December 2023
Elizabeth Pai and Lilian Hsu
With the development of economic and trade globalization, companies are pursuing flexible human resource utilization and organizational simplification to enhance competitiveness. It is against this background that the demands for labor dispatch have emerged. A dispatch-requiring company that demands manpower may enter into a dispatch contract with a dispatching company, enabling dispatched workers employed by the dispatching company to provide services to the dispatch-requiring company. In the above-mentioned labor dispatch relationship, the dispatching company is the employer in the legal sense of the dispatched workers, while the dispatch-requiring company is the entity that actually directs, supervises, and manages the dispatched workers. Since the legal relationship between the parties is different from traditional employment, various atypical legal disputes have arisen. Take non-compete agreements for example. Business entities are advised to pay attention to the following issues:
1. Questions as to whether a dispatch-requiring company may agree with the dispatched workers on non-compete obligations after termination of employment
The purpose of a post-employment non-compete agreement is to restrict employees from working in a specific field or engaging in certain activities for a certain period after the termination of the employment to prevent them from disclosing trade secrets or other confidential information related to business interests they have learned in the course of their service. Therefore, the two legal preconditions under which an employer may stipulate post-employment non-compete obligations with employees are “the employer possess protectable legitimate business interests” and ” the positions or job duties assumed by the employees involve access to or utilization of the employer’s trade secrets.”
In the labor dispatch relationship, dispatched workers are dispatched to a dispatch-requiring company and work under its direction and supervision. In the course of their services, they are very likely to access the trade secrets of the dispatch-requiring company. Therefore, such a company may wish to enter into a non-compete agreement upon the termination of the service to prevent dispatched workers from being maliciously poached by its competitors or viciously jumping ship and using the technical information learned by the workers in the course of their service to serve its competitors. However, the dispatch-requiring company is not the employer in the legal sense of the dispatched workers, calling into question if post-employment non-compete obligations may be effectively agreed upon by applying Article 9-1 of the Labor Standards Act.
As a result, enterprises with needs for dispatched workers should be aware of this risk and avoid hiring dispatched workers for positions with opportunities to access corporate confidential information. Alternatively, they may need to reduce the risk of leaking confidential information through additional non-disclosure agreements.
2. Case-by-case determination of whether the post-employment non-compete agreement between a dispatching company and dispatched workers is valid:
In practice, dispatching companies may use employment contracts to restrict dispatched workers from working for their client’s business entity for a certain period after leaving the dispatching company. This is done to avoid dispatched workers from resigning and then being directly employed by the client company, leading to a loss of clients, after the dispatching company has executed a labor dispatch contract and successfully dispatched the workers.
Regarding the legality and validity of agreements above, courts will, in practice, still consider whether such non-compete agreement complies with the requirements of Article 9-1, Paragraph 1, of the Labor Standards Act. As mentioned above, the employer must have a protectable legitimate business interest to enter into a valid post-employment non-compete agreement with the employee. In this regard, dispatching companies should be cautious of the following facts: In practice, the court may not support that “avoiding the departure of dispatched workers or a loss of clients” is a legitimate business interest that should be protected.
The dispatched labor relationship is designed to provide enterprises with flexibility in human resource utilization. However, while enjoying workforce flexibility, employers should still be aware of potential risks. Especially in the current highly competitive market environment, employers should evaluate whether the arrangement of dispatched labor may pose a potential threat to the company’s trade secrets or business interests. It is advisable for employers to avoid or minimize potential damage through comprehensive pre-planning or adjustment of personnel policies after identifying relevant risks.
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