigating the relevant indicators based on these standards. If such responses can completely eliminate the signs of effective dominance, then they could largely resolve the burdens that may arise for employers in the future within the realm of collective labor-management relations. However, as has been confirmed in recent case law, there are cases in industries such as automobile, steel, and shipbuilding where the problem of in-house subcontracting—commonly seen in sectors such as automobile, steel, and shipbuilding—is unavoidable, and uniform standards must be established in relation to workspaces such as logistics centers, the use of IT systems and devices, and factors such as commissions and parcel rates in the courier/platform industry. In such cases, fundamental improvements to issues of substantial control are impossible unless the essential parts of the Business Model and business processes are changed. Therefore, relying solely on improvement efforts through a diagnostic checklist inevitably leaves a gap in preparedness for response.The way companies had previously responded to issues such as disguised subcontracting and illegal dispatch was, due to the nature of these issues (the areas where problems occurred and the solutions are microscopic and segmented), that it was easier to diagnose and identify areas for improvement using a checklist method based on the judgment criteria presented in case law. Since the key issue in the Yellow Envelope Act, “substantial effective control,” also adopts a similar judgment framework, the approach to problem-solving tends to be approached in a similar manner as well. However, the areas of judgment concerning the appropriateness of subcontracting and the determination of the scope of “employer” under the Trade Union Act have clear differences, even though they are in similar respects. First, the area of assessing appropriateness of subcontracting has a binary legal judgment structure regarding the existence of an employment relationship, recognizing or denying it depending on the degree of indications that justify the recognition of a dependency on the employer and a supervisory-subordinate relationship. In contrast, the area of expanding the scope of employers under the amended Labor Union Act has a pluralistic structure, differing in terms of whether substantial control is recognized for each specific agenda and whether the scope of collective bargaining obligations is subject to change. From the second company’s perspective, to fully improve the indicators that pose legal risks, unlike the former, the latter often cannot be achieved without structural changes to the business model itself, such as the governance structure between the primary and subcontractors, work processes, and the workspace. However, since it is practically impossible to change the fundamental structure of a business, in such cases one may fall into the mistaken belief that efforts to improve actual controlling power are meaningless in themselves. Third, while the main issue in the area of determining appropriateness in subcontracting lies in the relationship with individual workers, the core issue in the area of determining the scope of “employer” under the Labor Union Act lies in the relationship with companies and unions that have contracts in various forms. Therefore, the subject of the issue, its scale, stakeholders, and impact inevitably differ. Fourth, in the case of subcontracting appropriateness, the issue is resolved once and for all through legal judgment (whether it is regular employment hiring or recognition of subcontracting appropriateness), whereas if the scope of “employer” under the Trade Union Act is expanded, problems such as the annual obligation for collective bargaining, the conclusion and implementation of agreements, and responses to strike actions will persist continuously.Because of these differences, it is judged that relying solely on an assessment checklist approach focused on improving effective governance has limitations in providing a comprehensive and all-encompassing response to the various problems that are expected to arise after the law is enforced. Therefore, it is necessary to develop countermeasures that can encompass the problem areas from the perspective of the entire primary-subcontractor contract structure, and for this purpose, it is essential to establish a clear direction for the response strategy.

Measures to Clarify the Direction of Response Strategy

Although various changes in labor-management relations are expected with the implementation of the revised Labor Union Act, I believe the greatest concern for our companies is the expansion of employers’ collective bargaining obligations, the related conclusion and application of collective agreements, and the broadening of the scope of strike actions. Therefore, it is important to determine under what circumstances the scope of use is expanded; the key point can be seen in the degree to which the principal enterprise exercises substantial and concrete control and decision-making authority over the working conditions of subcontracted workers within the primary-subcontractor structure.Then, what should we prioritize in identifying? First, it is necessary to identify the vertical position of the company within the primary-subcontractor structure. In other words, we must first clarify whether our company holds the status of a primary contractor, is merely a subcontractor, or, depending on the relationship, is in a complex position where it is a subcontractor in some respects and also holds the status of a primary contractor in others. In particular, for first-tier vendors that do business with global corporations, many are foreign companies, and if they supply most of the products they manufacture domestically to domestic companies, the question may arise whether they can completely exclude actual controlling power simply because they are foreign capital. Also, among the first-tier domestic vendors, it would not be easy to assume that substantial controlling power is naturally recognized if about 70% of their production is supplied to a specific large corporation, but direct exports to overseas companies also account for about 30%.

