This article is a contribution by Attorney Hee-chul Ahn of DLG Law Firm. If you would like to share quality content for startups in the form of a contribution, please contact the Venture Square editorial team at editor@venturesquare.net.
The revised Trade Union and Labor Relations Adjustment Act (hereafter, the "Yellow Envelope Act"), which passed the National Assembly on September 24th, is scheduled to take effect on March 10th of next year. In 2014, after a court ruled to order 4.7 billion won in damages from workers involved in the Ssangyong Motors incident, a citizen donated a small sum in a "yellow envelope" (the color of the previous pay envelope). This led to the citizens' "Yellow Envelope Campaign," which raised nearly 1.5 billion won. The Yellow Envelope Act originated from this incident, where citizens expressed solidarity by donating money in yellow envelopes when the company filed a large damages claim and attachment request against an individual worker. The Yellow Envelope Act was created to strengthen workers' rights and prevent the undermining of their right to strike due to excessive damages claims by companies.
The Yellow Envelope Act has four key provisions. First, the concept of employer has been expanded, making those who effectively control and determine working conditions also parties to negotiations. Second, union membership is no longer restricted on the grounds that they are not employees, thus recognizing the union status of special employment and platform workers. Third, the scope of labor disputes has been expanded from "determination of working conditions" to "business management decisions affecting working conditions and serious violations of collective agreements." Fourth, employers are prohibited from seeking compensation for damages resulting from legitimate union activities, and liability is individually determined for each worker.
These changes apply equally to unlisted startups as well as listed corporations. For startups with small organizations and a heavy reliance on outsourced and specially hired personnel, this could be a short-term burden. However, in the long term, it could also provide an opportunity to improve corporate trust and the investment climate.
Why it's a 'burden' in the short term
For unlisted startups, the Yellow Envelope Act could initially cause considerable confusion. A startup's survival strategy hinges on swift decision-making, business decisions, and, in some cases, rapid pivots. However, decisions such as the withdrawal or modification of certain services, outsourcing, and restructuring are all highly likely to be interpreted as "management decisions affecting working conditions," making these management decisions subject to disputes. If management's business judgment triggers a dispute, the startup's most crucial competitive edge—speed and innovation—could be significantly undermined.
The expanded definition of "employer" is also a burden. Specially employed workers, such as delivery drivers, freelance developers, and others reliant on startups, can now demand negotiations through industry-specific or job-specific unions. Even small startups without internal unions may find themselves at the negotiating table as counterparts to industry-specific unions. This significantly increases not only labor costs but also the legal and administrative costs associated with negotiations, placing direct pressure on companies with limited financial resources. Furthermore, the "Yellow Envelope Law" may be perceived as a new risk by foreign investors. Global venture capitalists and private equity funds meticulously examine labor-management risks during their investment due diligence. Even without an internal union, if the potential for industrial disputes through industry-specific unions exists, this will be reflected in investment terms. Discounts may be applied to projects, or the investment itself may be withheld, citing potential delays, increased costs, and damage to brand image.
Why it's a 'blessing' in the long run
Conversely, from a long-term perspective, the Yellow Envelope Act can serve as a system that provides stability and trust to the startup ecosystem. First, it incorporates conflict into the system. Until now, conflicts between platform workers and startups have occurred spontaneously and unpredictably. When public opinion wars or collective action lead to service interruptions, the damage is felt not only by startups but also by customers and investors. However, if union status is institutionally guaranteed and disputes and negotiations are conducted within the system, conflict becomes predictable and manageable. In other words, while the costs of disputes may increase in the short term, in the long term, it lays the foundation for stable growth.
Second, it ensures compliance with global standards. The European Union (EU) strengthened the protection of platform workers by enacting the "Directive 2024/2831 on Improving Working Conditions in Platform Work in the European Union (EU)" on October 23, 2024. The US state of California also recognizes platform workers as employees and protects them through AB5. The Yellow Envelope Act aligns with these global trends. Korean startups must ultimately adhere to these standards to compete in the global capital market, and international investors will naturally trust markets with institutionally guaranteed conflict management capabilities in the long term. Third, it enhances service reliability. The essence of platforms and IT services is trust. If delivery workers, drivers, and freelancers are legally protected, the risk of service disruption or staff turnover is reduced. Customers will experience more stable service.
Startup Response Strategies: A Test of Maturity, a Proactive Approach to Seeing It as an Opportunity, Not a Disaster
The Yellow Envelope Act sends a message to startups: "Unprepared or disaster; prepared or opportunity." Therefore, a strategic response to the Yellow Envelope Act is not a choice, but a survival strategy. Startups must first restructure their contractual structures. Contracts with freelancers and contract workers should clearly specify work instructions, evaluations, and termination terms. Furthermore, management decisions must ensure procedural legitimacy. Decisions such as business withdrawals, changes, and restructuring should be documented with clear justifications and alternatives, supported by prior explanations and consultations. Investor communication is also crucial. Startups should communicate with investors about the systems and procedures they have implemented and the preparations they have made to prevent labor-management conflict.
If these responses can send a message that they are proactively responding to changes in labor laws, it could be a valuable opportunity for startups. The Yellow Envelope Act is a system that fosters the maturity of the startup ecosystem. While it poses a threat to unprepared companies, for those prepared, it serves as a springboard for growth and global trust. What startups should fear is not the law itself, but a lack of preparation and response. Ultimately, the Yellow Envelope Act is not a disaster, but rather a test of maturity that must be overcome to leap forward to a greater stage.
Inquiry for information
Attorney Heechul Ahn 010-9135-4773 / heechul.an@dlglaw.co.kr
Simharu, Senior Manager, PR Marketing Team 010-9458-6068 / ru.sim@dlglaw.co.kr
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