Even if an employee’s participation in an illegal act at the instruction of his/her employer results in an impairment to the company’s rights and interests, it is still difficult to conclude there is any reason attributable to the employee (Taiwan)

Teresa Huang

The Taiwan High Court rendered the 107-Lao-Shang-6 Decision of May 7, 2019 (hereinafter, the “Decision”), holding that even if the employer instructs an employee to participate in an illegal act based on a profit-oriented business decision to the extent that the company’s rights and interests are undermined, it is still difficult to conclude that there is any reason attributable to the employee.

According to the facts underlying this Decision, the Appellant was a manager in the product department of the Appellee company.  After being subpoenaed by the investigators and prosecutors for his alleged false trading and other behavior during this employment and discharged with a bail, the Appellant was informed orally and via a written letter by the head of the Appellee’s human resources and general affairs department to take a leave of absence with pay temporarily on that day until he was notified by the Appellee to resume his work.  The Appellee also issued a letter to the Appellant, requesting his submission of a written report in five working days on the impairment to the company’s goodwill and property rights as a result of his being subpoenaed by the investigators and prosecutors.  Although the Appellant issued a written report to clarify this matter as instructed, still the Appellee discharged him and terminated his employment contract on the ground of his violation of the Management Rules for Rewards and Penalties of the Appellee company (hereinafter, the “Management Rules”).  However, the Appellant asserted that since the Appellee was ordered by the Taipei Exchange to stop the trading of its stock due to the failure of the Appellee company to disclose and report its financial statements as required, the Appellant did not violate the Management Rules.  The Appellant thus applied for labor dispute mediation, on the ground that the circumstance under Article 14, Paragraph 1, Subparagraph 6 of the Labor Standards Law is met, in order to terminate his labor contract with the Appellee and to request that the Appellee should pay a severance and the wage for the notification period and issue a certificate of involuntary termination.

According to this Decision, the employee provided services at the employer’s instruction and received a compensation without any decision-making and operating right.  Although the employee’s participation in an illegal act as instructed by the employer based on his profit-oriented business decision results in an impairment to the rights and interests and credit standing of the company, still it is difficult to conclude that there is any reason attributable to the employee and that the employee’s obligation under the employment contract is breached as a result.

It was further pointed out in this Decision that since the rules formulated by the Appellee are the basis for regulating the employment relations with the employees, interpretation should be made based on the gist of the contract in order to meet the objective of protecting workers.  Article 3, Paragraph 4, Subparagraphs 10, 11 and 23 of the Management Rules respectively provide: “An employee shall be discharged and terminated in any of the following circumstances… bad moral character to the extent of undermining the company’s goodwill in material aspects, being subject to any criminal penalty or consumption of narcotics incurring criminal liabilities, violation of the company’s other rules and regulations to the extent of causing losses to the company in material aspects.”  If the Management Rules are to be interpreted, a determination should be made based on the impairment to the company by the legality of the employee’s behavior, the criminal punishment on the employee or violation of the rules and regulations of the company.  If the company per se acts illegally or if the act is conducted at the company’s instruction, since this is not attributable to the employee, this certainly does not constitute an act punishable by direct termination under the rules.  The court in this case concluded that since the Appellant’s act to accommodate false trading was guided and supervised by the legal representative of the Appellee, even if the company’s goodwill was impaired or the company incurred relevant losses, still they were caused by the company’s own behavior, not the personal behavior of the Appellant beyond the scope of business execution permitted by the company.  Therefore, the Appellee’s decision to terminate the Appellant’s employment for violation of the above Management Rules is not legally appropriate.