With the revision of the Yellow Envelope Act, what should startups and SMEs consider?

This article is a contribution by Attorney Hye-rin Kim of Choi & Lee 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.

If I were to bring up the Yellow Envelope Act to startup and SME CEOs now, I'd probably get a response like this: "The Yellow Envelope Act? Doesn't it have anything to do with us? We don't have a union, and we're not a large company that relies on a subcontracting structure."

This is a very natural reaction. The Yellow Envelope Act originated from a 2009 court ruling ordering approximately 4.7 billion won in damages for a factory occupation strike by a large company union. Media coverage has also long focused on labor-management disputes at large corporations.

However, the revised Yellow Envelope Act, which will take effect on March 10, 2026, focuses on "actually influential power and control" rather than corporate size. From this perspective, it's difficult to say that startups and SMEs are completely immune to the impact of the Yellow Envelope Act. In this column, we'll examine the key changes to the Yellow Envelope Act and what they mean for startups and SMEs.

I. Major Amendments to the Yellow Envelope Act

The core of this revision to the Yellow Envelope Act can be summarized in three main points. First, the definition of "employer" has been expanded. Second, the scope of what constitutes a legitimate strike, or labor dispute, has been expanded. Third, employers' right to claim damages for illegal strikes by labor unions has been partially restricted.

Among these, startups and SMEs should pay particular attention to the first and second points. In workplaces without unions, the issue of limiting damages is unlikely to be immediately noticeable. On the other hand, the expansion of the concept of employer and changes in the scope of labor disputes can have an impact, even without unions, depending on business structure and decision-making methods.

II. Expansion of the user concept

One of the most significant changes in the revised Yellow Envelope Act is the expanded definition of "employer." The revised law no longer limits the definition of "employer" to simply the party directly entering into an employment contract. The amendment stipulates that even if a party is not a party to an employment contract, anyone who has substantial and specific control over or the ability to determine the employee's working conditions is considered an employer.

This means examining the operational method—that is, who actually determines the work—rather than the contractual form. Even if a contract appears to be outsourced or freelance, if the actual operating method is similar to that of the employer, the legal assessment may differ. Many startups and SMEs actively utilize outsourced, freelance, and partner workforces. For rapid execution, internal and outsourced staff often work together, and it's common for PMs to fine-tune the priorities, methods, and schedules of work.

This structure itself isn't immediately problematic. However, if it goes beyond simply demanding work results and involves ongoing management and control of core aspects of specific working conditions, such as working hours, work schedules, work intensity, and work environment, it may become difficult for employers to claim, "We are not the employer," when a negotiation request arises.

III. Expansion of the scope of labor disputes

Another significant change in the Yellow Envelope Act is the expansion of the scope of labor disputes. Previously, labor disputes were primarily considered to be disputes over traditional working conditions, such as wages and working hours. However, the revised law expands the scope of labor disputes to include "disagreements regarding management decisions affecting working conditions" and "disputes arising from employers' clear violations of collective agreements regarding wages, working hours, dismissal, and safety and health."

At this point, you might be concerned that "business management decisions have the potential to impact working conditions, so aren't all business management decisions subject to labor disputes?" The Ministry of Employment and Labor does not consider business management decisions, simply because they are deemed to be subject to collective bargaining. The Ministry explains that decisions such as corporate investment, mergers, divisions, and transfers are not considered to have a substantial and specific impact on working conditions, and therefore are not subject to collective bargaining.

However, the issue is how closely these decisions are linked to working conditions. For example, decisions regarding changes in worker status or working conditions, such as reassignments or layoffs, made before or after a merger, transfer, or division of employment are unlikely to be solely assessed as management judgments and may therefore be subject to collective bargaining. The same applies to actions such as the abolition or sale of a portion of a business (e.g., a department or workplace) and subsequent reassignment of employees performing the relevant work to other positions, or to layoffs. Even if the likelihood of immediate industrial action is low in the absence of a union, the lack of a union is significant in that it creates a structure that allows for the ex post facto questioning of the impact of management's business decisions on working conditions.

IV. Conclusion

The Yellow Envelope Act doesn't impose an immediate, direct burden on startups and small and medium-sized enterprises. For workplaces without unions, the likelihood of immediate strikes or damages is low. However, this amendment raises clear questions: Who actually determines working conditions? And can those decisions truly be considered merely high-level management decisions?

For startups and SMEs, this revision to the Yellow Envelope Act offers an opportunity to reassess their workforce structure. They should examine the extent to which they assign work to outsourcers and freelancers, and how organizational restructuring or changes in business structure may impact working conditions. They should also establish standards for organizational operation that remain unwavering while maintaining growth momentum.

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