In response to the revision of the Labor Union Act, the direction in which companies must prepare to respond can be broadly divided into two categories, excluding the compensation-for-damage aspect. One is the direction of fundamentally eliminating or reducing the collective labor-management burdens arising from the expansion of the collective bargaining obligation by removing or mitigating the signs of substantial controlling power. The other is that, when it is impossible to completely eliminate signs of substantial dominance, collective bargaining with subcontractor unions is inevitable, so the direction is to strengthen labor-management relations capabilities to increase the company’s bargaining power and to enhance management capabilities so that collective bargaining can be conducted and completed smoothly. However, in the latter case, it inevitably includes not only strengthening the primary contractor’s labor-management relations capabilities, but also reviewing measures to identify and enhance the subcontractor’s inadequate level of labor-management relations capabilities.

[Table 2. Key Contents of the Response Strategy Direction] The “3x3 matrix” can be seen as the result of deriving, simply and clearly, what to do by considering the company’s position and the counterparty’s risk under contract, based on two main directions of the response strategy.

Measures to Improve Substantive Dominance

In order for each company to develop measures to improve the actual controlling power within the primary-subcontractor structure, it is first necessary to identify major recent Supreme Court and lower court rulings in which the nature of an employer under the Labor Union Act was recognized, and to conduct a detailed indexization of under which a substantial and concrete relationship of control and decision-making was recognized. Representative cases include H Heavy Industries, C Courier, H Steel, and H Ocean, and since specific factual circumstances can be confirmed in lower court rulings, it is necessary to examine them mainly through administrative court precedents. This is the diagnostic method we commonly use through a checklist, and no one can exclude this method when developing improvement plans.However, when the types of indicators are divided into major, intermediate, and minor classifications, the importance of each item in the recognition criteria presented in the precedent may vary, so it is necessary to appropriately set the weighting at the intermediate classification level. Furthermore, because specific work processes and workspaces, communication methods between primary contractors and subcontractors, the level of supervision and direction, and control over wages and working hours may vary by industry, the diagnostic tool must be designed thoroughly to fully reflect the characteristics of the respective industry. In particular, it is necessary to conduct inspections focused on the worksite, covering detailed aspects such as work practices, the provision of equipment and parts, movement routes, communication methods, and the documents prepared. Once the diagnostic tool is completed through this process, the relevant contents must be carefully checked for each diagnostic item, and specific improvement tasks should be identified.

[Table 3. Design of a Diagnostic Tool for Actual Dominance and Derivation of Improvement Measures]

If such measures can completely eliminate actual controlling power, it would be the most effective response from the company’s perspective. Because it can fundamentally eliminate the risk of being recognized as an employer under the Labor Union Act. If it ends at merely easing effective dominance, one might question whether there is any real reason to carry out improvement work. Because, since it cannot be completely eliminated anyway, real control will be recognized, and the employer in question will be assigned collective bargaining obligations with the subcontractor’s union, among other things. However, case law recognizes only a limited bargaining obligation for specific issues (such as industrial safety, wages, working hours, and working conditions), even when substantial controlling power is acknowledged, and does not impose all employer-related obligations under the Trade Union Act on members of subcontracting companies who do not have an employment contract relationship. Therefore, it is important to keep in mind that if the indicators of substantial controlling power are reduced or relaxed, the scope of the agenda subject to negotiation will be narrowed, and the burden of the primary contractor’s collective bargaining obligation may be alleviated.

