South Korea’s National Assembly Approves Controversial Labor Bill

The National Assembly of South Korea has approved a contentious labor reform bill, known as the Yellow Envelope Act, which aims to expand workers’ rights. The bill passed on August 24, 2025, with a vote of 183 to 3, despite significant opposition from employer groups and foreign firms operating in the country.

This legislation, a key priority for President Lee Jae Myung and his Democratic Party, seeks to amend the Labor Union Act by broadening the definition of “employer” and expanding the scope of labor disputes. This includes managerial decisions such as restructuring and plant relocation. A significant aspect of the act is its provision that restricts companies from filing damage claims against striking workers, a practice that unions have long criticized as a form of intimidation.

The passage of this bill marks a notable shift, as it had previously been vetoed by the former administration under Yoon Suk Yeol. Following Lee’s election victory in June, the Democratic Party leveraged its parliamentary majority to advance the legislation despite a lengthy filibuster by the opposition People Power Party (PPP).

Reactions from Business and Labor Groups

The response to the Yellow Envelope Act has been polarized. Prominent business associations, including the Korea Enterprises Federation and the Korea Chamber of Commerce and Industry (KCCI), issued a joint statement expressing alarm over the bill’s passage. They warned that the reforms could disrupt corporate decision-making and lead to legal uncertainties, potentially undermining South Korea’s manufacturing sectors, particularly in automobiles, shipbuilding, and steel.

A representative from one of the nation’s major conglomerates articulated concerns, stating, “Almost every business judgment affects working conditions in some way. This law essentially undermines management’s constitutional rights.” The business community has called for the government to collaborate with employers during the upcoming six-month grace period to mitigate any adverse impacts.

In contrast, labor organizations celebrated the act’s approval, viewing it as a significant victory after two decades of advocacy. The Korean Confederation of Trade Unions (KCTU) hailed the legislation as a product of persistent efforts by labor activists.

Potential Impact on Foreign Investment

Representatives of foreign companies in South Korea have raised concerns about the implications of the Yellow Envelope Act on investor confidence. Notably, Hector Villarreal, CEO of GM Korea, expressed apprehension over the act before its passage, suggesting that it could compel the company to reevaluate its operations in the country due to already high risks associated with corporate-labor relations.

Industry insiders indicate that GM may reconsider its Korean strategies amid declining sales and existing challenges related to tariffs imposed on imported vehicles. Approximately 85% of GM Korea’s vehicles are shipped to the U.S. market, making the compliance landscape increasingly complex.

The American Chamber of Commerce in Korea (AMCHAM) has also voiced concerns, emphasizing that a flexible labor environment is critical for maintaining South Korea’s competitive edge in the Asia-Pacific region. Chairman James Kim highlighted the necessity of a balanced approach to labor reform that considers the needs of both workers and employers.

As the implications of the Yellow Envelope Act unfold, stakeholders across the spectrum are closely monitoring its effects on South Korea’s labor market and business environment.