Employment agreements in Taiwan are governed primarily by the Labor Standards Act (LSA) and related regulations. These agreements form the legal basis of the relationship between an employer and an employee, outlining the terms and conditions of employment. Ensuring compliance with local labor laws is crucial for businesses operating in Taiwan, as non-compliant contracts can lead to disputes, penalties, and legal challenges. A well-drafted employment contract provides clarity for both parties and helps mitigate potential risks.
Understanding the nuances of Taiwanese labor law, particularly regarding contract types, mandatory clauses, and termination procedures, is essential for establishing lawful and effective employment relationships. This includes being aware of the distinctions between different contract durations and the specific terms that must be included to protect both employer and employee rights according to the LSA.
Types of Employment Agreements
Taiwanese labor law primarily distinguishes between two types of employment agreements based on their duration: indefinite-term contracts and fixed-term contracts. The nature of the work typically dictates which type of contract is appropriate, although indefinite-term contracts are the standard for regular, continuous employment.
| Contract Type | Description | Typical Use Cases |
|---|---|---|
| Indefinite-Term | No specific end date; continues until terminated by either party according to law. | Regular, continuous, or long-term work that is not temporary, short-term, seasonal, or for a specific project. |
| Fixed-Term | Has a predetermined start and end date. | Temporary, short-term, seasonal work, or work for a specific project. Strict conditions apply to prevent misuse. |
The LSA generally favors indefinite-term contracts for work that is continuous in nature. Fixed-term contracts are permitted only under specific circumstances defined by the law, such as temporary, short-term, seasonal, or specific-task employment. If a fixed-term contract is used for work that is continuous, it may be deemed an indefinite-term contract by the authorities.
Essential Clauses
Taiwanese employment contracts must include certain mandatory terms as stipulated by the Labor Standards Act and its enforcement rules. While parties have flexibility in agreeing on other terms, these essential clauses are legally required to be present and compliant with minimum standards set by law.
Mandatory clauses typically include:
- Scope of Work: Clear description of the job duties and responsibilities.
- Work Location: Specification of where the employee will perform their duties.
- Working Hours: Details on standard working hours, rest periods, and overtime regulations.
- Remuneration: Salary structure, payment method, frequency, and calculation of wages, including overtime pay.
- Leave Entitlements: Provisions for various types of leave, such as annual leave, sick leave, and special leave, in accordance with the LSA.
- Labor Insurance and National Health Insurance: Obligation for the employer to enroll the employee in mandatory social insurance schemes.
- Occupational Hazard Compensation: Provisions related to work-related injuries or illnesses.
- Grounds for Termination: Conditions under which the contract can be terminated by either party, adhering to the legal grounds specified in the LSA.
- Retirement: Information regarding retirement benefits and procedures.
- Rules of Employment: Reference to or inclusion of key aspects of the company's work rules, if applicable.
These clauses must meet or exceed the minimum standards set by the LSA. Any term in an employment contract that is less favorable than the minimum standards prescribed by law is considered void, and the legal standard will apply instead.
Probationary Period
While the Labor Standards Act does not explicitly regulate probationary periods, they are a common practice in Taiwan based on customary law and judicial precedent. Employers often include a probationary period clause in the employment contract to assess the employee's suitability for the role.
- Typical Duration: Probationary periods commonly range from one to three months.
- Legal Status: During the probationary period, the employer generally has more flexibility in terminating the contract compared to after the probation ends. However, termination must still be for a valid reason related to the employee's performance or conduct and should ideally follow a fair process, even if less stringent than post-probation termination.
- Terms: The terms and conditions during probation (e.g., salary, benefits) should be clearly defined in the contract. It is common for the salary during probation to be slightly lower, but it must still comply with the minimum wage requirements.
- Completion: Upon successful completion of the probationary period, the employee typically transitions to regular employment status under the terms of the indefinite-term contract.
It is advisable to clearly state the duration and conditions of the probationary period in the written employment agreement.
Confidentiality and Non-Compete Clauses
Confidentiality and non-compete clauses are permissible in Taiwan but are subject to legal scrutiny to ensure they do not unduly restrict an employee's right to work.
- Confidentiality: Clauses protecting the employer's confidential information and trade secrets are generally enforceable, provided the information is clearly defined and genuinely confidential. The obligation typically continues even after the employment ends.
- Non-Compete: Post-termination non-compete agreements are enforceable only if they meet specific legal requirements, which were clarified by amendments to the LSA. These requirements include:
- The employer has a legitimate business interest requiring protection (e.g., trade secrets, confidential information, key technical know-how).
- The employee holds a position that gives them access to such interests.
- The scope of the restriction (area, duration, scope of work) does not exceed a reasonable range.
- The employer provides reasonable compensation to the employee for the period of restriction, which must be sufficient to support their livelihood and be clearly specified in the agreement. The compensation should not be less than 50% of the employee's average wage for the six months prior to termination.
- The agreement is in writing.
If a non-compete clause fails to meet any of these requirements, it may be deemed invalid and unenforceable by the courts. The duration of non-compete restrictions is typically limited, often to no more than two years.
Contract Modification and Termination
Modifying an existing employment contract requires mutual agreement between the employer and the employee. Unilateral changes by the employer to essential terms (like salary, position, or work location) are generally not permitted unless the contract or company rules explicitly allow for minor adjustments under specific conditions, or if the change is demonstrably beneficial to the employee. Significant changes usually require a written amendment signed by both parties.
Termination of an employment contract in Taiwan is strictly regulated by the Labor Standards Act. Both employers and employees must have legally valid grounds for termination and must follow specific procedures, including notice periods and severance pay obligations where applicable.
- Termination by Employer: An employer can terminate an indefinite-term contract only under specific circumstances listed in the LSA, broadly categorized as:
- Grounds attributable to the employee: Such as serious misconduct, violation of rules, or incompetence.
- Grounds not attributable to the employee: Such as business downturn, automation, or business transfer. Termination based on these grounds requires advance notice and severance pay.
- Termination by Employee: An employee can terminate an indefinite-term contract by providing the statutory notice period. They can also terminate immediately under certain circumstances, such as if the employer violates the contract or labor laws and harms the employee's rights.
- Notice Periods: The required notice period varies depending on the employee's length of service.
- Severance Pay: Severance pay is mandatory for employees terminated under grounds not attributable to them (e.g., redundancy) and is calculated based on length of service.
Fixed-term contracts generally terminate automatically upon their expiration date. However, if a fixed-term contract is renewed multiple times or the work is continuous in nature, it may be deemed an indefinite-term contract, subject to the LSA's termination rules. Termination of a fixed-term contract before its expiration is generally only permissible under specific legal grounds or as agreed in the contract, provided it complies with the law.
