Over half of foreign firms fear impact of yellow envelope law

President Yoon Suk Yeol speaks during a luncheon meeting with foreign CEOs in Korea in Seoul, Feb. 14. Joint Press Corps

More than half of the foreign companies operating in Korea have expressed concerns about an upcoming pro-labor law revision package that is commonly referred to as the yellow envelope law. This legislation is set to significantly expand the range of labor disputes that are considered lawful.

According to a survey commissioned by the Federation of Korean Industries (FKI), Monday, 55 percent of 100 foreign manufacturing companies here said the revision will negatively impact their operations. Mono Research surveyed foreign firms with more than 100 employees from July 26 to Aug. 6.

Positive responses accounted for 10 percent, while 35 percent of respondents said their businesses would not be affected by the law revisions.

The yellow envelope law seeks to amend the Trade Union and Labor Relations Adjustment Act to broaden the scope of legal labor disputes, enhance the negotiating power of labor unions, and prevent employers from seeking excessive compensation for damages incurred during strikes.

It was once vetoed by President Yoon Suk Yeol and scrapped by the National Assembly last year, but a revised version of the package passed the Assembly on Aug. 5, following endorsements from the majority-holding opposition parties.

Opposition lawmakers watch the voting results of a revision to the country's labor union act during a National Assembly plenary session in Yeouido, Seoul, Aug. 5. Yonhap

The revision broadens the definition of an employer to include anyone who can "substantially and specifically control or determine a worker's employment conditions." Among the companies surveyed, 59 percent expressed skepticism, fearing this change may trigger labor disputes between management and subcontracted workers.

Among those with negative views, 27.3 percent believed that the new definition would reduce labor market efficiency by increasing risks associated with subcontracting, while 25.3 percent anticipated it would lead to more strikes by subcontracted workers against employers.

The revision also permits independent contractors and other special types of workers, who are not classified as employees under labor law, to join labor unions. In response, 62 percent of respondents voiced concerns, arguing that this expansion of union membership could negatively impact labor-management relations.

Among those with negative views, 28.4 percent cited potential business disruptions from frequent strikes and negotiations as their main concern, while 18.6 percent worried about possible reductions in investments and employment.

Respondents also raised concerns about the revision’s expansion of labor disputes to encompass corporate reorganization or realignment, with 68 percent expecting it to negatively impact businesses.

Negative respondents noted that this could infringe on employers' exclusive rights and may lead to more unionized workers resolving labor issues through strikes.

If the revised act takes effect as proposed, surveyed companies anticipate that strikes by labor unions will increase by an average of 20 percent, and foreign direct investments in Korea will decrease by an average of 15.4 percent.

The FKI expressed concerns that the revision could further entrench the country's rigid labor market and exacerbate the confrontational relations between management and labor. This, they fear, may prompt foreign companies to adopt a more conservative approach to their investment plans.

“The revision of the union act carries significant risks of fostering a tendency to resolve all labor disputes through strikes, rather than addressing differences through dialogue and cooperation,” said Lee Sang-ho, vice president of the FKI’s Economic and Industrial Research Department.

“The Assembly needs to reconsider the revision as it may weaken the global competitiveness of businesses and hamper foreign investments into Korea.”