Measures to Strengthen Collective Labor-Management Relations Capacity Building

Companies that occupy the highest position within the primary-subcontractor structure often have labor unions, except in special cases. Therefore, it is highly likely that a considerable level of accumulated experience and know-how in managing labor-management relations has been built up, and that experts in the relevant tasks are also likely secured within the company. However, whether the dedicated labor-management administration department, which is optimized for managing the primary contractor’s internal labor-management relations, has sufficient capacity to respond even to the subcontractor union’s bargaining demands or industrial action is another matter. This is precisely why we must consider what to prepare for the overall structure of labor-management relations between primary contractors and subcontractors.To strengthen collective labor-management relations capabilities, we must first examine the structure of labor-management relations with the contracting companies at the upper right of the “3x3 matrix.” There may be companies with a wide variety of characteristics, such as subcontractors under contract with the primary contractor who are mid-sized firms with a long history of labor unions and a considerable size, and recognized for their actual qualitative dominance; second-tier subcontractors that have never before established a labor union and therefore have virtually no labor-management capabilities; third-tier subcontractors that have never before established a labor union and thus have virtually no labor-management capabilities; subcontractors that are unionized by the higher-level union of the subcontracted company, whereas there is already a multiple union within the subcontracted company, resulting in labor-management conflicts between labor unions; when the executive branch is weak or excessively strong, making negotiations difficult; or when strikes occur frequently and the history of labor-related legal disputes is complex, there may be companies with a wide range of characteristics. Identifying these characteristics of labor-management relations by subcontractor is precisely the diagnosis of the labor-management relations structure, and it can be said to be the primary area for inspection in the diagnostic domain for future responses to labor-management relations.Next, labor management capabilities must be strengthened. Capacity in labor-management relations requires a combination of strengthening organizational capacity and individual capacity. In the case of subcontractors without labor unions, the possibility of labor unions forming in the future cannot be ruled out. Because there is a high likelihood that labor unions, centered on subcontractors, will carry out efforts to expand their organization both at the sector-wide and regional levels. In this case, because subcontractors are likely to lack the capacity to respond to labor management issues, they should be able to prepare for preventing the occurrence of unfair labor practices by establishing a dedicated department, raising awareness among executives about the importance of labor-management relations, and taking necessary measures at the initial stage of union establishment or membership. Also, even in the case of a primary contractor, large companies may be overconfident in being able to respond adequately with only the existing labor management and related departments, but because issues related to the revision of the Labor Union Act arise in the relationship with subcontractors, simply assigning response responsibility to the Win-Win Growth Team or the management department of partner companies is not enough. Even if one or two qualified professionals are assigned to that department, it is difficult to assume that sufficient preparation for response will be in place. This is because in managing labor-management relations, experience, know-how, and the ability to communicate with labor unions are more important. Therefore, to strengthen individual capabilities in labor-management affairs, a variety of legal and practical labor-management affairs training should be available, covering topics such as collective labor-management relations law, practical collective bargaining, and the development of cooperative labor-management relations models.It is presumed that one reason many companies are still taking a wait-and-see approach rather than starting preparations is that they are waiting for the Ministry of Employment and Labor’s guidelines. Of course, once a certain standard is established after the guideline is announced, the ease of preparation can increase. However, the administration’s guidelines are bound to have inherent limitations. Above all, after the law came into effect, the most important aspect will be the standard for recognizing effective control, and this standard has already been somewhat established through precedent. From the perspective of legal terminology, it is not only impossible to set this standard in detail to the extent of three or more specific matters, but government ministries, unless they are in the legislative branch, will inevitably face the limitations of their authority to shape the law. In that regard, it can be assumed that the content of the guidelines will likely be focused on setting standards for the method and procedure of unifying bargaining channels, the scope of recognition of collective agreement effectiveness, and the procedures for collective action. Above all, if there is a dispute over whether the primary contractor’s refusal to engage in collective bargaining constitutes an unfair labor practice, the issue of recognizing substantial control must be subject to judicial judgment. Therefore, while the standards presented by the executive branch may serve as a reference, it is difficult to guarantee their legal effect. Therefore, the final preparatory measure to strengthen collective labor-management relations capacity is to plan the expected key scenarios by labor-management relations area (such as union establishment and membership, collective bargaining, collective agreements, strike actions, unfair labor practices, and compensation for damages) and establish corresponding response plans. The response measures derived here should be formalized into a manual, and during the preparation period, when meaningful guidelines from the Ministry of Employment and Labor are released, they can be adjusted to improve consistency accordingly. Therefore, rather than vaguely waiting for government guidelines, it is necessary to promptly prepare response manuals for each anticipated scenario regardless of the company’s position. In doing so, it is essential not only for labor management personnel but also for on-site managers to internalize the general knowledge of labor law and matters related to management.

[Table 3. Design of a Diagnostic Tool for Actual Dominance and Derivation of Improvement Measures]

If such measures can completely eliminate actual controlling power, it would be the most effective response from the company’s perspective. Because it can fundamentally eliminate the risk of being recognized as an employer under the Labor Union Act. If it ends at merely easing effective dominance, one might question whether there is any real reason to carry out improvement work. Because, since it cannot be completely eliminated anyway, real control will be recognized, and the employer in question will be assigned collective bargaining obligations with the subcontractor’s union, among other things. However, case law recognizes only a limited bargaining obligation for specific issues (such as industrial safety, wages, working hours, and working conditions), even when substantial controlling power is acknowledged, and does not impose all employer-related obligations under the Trade Union Act on members of subcontracting companies who do not have an employment contract relationship. Therefore, it is important to keep in mind that if the indicators of substantial controlling power are reduced or relaxed, the scope of the agenda subject to negotiation will be narrowed, and the burden of the primary contractor’s collective bargaining obligation may be alleviated.

