October 2022
Elizabeth Pai and Lilian Hsu
The sound operation of a business relies on legitimate and appropriate personnel planning. However, the importance of the arrangements for “terminating the employment relationship” is often overlooked in the personnel management structure. Failure to terminate the employment relationship properly will not only increase the risk of employers being punished (and the violations will be published on the website of labor authorities) or facing lawsuits, but also damage the image of the business. This article will focus on how employers should legally lay off employees when the business needs to reduce workforce due to operating losses or business contraction, or when employees are incompetent at their jobs.
I. Introduction of layoff under the Taiwan law
The following is a chronological description of the layoff process: (Note: this article focuses on the layoff of domestic employees and does not include the layoff of “foreigners working in Taiwan based on work permits”.)
(1) Statutory grounds required for an employer’s layoff of employees
In general, an employer is allowed to lay off employees only in any one of the following circumstances (Article 11 of the Labor Standards Act (the “LSA”)):
- The business is suspended or has been transferred;
- The business suffers an operating loss or business contractions;
- Force majeure necessitates the suspension of the business for one month or more;
- The change of the nature of business necessitates the reduction of workforce and the terminated employees can not be reassigned to other suitable positions:
- A particular employee is clearly not able to perform satisfactorily the duties required of the position held.
If a case does not meet any of the above-mentioned reasons (,there are no other reasons for termination as set forth in Article 12 of the LSA, and the employee has not met the mandatory retirement standards), the employer has no basis to unilaterally terminate the employment relationship.
Please note that the conditions of layoff may be relaxed or tightened on special occasions as specified in law:
1. Layoff during probationary period
There are different views in practice on whether the requirements of Article 11 of the LSA must be met before an employer may lay off “employees on probation.”
The Ministry of Labor (the “MOL”) is of the opinion that if an employer intends to lay off an employee during the probationary period, the employer should still handle the layoff pursuant to Articles 11, 16 and 17 of the LSA (Tai-Lao-Zi-2- 035588 Circular of September 3, 1997 from the Council of Labor Affairs (the “COLA”, the predecessor of the MOL)). Although the MOL opinion is supported by some courts (e.g., the 102-Lao-Shang-18 Civil Decision and the 102-Chung-Lao-Shang-17 Civil Decision of the Taiwan High Court), still some other courts hold that the law should allow greater flexibility so that the employer may freely terminate the employment agreement during the probationary period, as long as no rights are abused, without being restricted by the reasons set forth in the subparagraphs of Article 11 of the LSA (the 95-Tai-Shang-1805 Civil Decision of the Supreme Court and the 106-Lao-Shang-2 Civil Decision of the Taiwan High Court).
To reduce the risk of alayoff case being found invalid by the court, employers who intend to lay off employees during the probationary period should still consider whether the reasons set forth in Article 11 of the LSA are met.
2. Layoff during pregnancy or maternal leave
The regulations applicable to the layoff of pregnant employees are the same as those applicable to the layoff of general employees as described above.
Please note that the Act of Gender Equality in Employment (the “AGEE”) prohibits employers from discriminating against pregnant employees. The same law also imposes the relevant burden of proof on employers. If an employer intends to lay off a pregnant employee, it is necessary to retain supporting materials that prove that “the employee was not treated differently before and after the pregnancy” and that “the decision to lay off the employee was not based on the employee’s pregnancy” (Articles 11, 31, and 38-1 of the AGEE).
It should also be noted that if an employee is under maternity leave in accordance with Article 50 of the LSA, the employer may not lay off the employee during the maternity leave unless the employer is unable to continue business operation due to any natural disasters, accidents or other force majeure and the approval of the competent authority is obtained (Article 13 of the LSA).
3. Layoff during unpaid parental leave
With the approval of the competent authority, an employer may lay off or refuse to reinstate an employee on unpaid parental leave in any of the following circumstances (Article 17 of the AGEE):
- The business suffers an operating loss or business contractions;
- The employer changes the organization of its business, is dissolved, or transfers its ownership to others pursuant to law;
- Force majeure necessitates the suspension of the business for one month or more; or
- The change of the nature of business necessitates the reduction of the workforce and the terminated employees cannot be reassigned to other suitable positions.
4. Layoff during the period of medical treatment due to occupational accident
An employer may not lay off an employee under medical treatment for an injury caused by an occupational accident unless one of the following reasons is met (Article 13 of the LSA, Article 23 of the Act for Protecting Workers of Occupational Accidents, and Article 84 of the Labor Occupational Accident Insurance and Protection Act):
- The business is shut down or sustains major losses, and is approved by the competent authority;
- After medical treatment, the employee sustaining an occupational accident is determined by a public medical institution to be physically and mentally incapable of performing his or her job; or
- The business cannot continue to operate due to any natural disasters, incidents, or other force majeure factors, and is approved by the competent authority.
According to Taiwan’s judicial practice, a period of medical treatment covers the period of medical treatment and convalescence. When employees have regained their working capacity after medical treatment and are able to perform the work stipulated in the employment agreement, they are no longer in a “period of medical treatment” within the meaning of the LSA. Whether “rehabilitation,” “the performance of a corrective surgery,” or a “follow-up examination” is the period of medical treatment should be based on the recovery of the employees’ working capacity (the 90-Tai-Shang-1055 Civil Decision of the Supreme Court and the 97-Chung-Lao-Shang-13 Civil Decision of the Taiwan High Court).
