Yellow Envelope Act: Domestic Policy Implications and Corporate Law Reform
On February 24, 2025, the South Korean National Assembly passed the Yellow Envelope Act (amendments to Articles 2 and 3 of the Labor Union Act) under the leadership of the Democratic Party. This law marks a significant shift in South Korea’s domestic labor policy, as it restricts corporate claims for damages against unions and expands the definition of “employer” to include parent companies with substantial influence over subcontracted workers. While business groups have expressed concern about potential disruptions to corporate activity, labor organizations hail it as a historic advancement in guaranteeing workers’ rights. From a policy standpoint, the Act is expected to reshape collective bargaining practices, corporate accountability, and the balance of power between labor and management across industries.
Key Provisions of the Yellow Envelope Act
The Yellow Envelope Act revises two major sections of the Labor Union Act: the definition of “employer” under Article 2 and the scope of liability for damages under Article 3.
1. Expanded Definition of Employer
Employers are now defined not only as parties to labor contracts but also as entities that substantially control or determine working conditions. This expansion means subcontracted workers and platform workers can negotiate directly with parent companies regarding safety, wages, and other critical matters. This reflects a policy shift towards protecting non-standard workers, a long-debated issue in South Korea’s labor landscape.
2. Broader Definition of Labor Disputes
Disputes now include corporate restructuring, layoffs, and business consolidation. This policy change allows workers to collectively challenge managerial decisions that directly affect employment stability, reinforcing their right to participate in corporate governance discussions.
3. Restriction on Damage Claims
Employers can no longer seek unlimited compensation for losses arising from legitimate union activities such as strikes, picketing, and protests. This reduces the risk of multi-billion-won lawsuits against individual workers, which had previously deterred union participation. From a domestic policy lens, this shift balances economic efficiency with constitutional guarantees of the right to collective action.
Political and Economic Reactions
Business associations argue that the Act could increase management risks, force corporations to negotiate with subcontracted labor, and create uncertainty in industrial operations. From a policy perspective, these concerns highlight potential conflicts between labor protection and business competitiveness.
The Democratic Party, however, emphasizes that the legislation upholds constitutional labor rights and strengthens democracy in the workplace. Labor unions, including the Korean Confederation of Trade Unions (KCTU), welcomed the decision, calling it a long-overdue correction to an imbalance in labor policy.
Corporate Law Reform and Policy Impact
Alongside the Yellow Envelope Act, the National Assembly also introduced a second amendment to the Commercial Act. Key elements include: (1) introducing a cumulative voting system, and (2) increasing the number of separately elected audit committee members from one to two. These reforms are intended to strengthen minority shareholder rights and promote transparency in corporate governance. From a domestic policy standpoint, the alignment of labor law reform with corporate governance reform reflects South Korea’s broader shift towards balancing labor empowerment with shareholder democracy.
Practical Changes in the Workplace
Subcontracted and platform workers can negotiate with parent companies.
Labor disputes now include restructuring and layoffs.
Damage lawsuits against workers for lawful activities are restricted.
Corporate accountability extends to companies with indirect control over labor conditions.
Yellow Envelope Act: FAQ
Q1. When will the Yellow Envelope Act take effect?
After a six-month grace period, the law will be enforced nationwide.
Q2. Does this mean all strikes are exempt from liability?
No. Only legitimate labor actions are exempt. Illegal activities can still incur damages.
Q3. How does this affect subcontracting policies?
Parent companies with control over safety or work conditions must now negotiate directly with subcontracted workers.
Q4. What challenges will corporations face?
Companies will need to strengthen risk management and review labor relations policies more carefully.
Q5. How does the Commercial Act reform fit into this?
It promotes shareholder democracy, signaling a dual-track reform of labor rights and corporate governance in domestic policy.
Summary
The Yellow Envelope Act marks a turning point in South Korea’s domestic policy on labor rights. By expanding the definition of employer, restricting excessive damage claims, and broadening the scope of disputes, the law strengthens workers’ rights. Simultaneously, corporate law reforms aim to enhance governance and shareholder participation. Together, these developments signal a rebalancing of labor-capital relations that will affect the entire industrial and policy landscape.
Conclusion
The Yellow Envelope Act is not just a labor law revision but a cornerstone of South Korea’s evolving domestic policy. For workers, it provides stronger collective rights and protection against crippling lawsuits. For corporations, it introduces new accountability structures and compels adjustments in labor relations strategy. When combined with ongoing Commercial Act reforms, it demonstrates South Korea’s broader commitment to balancing labor empowerment, shareholder rights, and economic stability. As the six-month grace period unfolds, businesses, unions, and policymakers must prepare for a new era of industrial relations shaped by this landmark legislation. Readers should carefully monitor how these changes may impact their industries, investments, and employment conditions in the near future.
🔗 Related Reading: Deep Dive into Korean Labor Policy Shifts Korean Labor Policy Trends
📖 Reference: National Law Information Center (Korea)
