With 'Yellow Envelope' act, administrative guidelines alone cannot prevent confusion

Kim Dong-ho

The author is an editorial writer at the JoongAng Ilbo. 

Since the implementation of the “Yellow Envelope” law, Korea’s industrial relations landscape has been swept into turmoil. The law was intended to limit unions’ liability for damages arising from strikes while strengthening protections for subcontracted workers. Its name traces back to the aftermath of the 2014 SsangYong Motor strike, when courts ordered union members to pay massive damages. In response, citizens raised donations in yellow envelopes to help workers burdened by the judgments, giving rise to the term “Yellow Envelope” act.

However, during the legislative process, the lawmakers significantly broadened both the legal definition of an employer and the scope of labor disputes. As a result, even routine business decisions have become subjects of labor-management conflict, opening a Pandora’s box of unintended consequences. Concerns are mounting that the law undermines Korea’s national competitiveness.

The most serious concern is the widening polarization of the labor market. Korea already faces such severe labor market inequality that “K-polarization” has entered common parlance. Contrary to the law’s original objective of protecting vulnerable workers, the Yellow Envelope law is increasingly being used by highly paid regular employees at large corporations as leverage in negotiations over performance bonuses. Demands for bonuses equal to a fixed share of operating profits are becoming more common. Employees in Samsung Electronics’ semiconductor division, who had previously voted to strike, are now expected to receive performance bonuses of up to 600 million won ($420,000) in addition to their annual salaries. This will deepen the sense of relative deprivation among workers in Samsung’s home appliance division, affiliated small- and medium-sized businesses and nonregular workers. As huge bonuses and generous in-house loans become concentrated among a handful of conglomerates, the labor market’s dual structure will become even more entrenched, widening the divide represented by K-polarization.

The Yellow Envelope act could also significantly worsen youth employment. Facing broader bargaining obligations and greater labor-dispute risks, companies are likely to become more cautious about hiring and investing. The incentive to accelerate automation is also growing. At present, approximately 1.71 million people in their 20s and 30s are unemployed or outside the labor force. If young people are prevented from entering the labor market, they face greater difficulty marrying. Even those who marry may postpone or forgo having children because of financial insecurity. As the bargaining power and entrenched privileges of regular workers’ unions strengthen, opportunities for young people and other vulnerable groups will continue to shrink, reinforcing the labor market’s structural dualism.

Concerns over declining corporate investment are also intensifying. The Samsung labor union has announced that, based on provisions in the Yellow Envelope act allowing negotiations over business decisions affecting working conditions, it intends to make the company’s semiconductor investment plans in the Gwangju and Jeolla region a central bargaining issue. This shows that even investments in strategic industries could become subject to labor negotiations. Although President Lee Jae Myung has expressed concern, conflicts are unlikely to ease now that collective bargaining has been expanded by law. The risk of future corporate investment decisions becoming entangled in labor disputes has grown.

An even greater concern is that the law could end up killing the goose that lays the golden eggs. However profitable Samsung and SK hynix may be, the semiconductor industry has always been fundamentally cyclical. Although many expect the current boom to continue due to expanding investment in AI data centers, a prolonged boom is far from guaranteed given Big Tech’s enormous capital spending and profitability concerns. Meanwhile, China’s CXMT has increased its share of the global dynamic random-access memory, or DRAM, market to approximately 8 percent, challenging the longstanding dominance of Samsung, SK hynix, and Micron. If Korean semiconductor companies become consumed by disputes over astronomical bonus demands, their international competitiveness will inevitably weaken.

The Yellow Envelope act’s transformation from a well-intentioned reform into a source of controversy is the result of excessive political intervention. Originally, it centered on revising Article 3 to limit excessive damage claims against unions. During the legislative process, however, Article 2 was also revised to dramatically expand both the legal definition of an employer and the scope of labor disputes. Even without a direct employment relationship, a principal contractor is now required to bargain with a subcontractor’s union if it is deemed to exercise substantial control over working conditions. Although executive compensation remains subject to shareholder approval under the Commercial Act, labor unions can now bargain over bonuses and potentially challenge major management decisions, including investment strategies.

The Ministry of Employment and Labor has announced that it will issue interpretive guidelines on the law in August. However, revising administrative guidelines while leaving the statute itself unchanged will not resolve confusion. Administrative guidance cannot bind courts, leaving businesses exposed to litigation and labor disputes over the law’s scope. While preserving worker protections, the National Assembly should amend the legislation to ensure that industrial action cannot be expanded without limit into matters involving corporate investment and managerial decision-making. Otherwise, the costs of weaker investment and fewer jobs will ultimately be borne by the entire nation.