Article Series About Advanced Overseas Investment by Taiwanese Enterprises (2) ─ Points to Note for the Recruitment of Local Employees by Taiwanese Enterprises

January 2023

Elizabeth Pai and Weke Chen

In the process of localizing operations globally, as a Taiwanese enterprise, the complex structure and strict penalties of labor laws and regulations are part of the challenges of legal compliance.  In addition, there are certain differences in legislative mindset among different countries.  In the case of insufficient understanding and inappropriate implementation, this not only gives rise to penalties imposed by government authorities but also results in a loss of employees’ trust and support, which are almost irrecoverable.

As a member of multiple multinational organizations of law firms, Lee, Tsai and Partners works closely with lawyers in various countries to provide a full range of legal services to our clients.  In our experience, there are many local labor law issues that enterprises need to pay attention to when they invest overseas.  The examples are as follows.

1. The local labor laws system may be very complicated.

In contrast to a system constructed based on one labor code, some countries may have central and local labor laws, and even further differentiate the applicable labor laws and regulations, depending on the type of industry and other factors.  Only by clarifying the applicable labor laws and regulations in each case can employers get a full picture of their rights and obligations.

2. Employers are legally required to participate in local insurance for employees, and the obligation may be significantly different from places to places.

In Taiwan, employers are required to enroll the empoyees in Labor Insurance program, the National Health Insurance program, Employment Insurance program, and Occupational Accident Insurance program, and shall contribute certain amount of money to the pension fund/pension account for their employees upon their commencement of work.  There may be considerable differences in the types of social insurance program that employers are required to procure for employees, the respective insurance premiums borne by employees and employers, and the specific obligations of employers to contribute to employees’ pensions.  Therefore, in the scenario where a Taiwanese enterprise hires an employee by a specific amount of wage in a specific country, there will be a non-negligible gap between the labor costs in different countries.

3. What kinds of leaves may be taken by local employees pursuant to law? Will those leaves be paid?

In Taiwan, employees are legally entitled to annual paid leaves, sick leaves, maternity leaves, and parental leaves, etc.  The type of leaves and the number of leave days employees are entitled to, as well as the employer’s obligation to pay pursuant to local laws, also vary to a certain extent from country to country.

Generally speaking, European employees have more annual paid leaves than Asian employees.  For example, in some countries, paid annual leaves amount to at least 20 to 24 days per year (which may increase to 27 to 30 days per year); in some countries, employees are only entitled to 7 days of annual paid leaves for each year in service, and even if the number of annual paid leaves increases by 1 day for each additional year in service, the maximum number of annual paid leaves is only 14 days per year; and in some other countries, employees are only entitled to 6 days of annual paid leaves if they have worked for a whole year, and the number of days does not increase with employees’ seniority.

In addition, compared to the Taiwan law, where employers are required to pay the wages of employees during some leaves, such as maternity leaves and ordinary sick leaves, the leaves premiums for maternity leaves and sick leaves in some countries are paid by social insurance funds.

4. Is the cap on the local statutory work hours for employees shorter than that stipulated under the Labor Standards Act of Taiwan?

The labor law of each country usually sets the maximum statutory working hours for full-time employees.  For example, in some countries, the statutory working hours are capped at 40 hours per week or 48 hours per week (including overtime).  In some countries, the maximum working hours vary according to the three shifts of working hours: the longest working hours are for day shifts between 6:00 am and 8:00 pm, the shortest working hours are for night shifts between 8:00 pm and 6:00 am, and the working hours for mixed shifts, i.e. working hours spanning day and night shifts, are between the two.

Under the statutory cap on working hours, employers may have to assess the number of employees to be hired to maintain operations, and the payment of employees’ overtime wages in excess of normal working hours will increase the employer’s labor costs.

5. Is the wages paid to employees by employers should not be lower than a statutory amount?

Many countries have set a minimum wage standard, but it is important to note that the standard may not be applied uniformly across the whole country.  In some countries, the statutory minimum wage is set on a regional basis, with the government dividing the country into several regions and applying different minimum wage standards.  In addition, some countries have more complex minimum wage regulations: in addition to the local regulations for each state and province, each industry, department, and job level may have its own applicable minimum wage.

6. Do employers have greater flexibility in laying off employees in the country? Is it permitted to lay off employees if not so much manpower is needed?

If the local labor law adopts the principle of at-will employment, the employer has more flexibility to lay off employees in the absence of a special agreement between the employer and the employee.  For example, the labor laws of some countries provide that both employers and employees may terminate employment contracts at will and the only restriction is that discrimination and retaliation may not be used as the reason for termination.

In countries that do not adopt the at-will employment principle, an employment contract can be terminated only on statutory grounds.  In some countries, for example, if an employer employing more than 10 employees intends to terminate the employment of an employee with more than six months in service, the “ground” must be socially justified and the statutory notice period must be observed.  In more serious cases, such as when the employee has been convicted of a crime under a condition that makes it impossible for the employee to continue working in the position in the future, the employer may dismiss the employee immediately.  Employers who fail to handle employment termination carefully may have to spend a significant amount of money and time to deal with subsequent dispute of unfair dismissal/wrongful termination.

For mass redundencies, it is common for local laws to require a special procedure (as opposed to a normal redundancy procedure).  For example, some countries require the employer to conduct prior consultation with the union (if any) or labor representatives for mass redundencies, and even special severance rates should apply.

7. Any special labor law issues to pay attention to in the target country?

For example, in some countries where labor strikes are frequent, companies investing and setting up factories in such countries should carefully assess the risks and costs of production shutdowns due to strikes.  In addition, except for countries that adopt the at-will employment principle, it is common for local labor laws to adopt a “more labor protective” stance.  Furthermore, the collective labor agreement in some countries constitutes an important part of labor-management relations regulations and makes the labor law only a minimum standard for the rights and obligations under labor-management relations, which is one of the factors that must be carefully assessed before investment.

To prevent labor costs from becoming an unexpectedly heavy burden for global deployment (e.g., failure to dismiss employees who do not meet the company’s operational needs due to the concern about litigation costs, or failure to comply with the local legal procedures in order to save money, which conversely incurs a higher cost), it is recommeneded to establish good communication channels with local attorneys, conduct a comprehensive assessment before investment, and consult on issues timely after investment to avoid penalties and disputes.


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