Labor Standard Act and Employment Contracts in Taiwan

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The Taiwan Labor Standards Act (LSA) provides strict measures for protecting employees.  LSA outlines essential protections for employees and establishes a framework for employer obligations.  What should you know before you draft the employment contracts, so the contract is not against the law and enforceable?  

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1. type of Contracts:

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Fixed-term vs. non-fixed term contracts

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Employment contracts may be divided into two categories: fixed-term contracts and non-fixed term contracts. A contract in nature for temporary, short-term, seasonal or specific work may be made as a fixed-term contract, but a contract for continuous work should be a non-fixed term contract.

Incorrect use of fixed-term contracts: If a company incorrectly assigns a fixed-term contract for work that is continuous in nature, the contract may be still treated as a non-fixed term contract, offering the employee the benefits of permanent employment.

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Fixed-Term Contracts:

• Used for temporary, short-term, seasonal, or specific project-based work.

• In any one of the following situations, a fixed term contract shall be deemed as to be a non-fixed term upon the expiration of the contract:
  1. Where an employer raises no immediate objection when a worker continues his/her work.
  2. Where, despite the execution of a new contract, the prior contract and the new one together cover a period of more than ninety days and the period of time between expiration of the prior contract and execution of the new one does not exceed thirty days.- Labor Standard Act Article 9

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A fix-term contract worker shall not claim from the employer either additional wages for the advance notice period or severance pay.-Labor Standard Act Article 18 

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Probationary Periods(Trial period)

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The Labor Standard Act does define the maximum period of probation. The term “trial period” is not a statutory term defined in the LSA. The length of the trial period is open to the negotiations between employers and employees.  Although the longest trial period is not regulated, the normal practices are often three months. During the trial period, employment terms, conditions, and benefits are not required as the same as the regular hired employee, but the terms are still must meet the LSA requirements.

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Annual leave

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A worker shall be granted annual paid leaves on an annual basis based on the following conditions:
1. 3 days for service of 0.5 ~ 1 year.
2. 7 days for service of 1 ~ 2 years.
3. 10 days for service of 2~3 years.
4. 14 days for service of 3~5 years.
5. 15 days for service of 5~10 years.
6. One additional day for each year of service over 10 years up to a maximum of 30y days.
 

Non-Compete Clauses

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An employer can only ask an employee to agree to a non-compete clause after they resign if the following conditions are met:

1. Business Protection: The employer has important business interests, like protecting trade secrets, that need safeguarding.

2. Access to Trade Secrets: The employee’s job gives them access to the company’s trade secrets or sensitive information.

3. Reasonable Limits: The non-compete agreement must be reasonable in terms of the time period, geographical area, type of work, and specific companies the employee cannot join after leaving.

4. Compensation for Losses: The employer must provide reasonable compensation to the employee for not competing. This compensation is separate from the salary the employee earned while working.

If any of these conditions are not met, the non-compete agreement will be considered invalid.

Also, the non-compete period cannot last more than two years. If it’s longer, it will automatically be shortened to two years.

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Termination notice

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the advance notice required for terminating employment contracts is governed by the Labor Standards Act (LSA). The notice period varies based on the length of service of the employee. 

1. Less than 1 Year of Service:

   • Employees who have worked continuously for more than three months but less than one year must receive 10 days' advance notice.

2. 1 to 3 Years of Service:

   • For employees with over one year but less than three years of service, the notice period is 20 days.

3. More than 3 Years of Service:

   • Employees who have been with the company for more than three years are entitled to a notice period of 30 days.

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