The yellow envelope law has become a reality... If you want to use it as a growth opportunity [Daeryun’s Biz law forum]

Implemented in the first half of next year... Limitation on strike damages claims
For now, risks such as increased demands for collective bargaining are ↑
Rather, it could be an opportunity to build labor-management cooperation and trust.

The 'Trade Union and Labor Relations Adjustment Act Amendment', the so-called 'Yellow Envelope Act', which was passed by the National Assembly on the 24th of last month and approved at the Cabinet meeting on the 2nd of this month, is scheduled to go into effect in the first half of next year. This amendment contains content that fundamentally changes the landscape of labor-management relations in Korea, and its ripple effect is expected to grow further depending on future court interpretations and precedents.

Even restructuring and M&A are subject to labor-management negotiations.

The Yellow Envelope Law is a name that originated from citizens sending donations in ‘yellow envelopes’ in response to the company’s claim for large-scale damages following the Ssangyong Motors strike in 2009. Initially, the discussion was limited to limiting excessive compensation by companies to workers, but the scope was greatly expanded during the National Assembly discussion.

To summarize, there are three points.

▷Expansion of the scope of employers: Anyone who can actually control or determine working conditions, even if he or she is not a party to a labor contract, is considered an employer. Accordingly, there is a possibility that the main contractor and parent company may have an obligation to negotiate with the unions of subcontractors and subsidiaries.

▷Expanding the scope of collective bargaining and labor disputes: Not only wage levels and working hours but also management decisions such as restructuring and mergers and acquisitions (M&A) are subject to negotiation and dispute.

▷Limitation of liability for damages: The scope of immunity has been expanded to cover not only legitimate industrial action but also other union activities and even defense against illegal actions by the employer.

Evolution of the concept of ‘actual control’'

‘Actual control’ is the criterion for determining whether or not the primary contractor’s obligation to negotiate is recognized. In the 2010 Hyundai Heavy Industries case, the Supreme Court ruled for the first time that if a prime contractor can control and determine the labor conditions of a subcontractor's union, it should be considered an employer.

After this ruling, in cases such as CJ Logistics, Lotte Global Logistics, Hyundai Steel, and Daewoo Shipbuilding & Marine Engineering, the Labor Relations Commission and the courts recognized the main contractor's obligation to bargain with the subcontractor's union. What these cases have in common is that 'the work of the subcontractor is essential to the main contract's project, so the main contract has no choice but to exercise significant influence on the working conditions or performance measurements of the subcontractor.' The greater the possibility that the main contractor determines the working conditions of workers at subcontractors, the more likely it is that employer-friendliness will be recognized.

Dozens of subcontractor unions likely to flood in with demands for individual negotiations

After the Yellow Envelope Act is implemented, companies may face the following risks.

▷Increased demands for collective bargaining: The main contractor may face individual bargaining demands from dozens of subcontractor unions. This is a factor that may conflict with the unified negotiation window system and prolong the dispute.

▷Labor-management consultation on management decisions: Management decisions such as layoffs, factory relocations, and M&A may be put on the union negotiation agenda.

▷Difficulty in claiming compensation for labor unions and workers: It is expected that it will become more difficult to hold companies accountable for damages incurred during industrial action.

Requires preliminary maintenance of relationships with subcontractors... Response by scenario

How should companies prepare? Maintaining relationships with subcontractors and subsidiaries is a priority. Elements of direct intervention by the contractor must be minimized in contracts, work order systems, and on-site management methods, and any risks of illegal dispatch must be checked.

It is also necessary to establish a management decision-making process in advance where labor and management cooperate. It would be a good idea to prepare a manual that internalizes the process of collecting union opinions in important decision-making processes such as restructuring or business relocation.

Internal training and simulations are also required. Both management and field managers must be familiar with the revised law, and training to respond to the union's demands for each scenario is essential.

The Yellow Envelope Act is evaluated as a watershed in rebalancing the balance of power between companies and unions. Given that it shakes up existing labor-management practices, it is bound to be a factor that increases legal risks for companies. However, it is also an opportunity to establish transparent management and predictable cooperation structures.

If the company faithfully fulfills its obligations under the law while also carrying out autonomous consultation and trust building between labor and management, the company can reduce dispute costs and gain social trust. There is a saying that a crisis is an opportunity. Why not use the Yellow Envelope Act as an opportunity to find a new labor-management model for sustainable growth?

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