The legislation -- which came into effect Tuesday -- also imposes obligations on employers to investigate workplace harassment.
The new rules are an attempt to improve labor conditions in South Korea, where intense competition for jobs coupled with the prevalence of family-run conglomerates has led to accusations of bullying.
Lawyer Shin Hana, who gives advice to employees who are subjected to workplace harassment, welcomed the law.
"It is significant in that now it will plant in people's minds that it is illegal, that it is something that they can report and now there is a duty to protect the employees," said Shin, who works for a hotline called Gapjil 119, which was set up for victims of office abuse.
Gapjil is a Korean word referring to the abuse of power by a superior over their underlings.
The hotline Shin works for fields calls from between 80 and 100 people a day, with many reporting issues akin to post traumatic stress disorder, including spontaneous panic attacks, insomnia and inexplicable phobias.
Shin said that prior to the new law, there were no legal restrictions on workplace harassment. Labor laws simply mandated that employers had to provide a safe working environment. In reality, that had little effect as many workplaces continued to run in a rigid, top-down style favored by many of the nation's family-run companies.
"Employers hold the attitude of saying, 'I paid you, so I own you.' They believe they can buy the person," Shin said.
The law comes months after high-profile allegations of physical and verbal workplace abuse sparked a nationwide debate on gapjil.
South Korea's economy is dominated by family-run conglomerates called chaebols. Their boards are dominated by family members and close associates, meaning some owners run these major conglomerates as their own personal domains, said Kim Eun-jung, an economy and labor specialist with the People's Solidarity for Participatory Democracy civic group.
The lack of external limits on the power of those leading the chaebols has meant that abuse often goes unchecked.
And it's not just workplace bullying. Many companies have been accused of gender discrimination, especially during the application process. In a 2017 survey by recruitment firm Incruit, more than one in four women said they were asked about their plans for marriage or children during job interviews.
CNN's Ji Su Lee and Sophie Jeong contributed to this story from Seoul.