"Yellow Envelope Act to Function as 'Subcontracting Regulation Act and Strike-All-Powerful Act'"

Dongwook Kim, Sejong Partner Lawyer
"The Yellow Envelope Act Should Be Approached Carefully Considering Labor Relations and Industrial Competitiveness"

[Asia Economy Reporter Donghoon Jeong] There are claims that if the Yellow Envelope Act (Amendment to the Labor Union and Labor Relations Adjustment Act) is enacted, it will cause significant disruption to the widespread use of subcontracting in the current industrial structure and make it virtually impossible to claim damages for illegal strikes.

On the 21st, the Korea Chamber of Commerce and Industry held a webinar titled "Recent Labor Case Law and Policy Trends and Corporate Response Measures" in collaboration with the law firm Sejong at the Chamber of Commerce building in Jung-gu, Seoul. Partner lawyer Dongwook Kim, who gave the lecture, pointed out that the amendment to the Labor Union Act, known as the Yellow Envelope Act, "forces the user of subcontracted workers without contractual relationships to become the employer through vague phrases such as 'substantial and specific control and decision,' which will act as a tremendous obstacle to the use of subcontracting."

He added, "If the use of subcontracting is restricted due to the Yellow Envelope Act, the domestic industrial ecosystem, which currently has synergy and global competitiveness through networking and collaboration among various businesses, could collapse. It is necessary to carefully consider the impact on labor-management relations and the industrial ecosystem."

Kim expressed concern, saying, "Currently, strikes can only occur during the process of concluding collective agreements, but if the law passes, strikes can occur at any time regarding working conditions even when a valid collective agreement is in place. This will promote a strike-omnipotence ideology that seeks to resolve disputes through strikes rather than litigation in court when disagreements arise between labor and management."

He continued with sharp criticism regarding claims for damages for illegal strikes. Kim said, "Although strikes are collective actions of union members, the law requires proving and claiming damages for each individual member’s actions, which is practically equivalent to prohibiting claims for damages."

Regarding companies, he advised, "Currently, rulings recognizing and denying the primary employer status of the main contractor over subcontractor unions coexist, so the enactment of the Yellow Envelope Act will have considerable ripple effects. Companies should thoroughly diagnose the primary-subcontractor relationships with partner companies and prepare countermeasures."

Wage Instability Risks from Court Rulings... Regular Bonuses as Ordinary Wages, Management Performance Bonuses as Average Wages, Nullification of Wage Peak Systems, etc.

Next, lawyer Dongwook Kim urged preparation for wage instability risks caused by recent court rulings related to wages.

Regarding regular bonuses as ordinary wages, he said, "Regular bonuses conditional on employment (employment-conditional regular bonuses), which were only paid to employees currently employed, were denied ordinary wage status by the 2013 Supreme Court plenary session ruling. However, recently, lower courts have issued rulings recognizing employment-conditional regular bonuses as ordinary wages. If the Supreme Court reverses its previous stance and recognizes them as ordinary wages, it will be a huge blow to companies that have structured their bonus systems based on employment conditions."

He also highlighted the recent rulings including management performance bonuses, which were previously not considered wages, as part of average wages. Kim explained, "There are about nine lawsuits currently pending at the Supreme Court disputing whether management performance bonuses should be included in average wages, and rulings on most cases are expected to be announced simultaneously. Companies should be aware of and prepare for the risk of the Supreme Court recognizing management performance bonuses as average wages."

Meanwhile, he reiterated that last year's Supreme Court ruling invalidating the wage peak system was limited to the wage peak system that maintains the retirement age. Kim explained, "The wage peak system introduced by companies as a response to the extension of the retirement age due to legal amendments is recognized as lawful in lower courts, contrary to labor union claims. However, it is necessary to verify whether there are any issues in light of the Supreme Court’s criteria for judging the validity of the wage peak system."

Additionally, he explained other rulings and policies that companies should pay attention to, such as "criteria for illegal dispatch," "measures in cases of workplace harassment," and "Ministry of Labor supervision plans related to comprehensive wage systems."

Yuilho, head of the Employment and Labor Policy Team at the Korea Chamber of Commerce and Industry, emphasized, "The Yellow Envelope Act is legislation that differs from the existing negotiation and dispute action system, and even if conflicts with the existing order are minimized through sufficient deliberation and detailed design, confusion on the ground and economic shocks are unavoidable. Legislation that simply changes a few provisions without such discussions should be avoided as it treats companies and the economy as experimental subjects."