100 days in, 'Yellow Envelope Law' rattles companies over expanding employer liability

The government said the feared "bargaining tsunami" and rampant fragmentation of collective bargaining units did not materialize in the first 100 days since the revised Trade Union Act — widely known as the Yellow Envelope Law — took effect. But uncertainty on the ground is growing as the scope of what qualifies a prime contractor as an employer appears set to expand beyond initial expectations. Companies are increasingly worried that outsourced functions such as catering, cleaning and security, as well as rest facilities and welfare programs provided to subcontract workers, could all become subjects of mandatory bargaining.

According to a report the Ministry of Employment and Labor released Monday on the law's first 100 days of implementation, 1,161 subcontractor unions had demanded bargaining from 439 prime contractor workplaces between the law's effective date of March 10 and June 19. The demands covered approximately 164,000 union members.

Bargaining demands surged early, with 363 prime contractors receiving requests in March alone, before slowing sharply to 42 in April and 23 in May. The average number of bargaining demands per prime contractor workplace stood at 2.6. The ministry said the figures showed that the "bargaining tsunami" the business community had warned of before the law took effect had not come to pass.

Among prime contractors that received bargaining demands, 249 (56.7 percent) were in the private sector and 190 (43.3 percent) in the public sector. By union affiliation, 47.0 percent of the demanding unions belonged to the Korean Confederation of Trade Unions, 43.6 percent to the Federation of Korean Trade Unions, and 9.4 percent were unaffiliated. Labor commission proceedings were initiated at 141 prime contractor workplaces following bargaining demands. Of the 113 workplaces where rulings have been issued so far, 103 — or 91.2 percent — were found to qualify as employers of the subcontract workers.

Many of the workplaces where employer status was recognized are now proceeding through the bargaining channel consolidation process. Including 42 workplaces that voluntarily posted notice of bargaining demands, bargaining procedures are under way at 96 sites in total. Of those, 51 are negotiating the agenda and schedule, while 10 — including Incheon Medical Center — have entered the formal bargaining stage with introductory sessions.

The ministry said that, given the law is still in its early stages, bargaining between prime contractors and subcontractors is proceeding in line with established procedures. "The structure is one in which bargaining demands come first, followed by employer-status determinations and bargaining channel consolidation," a ministry official said. "Bargaining order is gradually taking hold on the ground."

The ministry also said the separation of bargaining units had not expanded to the degree that had been feared. Of 29 cases reviewed by labor commissions, only 12 were approved. Separation by business division accounted for the majority at nine cases, while separation by union federation stood at two and separation by individual union was limited to one.

On the ground, however, companies say their biggest concern is the prospect that the recognized scope of employer status will keep expanding.

The National Labor Relations Commission ruled on June 15 that Hanwha Ocean must post notice of a bargaining demand from the union of Welliv, an in-house catering company, recognizing Hanwha Ocean's employer status on matters of industrial safety and the working environment. Business groups argued the ruling conflicts with a Ministry of Employment and Labor interpretive guideline holding that instructions on cooking and serving times in a company cafeteria constitute ordinary directions under a subcontracting agreement.

A ministry official pushed back on that reading. "The cafeteria example in the interpretive guideline explains the general authority to direct cooking and serving in line with meal times," the official said. "The Hanwha Ocean decision concerned who holds authority over aging facility improvements, safety equipment installation and working environment upgrades — a different question in character from what the guideline addresses."

Even so, concern is mounting that unexpected bargaining subjects beyond industrial safety could give subcontractor unions additional grounds to demand negotiations.

Companies fear that employer status could be recognized even for non-core outsourced functions such as catering, cleaning and security. Legal opinions are emerging — particularly at state-owned enterprises with large subsidiary workforces — warning that welfare programs a prime contractor provides for subcontract workers could themselves serve as grounds for recognizing employer status.

Korea Railroad Corporation (Korail) received a legal review finding that providing rest spaces and supplying equipment for subcontract workers could raise the likelihood of an employer-status finding. Korea Land and Housing Corporation (LH) was also advised that a cap on management fee increases at rental housing properties — because it affects the wages and benefits of management company employees — could be used as a basis for determining employer status.