Yulchon LLC Advises Companies on Response Strategies
Priority on Assessing "Substantial Control" Recognition
No Guarantee of Safety Even for Subcontractors Without Unions
Legal experts have advised that, before the enforcement of the amendments to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act (commonly known as the Yellow Envelope Act), it is urgent to analyze subcontractors that may be recognized as having "substantial control." They explained that the criteria for determining employer status will likely include the independence of the subcontractor, who has the authority to issue work instructions, and who decides the wage structure.
On September 5, attorneys from Yulchon LLC held a seminar at their headquarters in Samseong-dong, Seoul, titled "Response Strategies After the Passage of the Yellow Envelope Act," where they made these remarks.
Experts emphasized that the first step should be to determine whether even Nth-tier subcontracted workers could be considered under substantial control. This is because the Yellow Envelope Act expands the definition of "employer" to include those who can "substantially control or determine" working conditions.
Attorney Lee Kwangsun stated, "If labor costs account for a high proportion of the contract fee and the subcontractor's profit is low, the subcontractor's independence may be deemed low, and employer status could be recognized." He continued, "For example, in the case of H Shipbuilding, most of the contract fee was spent on labor costs, so substantial control was recognized. In contrast, H Steel, where the contract fee was not linked to the number of personnel, reached the opposite conclusion." He added, "In particular, unit-rate contracts-where the contract fee is determined by the amount of time or number of people input-have so far been favored by prime contractors, but this increases the likelihood that substantial control will be recognized."
Bae Donghee, chief labor attorney at HighLab Labor Law Firm, also stated, "We must first prepare for the expanded concept of employer." Bae explained, "It is necessary to review the background of contract formation between the prime contractor and subcontractor and to assess the subcontractor's work arrangements to analyze whether the prime contractor has substantial control." He added, "It is also important to study the subcontractor. This means understanding not only the number of subcontractors and their main work, but also the status of their employees, whether a union has been established, and the risks of strikes."
They explained that even if a subcontractor currently has no unionized workforce, there is no guarantee of safety. Senior advisor Jung Jiweon said, "With expectations rising ahead of the law's enforcement, there is always a possibility that a union could be formed, and one or two subcontracted workers may already have joined a regional union or umbrella organization." He added, "Even if there is currently no union at the subcontractor, a proactive review of substantial control is necessary."
Previously, despite opposition from industry, the Yellow Envelope Act passed not only the National Assembly but also the recent Cabinet meeting. After the law is promulgated, it is scheduled to take effect in March next year.
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