Korea’s Controversial ‘Yellow Envelope Law’ Sparks Outcry from Business Groups

A controversial pro-labor union bill advancing through South Korea’s National Assembly has sparked a rare, unified backlash from both foreign business chambers and local industry groups. Critics warn that the legislation could erode legal predictability and diminish the country’s investment competitiveness.

The proposed legislation, dubbed the “Yellow Envelope Law,” aims to amend the Trade Union and Labor Relations Adjustment Act.

If passed, the bill would broaden the definition of “employer” to include main contractors in subcontracting chains, thereby empowering workers in indirect or outsourced positions with bargaining rights.

It would also restrict companies from seeking compensation from unions for strike-related losses and hold executives accountable for refusing to negotiate with unions.

The American Chamber of Commerce in Korea (AmCham), representing over 800 member companies, expressed “deep concern” on Wednesday after the bill cleared the parliamentary Environment and Labor Committee last week.

“This legislation, if enacted as is, could sway future investment decisions by American companies considering South Korea,” said AmCham Chairman and CEO James Kim.

“A flexible labor environment is crucial for bolstering South Korea’s competitiveness as a business hub in the Asia-Pacific,” he added, noting that the bill is progressing without adequate input from industry stakeholders.

Backed by President Lee Jae Myung’s pledge to protect vulnerable workers, the ruling Democratic Party of Korea is pushing the bill forward—a move that conservative People Power Party lawmakers have branded as “anti-business.”

The European Chamber of Commerce in Korea (ECCK) echoed these concerns a day earlier, cautioning that vague and expanded liability could expose companies to unclear criminal risks.

“Companies facing legal exposure merely for not responding to ambiguous bargaining requests might opt to exit the South Korean market,” the ECCK warned.

Countering the ECCK’s criticism, South Korea’s Labor Minister Kim Young-hoon argued on Tuesday that the bill aims to align Korean labor regulations with global standards.

At a government briefing, Kim cited Europe’s supply chain due diligence laws as examples of international norms that demand “responsible corporate behavior” and shared liability between parent and subcontractor firms.

“Adhering to international standards is increasingly vital not just for labor rights, but also for global trade and competitiveness,” Kim emphasized.

He noted that the OECD has repeatedly identified South Korea’s dual labor market structure—marked by a stark divide between large corporations and SMEs—as a key factor limiting long-term growth, calling the bill a necessary step for sustainable development.

First proposed in 2015, the bill has long faced opposition from conservative parties and business lobbies.

Now one of South Korea’s most divisive bills, its outcome could reshape labor governance and signal how the country balances worker rights with business interests.

A renewed political showdown looms as lawmakers prepare for a potential floor vote on August 4.

South Korean industry groups are alarmed by the bill’s potential impact on subcontracting-heavy sectors such as automotive, shipbuilding, and construction.

On Wednesday, major South Korean business associations—including the Korea Enterprises Federation, Korea Automobile & Mobility Association, Korea Offshore & Shipbuilding Association, and the Construction Association of Korea—issued a joint statement urging lawmakers to halt the legislation.

KEF Vice Chairman Lee Dong-geun warned that the amendment would destabilize South Korea’s complex, multi-tiered subcontracting system, which underpins its manufacturing and industrial competitiveness.

“This will inevitably trigger disputes targeting prime contractors, fracture supply chains, and undermine South Korea’s global competitiveness,” he cautioned.

Lee added that the proposed legislation could paralyze executive decision-making by exposing business leaders to “indiscriminate criminal liability.”

He also warned that limiting damage claims against unions could foster a “culture of strike absolutism,” thereby normalizing illegal workplace disruptions and weakening productivity across sectors.

“These industries are already grappling with global market shifts and delicate trade negotiations. This bill could push them into even deeper instability,” he concluded.