Yellow Envelope Act at a Glance: Key Changes and an Investor Checklist
As of August 25, 2025, South Korea’s so-called
“Yellow Envelope Act” (amendments to Articles 2 and 3 of the Trade
Union and Labor Relations Adjustment Act) has cleared the National Assembly
in late August. The bill expands prime-contractor (lead firm) responsibility
and broadens the scope of lawful industrial action, while placing limits on
damage claims against unions and members.
Once promulgated, the law will take effect six months later
(expected: early 2026), so both companies and investors should begin
pre-implementation checks.
🎯 Key Takeaways
✅ Wider scope of disputes: Beyond pay and working conditions to major management decisions
✅ Damages limits: Caps/mitigation standards to curb excessive claims against unions/members
✅ Effective date: 6 months after promulgation; government guidance expected beforehand
👉 Multi-tier supply-chain sectors (manufacturing, construction, logistics) should re-rate labor risk
| Item | Before | After (outline) |
|---|---|---|
| Prime-contractor (lead firm) responsibility | Focused on direct employer | Bargaining duty possible if there is substantive control/decision power |
| Scope of disputes | Mainly pay & working conditions | Includes restructuring, mass layoffs, and other management decisions |
| Damages claims | Broad claims against unions/individuals possible | Standards for liability & mitigation; curbs excessive claims |
| Effective date | — | 6 months after promulgation (pre-implementation guidance to be announced) |
🔍 Passage and Public Debate
The Yellow Envelope Act aims to reflect the real influence of lead firms
within Korea’s multi-tier subcontracting structures by expanding who may be
deemed an “employer” and by widening the scope of bargaining and
disputes.
Public debate centers on balancing labor protections with corporate
competitiveness. During the six-month grace period before entry into force,
expect government guidelines and corporate preparedness to be in focus.
💡 Glossary
• Promulgation & effective date: After the National Assembly passes a law, the President promulgates it; the law then takes effect on the specified date (here, 6 months after promulgation).
🔍 Impact Scope: Lead–Subcontractor Chains & Sector Notes
Sectors with high dependence on partners—manufacturing, construction,
logistics—should prepare for multi-channel bargaining and a wider set of
dispute triggers, elevating operational risk management needs.
That said, earlier dialogue and limits on excessive damages could
lower the total cost of conflict over time. Companies should align
labor-management councils and internal controls with fair-trade/ESG systems.
🔍 Long-Term Shifts: Bargaining Architecture & Governance
Korea’s labor relations could shift from “post-conflict resolution” to
“pre-conflict dialogue.” Lead-firm supply-chain management (SRM) and
human-rights/labor due-diligence systems are likely to be strengthened, with
boards monitoring labor risk more closely.
While there may be near-term margin pressure, over time this could reduce
production disruptions and litigation volatility.
🔍 Data Points & Investor Checklist
For Korea-exposed portfolios, scrutinize earnings call commentary for
labor-risk references, changes to subcontracting policies, and restructuring
topics.
• Filings: Changes in risk factors in securities registration
statements (e.g., bond issuance, rights offerings)
• Financials: Sensitivity of payroll, subcontracting prices, utilization
rates
• Operations: Days of dispute, production disruptions, costs of replacement
labor
❓ Frequently Asked Questions
A: It takes effect six months after promulgation. Even before that, companies should prepare internal responses aligned with upcoming government guidelines.
Q: Which industries will be most affected in Korea?
A: Manufacturing, construction, and logistics—where subcontracting is prevalent—are in the first impact zone. Company-specific labor relations will shape the degree of impact.
Q: How might Korean equities react?
A: Near-term uncertainty could add volatility. Longer term, improved conflict management could stabilize costs and support re-ratings for well-prepared firms.
In my view, these amendments widen the space for dialogue, which may
lower the total cost of conflict, while also imposing near-term costs
on operational flexibility for Korean firms.
In the next earnings season, track changes in
labor-risk disclosures alongside the release of
administrative guidance in Korea.
