Navigating employment termination in Taiwan requires a thorough understanding of the Labor Standards Act (LSA) and related regulations. The process involves specific requirements regarding notice periods, severance pay calculations, valid grounds for dismissal, and strict procedural steps. Employers must adhere closely to these rules to ensure compliance and avoid potential legal challenges from employees.
Understanding the nuances of Taiwan's labor laws is crucial for businesses operating in the country. Improper handling of terminations can lead to significant financial penalties, legal disputes, and reputational damage. This guide outlines the key aspects employers need to consider when terminating employment relationships in Taiwan.
Notice Period Requirements
Taiwan's Labor Standards Act mandates specific minimum notice periods that employers must provide to employees when terminating employment without cause. The required notice period depends on the employee's length of service with the company.
| Length of Service | Minimum Notice Period |
|---|---|
| Less than 3 months | No notice required |
| 3 months to less than 1 year | 10 days |
| 1 year to less than 3 years | 20 days |
| 3 years or more | 30 days |
Employers may provide payment in lieu of notice, calculated based on the employee's average daily wage for the duration of the required notice period. Termination with cause, based on specific serious misconduct by the employee, generally does not require a notice period.
Severance Pay
Severance pay entitlements in Taiwan depend on the reason for termination and when the employee's service began relative to the implementation of the Labor Pension Act (LPA) on July 1, 2005.
For Employees Hired Before July 1, 2005 (Old System)
Employees covered under the old system (prior to the LPA) are entitled to severance pay calculated based on the LSA. The formula is:
- One month's average wage for each year of service.
- Any service period less than a full year is calculated proportionally.
- The maximum severance pay under this system is capped at 6 months' average wage for service exceeding 6 months but less than one year, and one month's average wage for each full year of service thereafter.
For Employees Hired On or After July 1, 2005 (New System)
Employees covered under the new system (LPA) are entitled to severance pay calculated differently when terminated without cause or due to specific circumstances like business closure or transfer. The formula is:
- Half a month's average wage for each year of service.
- Any service period less than a full year is calculated proportionally.
- The maximum severance pay under this system is capped at 6 months' average wage.
Severance pay must be issued within 30 days of the termination date.
Grounds for Termination
Taiwanese law specifies limited grounds upon which an employer can lawfully terminate an employment contract. These grounds are primarily outlined in Articles 11 and 12 of the Labor Standards Act.
Termination Without Cause (Article 11)
An employer may terminate an employment contract with notice under the following circumstances:
- The employer's business is suspended, closed down, or transferred.
- The employer's business suffers an operating loss or contraction.
- Force majeure necessitates the suspension of business for more than one month.
- The nature of the business is altered, necessitating a reduction of workforce, and no other suitable positions are available.
- The employee is incompetent to perform the duties of the position.
Termination under Article 11 requires the employer to provide the statutory notice period (or payment in lieu) and severance pay (if applicable).
Termination With Cause (Article 12)
An employer may terminate an employment contract without notice or severance pay under the following circumstances, provided the action is taken within 30 days of discovering the event:
- The employee misrepresents facts during the hiring process to the extent that it might mislead the employer and cause the employer to err in judgment.
- The employee commits violence or offers gross insults to the employer, the employer's family members, or fellow workers.
- The employee is sentenced to temporary imprisonment or a heavier penalty by a final judgment, except for a sentence resulting from an offense under the Act Governing the Punishment of Contraventions of Public Order.
- The employee is in serious breach of the labor contract or a work rule that has been specified in the labor contract.
- The employee is absent from work without justifiable reason for three consecutive days, or for a total of six days within a month.
Termination under Article 12 is reserved for serious misconduct and requires careful documentation and adherence to the 30-day time limit.
Procedural Requirements for Lawful Termination
Beyond having a valid ground for termination, employers must follow specific procedures to ensure the dismissal is lawful. Key procedural steps include:
- Documentation: Gather and maintain clear documentation supporting the reason for termination, especially in cases of performance issues or misconduct. This includes performance reviews, warnings, investigation records, and relevant company policies.
- Communication: Clearly communicate the reason for termination to the employee. For terminations under Article 11 (without cause), provide the required written notice or payment in lieu.
- Issuance of Certificates: Upon the employee's request, the employer must issue a service certificate and potentially a certificate of non-competition if applicable.
- Payment of Dues: Ensure all final wages, accrued unused annual leave pay, and severance pay (if applicable) are calculated correctly and paid promptly, typically within 30 days of termination.
- Social Insurance and Pension: Complete the necessary procedures with the labor insurance, national health insurance, and labor pension authorities to deregister the employee.
Failure to follow correct procedures, even if a valid ground exists, can render a termination unlawful.
Employee Protections Against Wrongful Dismissal
Taiwanese law provides strong protections for employees against wrongful dismissal. If an employee believes their termination was unlawful, they can challenge it through several avenues:
- Labor Inspection: File a complaint with the local labor inspection authority.
- Mediation/Conciliation: Seek mediation or conciliation services through the local labor bureau or a labor-management dispute resolution committee.
- Legal Action: File a lawsuit in court to challenge the termination.
If a court or labor dispute resolution body finds a termination to be unlawful (e.g., no valid ground, improper procedure, discriminatory reason), the employer may be ordered to reinstate the employee to their original position and pay back wages for the period of unemployment. Alternatively, if reinstatement is deemed impractical, the employer may be ordered to pay significant compensation to the employee, often substantially more than the statutory severance pay. Common pitfalls include insufficient evidence for cause, failure to provide proper notice or severance, and lack of clear documentation or warnings for performance-related issues.
