Employment in Taiwan: A Primer

By Heather Hsiao and John Eastwood

Taiwan has made a recent push to hire an increasing number of foreign professionals through several new talent drives, including last year’s Act for the Recruitment and Employment of Foreign Professional Talent. This act also features a special “Gold Card” work permit for foreigners in fields that the government has deemed important to the island’s development, such as technology and education. In addition, Taiwan’s English instruction industry continues to be strong around the island, with new instructors coming to work in the island’s various buxibans, private schools and universities every year.

Many foreigners arriving in Taiwan are surprised to find out how strict laws are regarding work hours and overtime, or that there are specific categories and day allotments for different types of leave. Other times foreign employees here may feel that certain rules are being flouted, or that they are not covered by any rules at all (you are! read on!). The fact of the matter is that scores of leading foreign companies operate in Taiwan, and must balance global standards set by their head offices, and the expectations set forth in local labor laws. As an employee in Taiwan, it is important to know your rights, regardless of if your employer is a local or foreign company.

THE LABOR STANDARDS ACT AND EMPLOYEE RIGHTS

Enacted in 1984, the Labor Standards Act (LSA) is the most important statute governing labor and employment matters in Taiwan. Employers and employees do, however, have a substantial ability to shape their relationship through a mutually agreed- upon contract. It should be noted, however, that the contractual rights of an employee cannot dip below those granted in the LSA, and other employment laws and regulations. Conversely, if an employer gives the employee rights or benefits that go beyond what the LSA provides for, an employer will be held to that promise.

For example, if the LSA would allow for a thirty-day advance notice for termination of an employee, but the employee’s contract provides for sixty- days advance notice by either party, then this will be read against the company, but not against the employee. The employee will only need to provide the LSA-allowed thirty-day advance notice if he or she wishes to quit, while the employer would be bound to give the full sixty-day advance notice.

“EMPLOYMENT” VERSUS “MANDATE” AGREEMENTS

Nearly all persons working in a company, including foreigners, will be considered “employees” under Taiwan law, giving them substantial rights under the LSA or Labor Pension Act (LPA), including overtime pay and protections against termination. This includes foreigners working as English instructors in Taiwan’s cram schools.

Top-level country managers, however, will often be put under “mandate” agreements that, essentially, appoint the manager to their local position and allows for removal from that position with or without cause. This can be a huge benefit for a company when fighting over the cause of termination, for a manager could be expensive or embarrassing. Note that the persons covered under mandate agreements need to have real decision-making authority over the Taiwan entity, and not merely be holding the position for the convenience of the company in order for them not to be considered “employees” under the law. Most foreigners working in Taiwan do not have a mandate relationship with their employer.

Typical problems that interfere with the greater flexibility and benefits of a mandate agreement include country manager contracts that specifically call the manager an “employee” throughout, or which specify that the relationship is to be “subject to the terms of Taiwan’s Labor Standards Act.” Terminated top-level managers can often successfully argue for the tougher employee-friendly protections of the LSA if it’s clear that they had no discretion over routine office decisions, such as hiring of employees, signing of contracts, etc.

FIXED-TERM CONTRACTS

We often see companies try to insert into their employment agreements fixed terms of employment, on the misconception that this will allow them to essentially “renew” the relationship with the employee every year or so. Taiwan’s Labor Standards Act requires limiting fixed-term contracts to temporary or short-term work of less than six months, or else specific work that can be completed within a specific period of time. The competent authorities will treat nearly all employment contracts for continuous work as if it were a non-fixed-term contract, and the courts and labor authorities will disregard fixed- term contracts in situations where it is demonstrated that the work was actually continuous.

Examples include:

  • If the employer raises no immediate objection when an employee continues his or her work.
  • If, on the conclusion of a new contract, both the prior contract and the new contract were for a term of more than ninety days, and the period of time between the expiration of the prior contract and the start of the new one did not exceed thirty days.
  • If the work is not seasonal, temporary (less than six months), short-term (less than six months), or project- specific (must be registered if over twelve months).

