Ten tips for Taiwan employment contracts

Employment in Taiwan has increasingly become a prominent issue, with the number of employment law disputes brought by employees rising significantly in recent years. Below is a list of ten useful tips for Taiwan employers to keep in mind when negotiating and drafting their written employment agreements. While not exhaustive, the following list is aimed at providing some guidance to Taiwan employers in using their employment agreements to address some key issues we regularly come across in our employment law practice.

1. Use a written employment contract

Taiwan has no specific laws or regulations that specifically govern employment contracts, and as such, a degree of flexibility is granted to employers with regard to the format of their employment agreements. While there is no express law that mandates written employment contracts, to ensure clarity and to avoid potential future disputes with employees, in Taiwan it is advisable for employers to use written employment contracts.

2. Use an employee handbook/work rules

Employers who hire 30 or more employees must have an employee handbook or work rules. Even if the threshold of 30 employees has not been met, many companies choose to have separate work rules or an employee handbook, which also forms part of the employment contract. Having a separate (but binding) document which details elements of the employment relationship such as IP rights, discipline and restrictive covenants, affords employers greater security with regard to the mutual rights and obligations arising under the employment contract.

3. Clarify the term of the contract

Employment contracts in Taiwan are indefinite-term contracts unless otherwise specified as fixed-term, and statutory employment rights are enjoyed upon commencement of employment. While probationary periods can form part of employment contracts in Taiwan, as termination in Taiwan is not at-will, but rather must comply with specific requirements under the Labor Standards Act (the “LSA”). Probationary periods which provide for termination are of limited practical use in Taiwan.

4. Protect your intellectual property

It is best practice for employment contracts to clearly define both ownership and creation rights in relation to all existing and potential intellectual property that is within the particular employee’s scope of work. Protection can be enhanced by referring in the contract to the employee handbook or some other written agreement, which in turn details relevant IP rights with greater specificity.

5. Clearly define restrictive covenants

Similar to IP rights, clearly describing the employee’s rights and obligations both during and post-employment with respect to trade secrets, competition, solicitation and confidential information is a crucial aspect of any employment contract in Taiwan. The scope of the restrictions or covenants relating to competition and solicitation must be reasonable, the length of the non-compete clause must be no longer than two years, the employer must have a legitimate interest to be protected, the departed employee’s job duties and position must be sufficient to grant the employee access to the legitimate interest the employer seeks to protect, and the employee must receive reasonable compensation for any loss caused by agreeing to the non-compete clause. If the clause does not conform to the above principles, a Taiwan court will most likely find it to be unenforceable in Taiwan.

6. Comply with relevant laws relating to transfer/severance of employees

When a business entity undergoes restructuring or changes ownership, any employees terminated as a result must be given the requisite advance notice as well as severance payment under the LSA. The LSA lists specific circumstances where an employee can be legally terminated in Taiwan with notice and severance pay, such as where the business transfers ownership or there is a suspension of operations. There are very limited circumstances where an employer may terminate an employee without notice or severance, such as where there is a serious breach of the employment contract or disclosure of business secrets by the employee.

7. Choose the right language

Taiwan courts will enforce both Chinese and English employment contracts, however it is best practice for employers to specifically state that if there is a conflict between the two, which version prevails. In most instances the prevailing version is Chinese.

8. Define jurisdiction and dispute resolution avenues

Employees may apply for mediation, with each local government in Taiwan having an employment center that offers mediation and free legal support to employees involved in disputes with their employers. Taiwan courts have specialized divisions to handle labor-related cases. It is common practice for many employment contracts, particularly for those involving foreign entities or foreign workers, to contain a provision stating that the governing law in the event of a dispute is that of the Republic of China (Taiwan) and that the parties must first use reasonable efforts to come to a negotiated solution through consultation or mediation before resorting to litigation.

9. Detail statutory benefits

Taiwan law mandates that employers who have established a legal entity in Taiwan must contribute to each employee’s National Health Insurance as well as Labor Insurance schemes. These and other benefits (such as labor insurance, parental leave, pension contributions, etc.), which must be paid for by the employer, cannot be unfavorably altered in an employment agreement by the employer.

10. Avoid making changes in working conditions

Restrictions are placed on employers who attempt to change working conditions (such as the place of work) in an employment contract. For example, many international companies wish to be able to dictate their employees’ place of work arbitrarily; however recent amendments to the LSA now provide that employers seeking to do so must abide with some general principles or else be found to have breached both the employment contract and the LSA. These include: (a) the change must be based on the needs of the business and be for a proper purpose, (b) no unfavorable changes can be made to salary or other working conditions, (c) changes must be suited to the specific employee’s skills and abilities, (d) employers must provide assistance to employees if the place of work is inconvenient, and (e) employers must consider the interests of employee’s families and lives.

Keeping in mind the above ten points when drafting your employment agreements can help to avoid potential employment disputes arising in the first place.

For more information on employment law matters in Taiwan, please contact Christine Chen cchen@winklerpartners.com or +886 (0) 223118307.

Written January 4, 2016 By Christine Chen.