Measures to Strengthen Collective Labor-Management Relations Capacity Building

Companies that occupy the highest position within the primary-subcontractor structure often have labor unions, except in special cases. Therefore, it is highly likely that a considerable level of accumulated experience and know-how in managing labor-management relations has been built up, and that experts in the relevant tasks are also likely secured within the company. However, whether the dedicated labor-management administration department, which is optimized for managing the primary contractor’s internal labor-management relations, has sufficient capacity to respond even to the subcontractor union’s bargaining demands or industrial action is another matter. This is precisely why we must consider what to prepare for the overall structure of labor-management relations between primary contractors and subcontractors.To strengthen collective labor-management relations capabilities, we must first examine the structure of labor-management relations with the contracting companies at the upper right of the “3x3 matrix.” There may be companies with a wide variety of characteristics, such as subcontractors under contract with the primary contractor who are mid-sized firms with a long history of labor unions and a considerable size, and recognized for their actual qualitative dominance; second-tier subcontractors that have never before established a labor union and therefore have virtually no labor-management capabilities; third-tier subcontractors that have never before established a labor union and thus have virtually no labor-management capabilities; subcontractors that are unionized by the higher-level union of the subcontracted company, whereas there is already a multiple union within the subcontracted company, resulting in labor-management conflicts between labor unions; when the executive branch is weak or excessively strong, making negotiations difficult; or when strikes occur frequently and the history of labor-related legal disputes is complex, there may be companies with a wide range of characteristics. Identifying these characteristics of labor-management relations by subcontractor is precisely the diagnosis of the labor-management relations structure, and it can be said to be the primary area for inspection in the diagnostic domain for future responses to labor-management relations.Next, labor management capabilities must be strengthened. Capacity in labor-management relations requires a combination of strengthening organizational capacity and individual capacity. In the case of subcontractors without labor unions, the possibility of labor unions forming in the future cannot be ruled out. Because there is a high likelihood that labor unions, centered on subcontractors, will carry out efforts to expand their organization both at the sector-wide and regional levels. In this case, because subcontractors are likely to lack the capacity to respond to labor management issues, they should be able to prepare for preventing the occurrence of unfair labor practices by establishing a dedicated department, raising awareness among executives about the importance of labor-management relations, and taking necessary measures at the initial stage of union establishment or membership. Also, even in the case of a primary contractor, large companies may be overconfident in being able to respond adequately with only the existing labor management and related departments, but because issues related to the revision of the Labor Union Act arise in the relationship with subcontractors, simply assigning response responsibility to the Win-Win Growth Team or the management department of partner companies is not enough. Even if one or two qualified professionals are assigned to that department, it is difficult to assume that sufficient preparation for response will be in place. This is because in managing labor-management relations, experience, know-how, and the ability to communicate with labor unions are more important. Therefore, to strengthen individual capabilities in labor-management affairs, a variety of legal and practical labor-management affairs training should be available, covering topics such as collective labor-management relations law, practical collective bargaining, and the development of cooperative labor-management relations models.It is presumed that one reason many companies are still taking a wait-and-see approach rather than starting preparations is that they are waiting for the Ministry of Employment and Labor’s guidelines. Of course, once a certain standard is established after the guideline is announced, the ease of preparation can increase. However, the administration’s guidelines are bound to have inherent limitations. Above all, after the law came into effect, the most important aspect will be the standard for recognizing effective control, and this standard has already been somewhat established through precedent. From the perspective of legal terminology, it is not only impossible to set this standard in detail to the extent of three or more specific matters, but government ministries, unless they are in the legislative branch, will inevitably face the limitations of their authority to shape the law. In that regard, it can be assumed that the content of the guidelines will likely be focused on setting standards for the method and procedure of unifying bargaining channels, the scope of recognition of collective agreement effectiveness, and the procedures for collective action. Above all, if there is a dispute over whether the primary contractor’s refusal to engage in collective bargaining constitutes an unfair labor practice, the issue of recognizing substantial control must be subject to judicial judgment. Therefore, while the standards presented by the executive branch may serve as a reference, it is difficult to guarantee their legal effect. Therefore, the final preparatory measure to strengthen collective labor-management relations capacity is to plan the expected key scenarios by labor-management relations area (such as union establishment and membership, collective bargaining, collective agreements, strike actions, unfair labor practices, and compensation for damages) and establish corresponding response plans. The response measures derived here should be formalized into a manual, and during the preparation period, when meaningful guidelines from the Ministry of Employment and Labor are released, they can be adjusted to improve consistency accordingly. Therefore, rather than vaguely waiting for government guidelines, it is necessary to promptly prepare response manuals for each anticipated scenario regardless of the company’s position. In doing so, it is essential not only for labor management personnel but also for on-site managers to internalize the general knowledge of labor law and matters related to management.