Some past court precedents based on the Employment Service Act will still allow a company to treat some foreign employees with a limited work permit period as fixed-term contract workers, even where their work is continuous. Note that this does not apply to situations where the employee has an open work permit, such as with a spousal visa or permanent residency.

OVERTIME

Many multinationals wrongly assume that employment agreements calling large groups of employees “exempt” or “salaried” will help them avoid making overtime payments. Many local companies might think they don’t need to pay overtime at all. Other than a top-level mandated country manager, basically all the rest of the company employees (including other senior and mid-level managers) will be treated as having overtime pay rights. These issues will often rest dormant, only to rise up in the midst of a disputed termination. Many companies try to maintain some control over overtime by requiring advance approval from line management prior to the employee conducting the overtime work.

For overtime not requested by the company, the court precedents will consider the work as overtime only if the employee obtained the prior approval (per agreements, policies or work rules), or where the company accepted the work product. It is a good idea for you, as an employee, to also keep a record of any overtime work in the case of a dispute, as well as a record of approval of the work. In most cases, it is the law that employees must punch in and out of work – do it!

THE IMPORTANCE OF WORK RULES

It’s quite normal for Taiwan workplaces to have an extensive body of standard policies, rules, procedures, etc., and an internally published set of company “work rules,” as they’re legally required for companies with thirty or more employees. For companies that have passed that key thirty-employee threshold within Taiwan, an up-to-date set must be submitted to the local labor authorities for review and approval, and the employees of course must have access to them. Even companies with fewer than thirty employees may find it important to have a set, and even make a reference to them in the employment contracts to lay out the company’s expectations for the many topics that are not covered in the LSA.

The LSA’s provisions restrict the situations in which companies can terminate employees without advance notice or severance rights, and there are many types of employee misbehavior that are not covered by the specific rules. Make sure you understand and internalize your company’s work rules. It is far better to be proactive than reactive. It’s important to understand that many terminations happen over small violations that an employer can confirm, not over bigger issues that a manager might struggle to quantify. For example, it’s easier to terminate for a false expense submission of NT$100 than it is to confirm nebulous issues of an employee’s “attitude” or “ability to work with others.”

LEAVE

Taiwan currently has approximately twelve days of public holidays. The actual dates every year depend on the Lunar calendar and will, therefore, not fall on the same date every year. The government also allows holiday dates to cover orphaned working days: for example, if a public holiday falls on a Thursday, the Friday may also be considered a holiday, but would have to be made up the Saturday of the following week. Actual holiday dates for a coming year are publicly announced by the government and will also show these Saturday make-up days.

Public holidays can be exchanged with normal workdays after obtaining the consent of the worker. If an employee is asked to work on a public holiday, however, the employee must be paid double the rate of his or her regular daily wage.

Employees are also entitled to paid annual leave, depending on how long they have been at a company. Employees who have worked for the same employer are granted three days of paid leave after working for six months, seven days for one to two years of work, and fourteen days from three to five years of work. For five to ten years of work, it is fifteen days each year. For over ten years, an additional day is added up to a limit of thirty days. While employees have the right to decide when to take their annual leave, employers may negotiate an arrangement with an employee in the event of operational demands.

An employee may request sick leave of up to thirty days a year, with one- half day’s pay. If the leave will extend for three days or more, it is a good idea to obtain a doctor’s note to show your employer. Women are allowed to take three days of half-pay menstruation leave per year. These three days of leave are separate from an employee’s thirty days of half-pay sick leave, and employers are not allowed to request a doctor’s note for this type of leave.

The LSA also allows up to fourteen days of unpaid, personal leave. Companies must also grant a request (with no questions asked) for unpaid leave to take care of a family member, such as a sick spouse or taking a child to get immunized. The limit for this type of leave is seven days per year, taken from the fourteen-day personal leave. The LSA also lays out paid leave for marriage (eight days) as well as funeral leave (three to eight days, depending on the relationship with the deceased).

