By W. Dan Lee, Esq.
(Admitted in California, Illinois, Washington D.C.)
Korea’s Yellow Envelope Act (amendment to the Labor Union and Labor Relations Adjustment Act) eliminates the boundary between general contractors and subcontractors, treating anyone who directs or controls workers as an employer and holding them liable. The U.S. has long applied a similar principle under its joint employment doctrine. Together, these frameworks present a serious risk of expanded liability for Korean companies entering the U.S. market.
This article outlines strategies to help Korean companies mitigate such risks.
1. Strict Separation of Decision-Making Between Headquarters and U.S. Subsidiary
Headquarters must avoid direct involvement in the U.S. subsidiary’s board authority, labor policies, or site management. The headquarters role should be limited to strategic investment and financial oversight, while HR, labor, and safety authority must rest solely with the U.S. subsidiary. Internal documentation must align with actual practice. Procedures such as requiring “headquarters approval” should be eliminated, as they serve as evidence of control.
2. Preserve Structural Independence in Subcontractor and Vendor Management
Headquarters should not directly contract with or supervise U.S. subcontractors. All contracting, direction, and oversight should flow only through the U.S. subsidiary. Internal guidelines must prohibit headquarters from sending emails, memos, or meeting notes that direct subcontractors’ work. Contracts should clearly assign independent responsibility to subcontractors and emphasize that the headquarters is merely an investor or ordering party.
3. Avoid Leaving Evidence of On-Site Direction or Supervision
If dispatched headquarters staff issue instructions on work, schedules, or safety at U.S. sites, that creates evidence of employer status. Dispatched staff should only provide “advice and support,” while actual direction must come from local subsidiary managers. All instructions must be documented and issued in the name of the U.S. subsidiary.
4. Localize Responsibility for Labor, Safety, and Wage Management
Wages, overtime, breaks, and safety inspections must be handled entirely by the U.S. subsidiary. Headquarters should restrict itself to oversight and risk monitoring, without making decisions about individual employees’ working conditions. Collective bargaining with unions must also remain the responsibility of the U.S. subsidiary, without headquarters involvement.
5. Strengthen Internal Regulations and Documentation
Establish a responsibility matrix clarifying who makes decisions, documenting that headquarters has no authority over labor conditions. Reduce or eliminate headquarters’ approval procedures to ensure the U.S. subsidiary’s independent decision-making is clear to outsiders. Subcontractor agreements should include disclaimers such as “Headquarters does not assume employer responsibility,” while assigning labor and safety compliance solely to the subsidiary and subcontractors.
6. Education and Compliance Monitoring
Provide regular joint employment risk training to headquarters and dispatched staff, to prevent inadvertent instructions on-site. Conduct periodic internal audits to ensure headquarters has left no trace of labor-law involvement. When issues arise, procedures must require responses through the U.S. subsidiary’s legal team or external counsel, not through direct headquarters intervention.
Conclusion
The core principle shared by Korea’s Yellow Envelope Act and America’s joint employment doctrine is simple: “Whoever controls or directs workers will bear responsibility to the very end.”
For Korean companies in the U.S., securing true independence between headquarters and the subsidiary is critical. Formal separation is not enough; actual operations must show no evidence of headquarters control. Only by strictly realizing the division—headquarters as investor and strategist, U.S. subsidiary as employer and labor-law responsible entity—can Korean companies minimize the risks of Yellow Envelope Act and joint employment liability.