Can a Prime Contractor Refuse Collective Bargaining with a Subcontractor's Union? 2026 Supreme Court Ruling Explained

Can a Prime Contractor Refuse Collective Bargaining Demands from a Subcontractor's Union?

Overview of the Case

On 21 May 2026, the Supreme Court issued its final ruling in case 2018다296229, in which a labor union (plaintiff) formed by workers employed by in-house subcontractors at a shipyard demanded collective bargaining (단체교섭) from the prime contractor (defendant). The central issue was whether the prime contractor qualifies as an employer bearing a duty to bargain collectively with the subcontractor's union.

The Supreme Court's Ruling: Employment Contract Relationship Is the Standard

The Supreme Court upheld its prior legal principle that, under the former Trade Union and Labor Relations Adjustment Act (구 노동조합 및 노동관계조정법; hereinafter "former Trade Union Act"), the employer bearing a duty to bargain collectively is limited to a party that has an employment contract relationship with the workers concerned. Because there is no direct employment contract between the prime contractor and the subcontracted workers, the Court concluded that the prime contractor's refusal to bargain does not constitute an unfair labor practice (부당노동행위).

This is distinguished from situations where, despite maintaining the outward form of a subcontract (도급), the prime contractor in practice exercises command and control authority. Where illegal dispatch (불법파견) is established, Article 6-2 of the Act on the Protection of Dispatched Workers (파견근로자 보호 등에 관한 법률, 파견법) imposes a direct employment obligation on the prime contractor; once a direct employment relationship is formed in this way, the question of bargaining duty may be viewed differently.

The 2025 Amendment to the Trade Union Act: What Has Changed?

A notable aspect of this ruling is that the Supreme Court explicitly referenced the 2025 amendment to the Trade Union Act. The amended Act establishes a basis for recognizing a party that holds a "position of substantial control and decision-making authority" (실질적 지배·결정 지위) over working conditions as an employer bearing a duty to bargain collectively. In other words, going forward, even if a prime contractor's name does not appear on a worker's employment contract, it may be required to sit at the bargaining table if it substantively determines the key terms and conditions of employment.

However, because this case involved conduct governed by the former Trade Union Act — which applied before the amendment — the effect of the amended Act applies only to bargaining refusals occurring after the 2025 amendment enters into force. Companies operating in-house subcontracting arrangements should re-examine their response strategy for bargaining demands received after the amendment's effective date, as a different standard now applies.

Subcontract or Illegal Dispatch? Key Criteria

Whether a prime contractor bears a bargaining duty ultimately depends on whether the arrangement constitutes a lawful subcontract or illegal dispatch. The Supreme Court has found a legitimate subcontract where outside-contractor workers performed specialized work independently — without receiving commands from the prime contractor — and where personnel management and attendance management were handled independently by the subcontractor (Supreme Court 2014다211619). Conversely, even where the formal arrangement is a subcontract, if the prime contractor in practice exercises command and control authority, the Court has held it may be deemed illegal dispatch and may order the prime contractor to make a declaration of direct employment (Supreme Court 2022다265635, 2022다265642).

The key factors considered are as follows:

• Authority to direct work: Who gives specific instructions on work methods and sequence?
• Personnel and attendance management: Does the subcontractor independently decide attendance, leave, and discipline?
• Expertise and independence: Does the subcontractor possess its own distinct technology, equipment, and organization?
• Assumption of business risk: Does the subcontractor bear responsibility for the outcome of the contracted work?

Steps Subcontracted Workers Can Take

For subcontracted workers seeking to assert rights against a prime contractor, the starting point is to determine whether illegal dispatch applies. If illegal dispatch is established, direct employment may be demanded under Article 6-2 of the Dispatched Workers Act, and once a direct employment relationship is formed, the prime contractor's bargaining duty under the Trade Union Act follows naturally. It is also worth noting that even if subcontracted workers engage in industrial action at the prime contractor's workplace, unlawfulness may be negated under certain conditions (Supreme Court 2015도1927).

If you are unsure whether your working arrangement constitutes a lawful subcontract or illegal dispatch, try the AI labor-law search function at Workbear (workbear.kr). By entering details such as your employment contract and the form of work instructions you receive, you can get a preliminary assessment of the likelihood of illegal dispatch.

This article is for informational purposes only and does not constitute legal advice. For specific cases, consult a certified labor attorney (노무사) or lawyer.