TERMINATION

As stated earlier, “at will” employment does not exist in Taiwan, and the LSA is quite narrow in its restrictions on the termination of employment relationships. Article 11 provides for a set of circumstances where employment can be terminated with advance notice (or payment of salary in lieu of notice) and payment of severance:

  • The employer is ceasing business or the business has been transferred.
  • The employer suffers operating losses or business contractions.
  • The operations of the employer are suspended for more than one month by reason of force majeure.
  • Where the change in the nature of business necessitates the reduction of workforce and the terminated employees cannot be reassigned to other suitable positions.
  • The employee is confirmed to be incompetent to carry out the work.

The courts in Taiwan have grown tougher in enforcing these rules on many companies, and there must be a solid basis for each of these. If a company is making employees redundant because of an operating loss, then it needs the data to show it. If a change in business requires a reduction in workforce and an employee cannot be reassigned, the company must be prepared to explain the basis for selection and take care not to run advertisements for similar positions in the aftermath. If an employee is deemed incompetent, then there should be written evaluations
documenting it.

Article 12 of the LSA lays out a set of circumstances that allow for immediate termination without payment of statutory severance when:

  • The employee misrepresents facts at the time of signing the employment contract, thereby misleading the employer, with possible resulting damages.
  • The employee commits violence against or insults the employer, the employer’s family, the employer’s representative, or fellow employees.
  • The employee seriously breaches the employment contract or violates the work rules.
  • The employee is sentenced by a court in the final judgment to detention or a more severe punishment, and the sentence has not been commuted to probation or a fine.
  • The employee purposefully causes damage to or excessively abuses machinery, equipment, tools, raw materials, products or any articles belonging to the employer, or intentionally discloses the technological or business secrets of the employer.
  • The employee is absent from work for three consecutive days, or for six days in a month, without justifiable reasons.

SEVERANCE

Another example regarding the Labor Standards Act and rights is severance given to a departing employee in the event of a layoff. The employer must fulfill the provisions of the LSA or LPA (more on that later) in providing severance pay. An employer can’t make a deal with the employee that is anything less than what is laid out in the law. An American-style “at will employment doctrine” provision in a work contract would be disregarded and the company required to pay the statutorily required severance. An employer can, however, contribute more during the severance process. It would especially be bound to this if it was laid out in an employment contract that an employee was to be paid more than the minimum amount of severance.

The calculation of severance is based on several factors, including when the employee was hired, whether the employee is a Taiwanese national or foreigner (and whether or not they have an APRC), and the employee’s pay and bonus structure. One key date is July 1, 2005, the date that the LPA came into force. Taiwanese employees hired after that date have their severance calculated at a rate of a half-month’s salary per year of service, up to a maximum of six months’ salary. Taiwanese employees hired before that date may be covered under the LSA severance calculation of one month’s salary per year of service with no maximum cap, although the calculation may be pro-rated between the LSA and LPA rates if the employee “opted-in” for the LPA.

Employees who fall under the LSA and terminated with notice are entitled to severance benefits equal to one month’s average pay for each full year of service with their employer if they opted to remain under the old pension plan. If an employee joined the new pension plan, employees terminated with notice are entitled to severance benefits equal to one month’s average pay for each full year of service with their employer prior to 1st July 2005. For periods of service after that date, severance benefits are equal to fifty- percent of the employee’s average monthly wage per year of service up to a maximum of six months’ pay if the employee is under the new pension system. Benefits for periods of service of less than one year are pro-rated. Service of less than one month is counted as one month.

Foreign permanent residents of Taiwan are eligible for the LPA system, while severance for most foreigners on an ARC is in line with severance rules under the LSA. The severance calculation will normally be based on an averaging of the past six months’ salary plus non-discretionary bonuses (earned commissions, guaranteed “14th month” pay, etc.), but it will not include discretionary bonuses of the sort subject to vague concepts about “if the economic performance of the company allows” that don’t constitute a firm promise.