(2) Advance notice
An employer is required by law to issue an advance notice to an employee or pay the wage for the period of the advance notice, and a violator will be fined (Article 16 and Article 79, Paragraph 3 of the LSA).
The statutory period of an advance notice varies by the years in service of the employee concerned:
- If an employee has worked continuously for three years or more, the notice shall be given thirty days in advance.
- If an employee has worked continuously for one year to three years, the notice shall be given twenty days in advance.
- If an employee has worked continuously for three months to one year, the notice shall be given ten days in advance.
- If an employee has worked continuously for less than three months, the period of the advance notice shall be negotiated between the employer and the employee.
(3) Employee’s job-seeking leave
During the period of advance notice, the employee may take leave during working hours to find another job. The number of leave hours shall not exceed 2 days per week, and the wages for the leave shall be paid (Article 16, Paragraph 2 of the LSA). The employer fails to grant the leave will be fined (Article 79, Paragraph 3 of the LSA).
(4) Layoff reporting
The employer shall report the name, gender, age, address, telephone number, job title, reason for layoff, and the need for employment counseling to the local authority and public employment service agencies 10 days prior to the employee’s departure. Violators will be penalized (Article 33, Paragraph 1 and Article 68, Paragraph 1 of the Employment Service Act (the “ESA”)).
An employer who lays off a “employee who has been employed for less than 10 days” still has the obligation to report the layoffwithin 3 days from the date of the employee’s departure (Article 33, Paragraph 1 of the ESA and the Lao-Zhi-Ye-0940506194 Circular of October 11, 2005 from the MOL).
(5) Settlement of wages
Upon termination of the employment relationship, the employer shall settle the wages (which should also include overtime pay and wages for untaken annual leave) immediately or at least on the first regular payday after the employee’s departure (Article 9 of the Enforcement Rules of the LSA and the Lao-Dong-Fa-Su-1040014431 Appeal Decision of December 10, 2015 from the MOL; Article 24, Paragraph 1 and Article 38, Paragraph 4 of the LSA).
Failure to pay wages in full or to do so within the statutory period will be penalized (Article 22, Paragraph 2, Article 23, Paragraph 1, and Article 79, Paragraph 1, Subparagraph 1 of the LSA).
(6) Severance pay
When laying off an employee, the employer must pay the severance to the employee within 30 days upon termination of the employment agreement or be fined (Article 78 of the LSA and Article 45-1 of the Labor Pension Act (the “LPA”)).
The calculation of severance pay: Depending on the employee’s years of service subject to the “pension scheme under the LSA” (the “LSA Service Years”) and the years in service subject to the “pension system under the LPA” (the “LPA Service Years”), the calculation is based on the standards respectively set forth in the LSA and the LPA.
1. For the LSA Service Years: the severance pay equivalent to one monthly average wage age shall be paid for each year in service; if the years in service are shorter than one year, the amount of severance pay shall be adjusted on a pro rata basis; and if the years in service are shorter than one month, the amount shall be calculated based on one month (Article 17 of the LSA and the Lao-Dong-4-1010132306 Directive of September 12, 2012 from the COLA).
2. For the LPA Service Years: one-half of the monthly average wage shall be paid for each year in service, and the amount of the severance pay shall be adjusted on a pro rata basis if the years in service fall short of one year with the severance pay capped at six months’ average wage (Article 12 of the LPA and the Lao-Dong-4-1010132304 Directive of September 12, 2012 from the COLA).
Please note that if an employee has attained the age of retirement, the employer shall pay pension, instead od severance pay, for his/her LSA Service Years (if any).
(7) Issuance of service certificates and certificates of involuntary termination
The “service certificate” is used to certify an employee’s working experience, job position, etc. in the business organization and has a great impact on the employee’s rights and interests. When an employment relationship is terminated, if the employee applies to the employer for a service certificate, the employer shall not refuse. An employer who fails to issue a service certificate pursuant to law will be fined (Article 19 and Article 79, Paragraph 3 of the LSA, and the Tai-Lao-Zi-2-015061 Circular of April 14, 1997 from the COLA).
In practice, it is common for employees to request their employers to issue a “certificate of involuntary termination” for registration of job placement and unemployment benefits (Article 25 of the Employment Insurance Act (the “EIA”)). If an employee’s application to the employer for a certificate of involuntary termination is rejected, the employee may apply, instead, to the local competent authority in his/her place of employment for a certificate (see Article 25, Paragraph 3 of the EIA and the announcement of the Department of Labor of Taipei City Government).[1]
II. Conclusions
A properly planned layoff and termination process is conducive to a successful conclusion of the employment relationship. In addition to the above-mentioned matters, which shall be handled by the employers pursuant to law, the employers planning to lay off employees are advised to sincerely communicate with the employees concerned about the reasons for the layoff, the calculation of the planned severance pay, and the timing of the payment in order to avoid disputes.
[1] https://bola.gov.taipei/News_Content.aspx?n=9C30ECD2C9D31116&s=1169AFCE35CF205D
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