Employees dismissed for legitimate reasons, but who have not been given advance notice of termination, or have not received severance pay from an employer, may file a claim against the employer for salary that would have accrued during the notice period, and for severance pay. In cases where an employer terminates an employment relationship without legitimate reason, an employee may request the court to determine whether the termination was unlawful, and whether the employee can resume his or her employment. If employment is resumed, the employer must pay the employee salary for the period of unemployment.

Many companies will designate a probation period for new employees. There are no minimum or maximum probation periods set under Taiwan’s laws and regulations, although termination does need to be compliant with the terms of the above-mentioned acts for notice periods and potential severance payments.

NON-COMPETITION AGREEMENTS

Non-competition agreements are quite common in Taiwan’s technology industries and have an interesting history. After about twelve years in which Taiwan’s labor authorities had not really updated its rules and guidelines on the enforcement of non-competition agreements, the government issued new restrictions in December 2015, and October 2016, on non-competes, including specific provisions for compensation in exchange for the non-compete obligation of at least fifty-percent of the employee’s average monthly salary at the time the employment relationship was terminated to be paid throughout the non-compete period. Such compensation needs to be sufficient to maintain the employee’s “life needs.”

The non-compete agreement must be in writing, and must state the period, area, and scope of the non-
competition obligation, the amount of compensation the employer will pay the employee, and it must be signed by the employer and employee. Geographic restrictions may not exceed the area where the employer does business, and the duration cannot be more than two years.

Note that some multinationals have tried to be cute with non-competes, sneaking them into the middle of huge boilerplate “Restricted Stock Unit” agreements. The problems with those are numerous in that the agreements often:

Involve employer entities that do not employ the employee;

Specify the laws and courts of the jurisdiction where the parent company is headquartered or the exchange where the stock is listed;

  • Are never read by the employee, meaning that the employee has no knowledge of their compliance obligations;
  • Define a geographic scope too broad to comply with Taiwan law;
  • Provide for inadequate compensation, based on the amended LSA and Enforcement Rules; and
  • Are sent to employees as links or attachments without any actual signing by either party.

Non-competes really should be reserved for key management, sales or technological positions, and companies should ensure that their agreements give them the flexibility to decline to enforce a non-compete when it makes no sense to do so.

INTELLECTUAL PROPERTY

It’s important that companies make it clear to employees that their working- time efforts go to the company, and many employment agreements have specific provisions that the economic rights to any inventions, improvements, copyrightable works, etc. developed by the employee are to be treated as “works for hire” and, thus, belong to the employer. Companies should also watch out for obvious gaps in their trademark or domain-name registrations, as these can sometimes be post-termination targets for disgruntled ex-employees. Employment or termination agreements can state that even after termination of the employment relationship, the employee shall not file or register any trademarks, service marks or domain names that are the same or similar to those used by the employer.

Although many employment agreements provide for the protection of confidential information, it’s important for employers to pay attention to how such information is treated. Employees should be trained in how and when to label materials as “confidential,” how to restrict access to certain files or documents to those with a “need to know,” maintenance of a “clean desk” policy, as well as appropriate shredding and document- destruction procedures. The Taiwan Trade Secret Act defines “trade secret” very broadly to mean any method, technique, process, formula, program, design, or other information that may be used in the course of production, sales, or operations with specific requirements, thus the company would be required to prove the following restrictions if the issue moves to courts:

  • It is not known to persons generally involved in the information of this type;
  • It has economic value, actual or potential, due to its secretive nature; and
  • Its owner has taken reasonable measures to maintain its secrecy.

FINAL THOUGHTS

While employers can be fined for violating the LSA and related laws regarding wages, working hours, rest time, and holidays, it is important for foreign employees in Taiwan to be familiar with the law. Attention should be paid to employment contracts, as well as employer work rules, as these can be very important in determining the employee’s rights and obligations for a wide range of matters that fall outside the LSA minimum protections.

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Heather Hsiao is a partner at Eiger’s Taipei office, and regularly speaks to both local and international audiences on a variety of employment and work diversity topics.

John Eastwood is a longterm resident of Taiwan, and a partner at Eiger’s Taipei office. John heads the firm’s award-winning Employment practice.