The Legitimacy of Fixed-term Employment Contract (Taiwan)

October 2023

Elizabeth Pai and Hannah Kuo

In order to maintain the stability of employment contracts, the relevant provisions of the Labor Standards Act (hereinafter, the “Act”) generally favor non-fixed term contracts over fixed-term contracts, treating the latter as exceptions.  Non-fixed term employment contracts typically offer better protection to employees than fixed-term contracts.  For instance, under an non-fixed term contract, when an employer terminates the contract for reasons not attributable to the employee, the employer must provide prior notice (or pay the wage for the notice period) and severance pay.  However, when a fixed-term contract expires, the employer is not obligated to make the aforementioned payment (Article 18 of the Act).  To prevent employers from using fixed-term employment contracts to reduce labor costs, which can adversely affect employees’ rights and interests and the stability of labor relations, the Act imposes stricter limitations on fixed-term contracts.  The requirements and practical considerations for fixed-term employment contracts are briefly summarized below:

1. Criteria for fixed-term employment contracts

Temporary, short-term, seasonal, and specific nature of work may be subject to fixed-term contracts, while continuous work should be carried out under non-fixed term contracts.  The so-called “temporary,” “short-term,” “seasonal,” and “specific” nature of work is defined as follows:   (Article 9 of the Act and Article 6 of the Enforcement Rules of the Act)

Regarding the term “continuous work,” while the Act does not provide explicit definitions, it is generally understood in practice to refer to work that, in terms of the business entity’s nature and operations, requires continuity and is not limited to one-time or specific-purpose work, which is temporary, short-term, or seasonal.  In other words, the determination of work continuity depends on the actual content and nature of the work performed by employees, and whether there is a continuous need within the employer’s business entity.  This means that the work is considered to be continuous if it is related to the business that the employer has continuously conducted, and such manpower demand is not related to sudden or temporary needs  (103-Tai-Shang-Zi-2066 Decision of the Supreme Court).

2. Determination of fixed-term contracts

According to practical court decisions, whether a labor contract is categorized as a fixed-term or non-fixed term contract depends on whether the content and nature of the contract indicate continuity, and is not bound by the written form of the labor contract.

According to some other court decisions in cases involving corporate groups with multiple legal entities, even if an employee signs a labor contract with one legal entity within the group, in case the parent company of the group has personnel management decision-making authority for group employees, the determination of whether the work performed by the employee is continuous should be made generally by observing the entire group, not based solely on whether the legal entity signing the contract has a continuous need (109-Tai-Shang-Zi-1156 Decision of the Supreme Court).

For the category involving “specific nature of work,” which often triggers disputes, the Council of Labor Affairs (the predecessor of the Ministry of Labor) has clarified via an interpretation circular that Article 6, Subparagraph 4 of the Enforcement Rules of the Act, which requires “recordation with the competent authority fixed-term contracts lasting more than one year for specific nature of work,” aims to protect the rights and interests of workers.  The competent authority reviews longer-term fixed-term contracts to prevent employers from evading their obligations through fixed-term contracts.  However, recordation with the competent authority does not affect the determination of whether the nature of work is continuous or non-continuous.  To wit, this has no bearing on whether such contracts should be fixed-term or non-fixed term contracts.

Furthermore, according to a court decision, a fixed-term contract for a “specific nature of work” should not only have the form of specifying the term of employment.  The substantive course of performance should also be characterized by the provision of labor for specific work only (the 99-Lao-Shang-Yi-Zi-111 Decision of the Taiwan High Court).  If the work actually performed by an employee does not match the covenants in the fixed-term labor contract so executed, it would be difficult to conclude that the employer enters into such a contract for the specific work needs under the fixed-term labor contract, and this should be regarded as a circumstance where the requirement that a fixed-term contract may be executed for specific nature of work under Article 9, Paragraph 1 of the Act is not met  (103-Tai-Shang-Zi-2066 Decision of the Supreme Court).

As for temporary and short-term work, to prevent employers from using fixed-term contracts to employ workers for an extended period, thereby undermining workers’ rights, Article 9, Paragraphs 2 and 3 of the Act stipulate that when a temporary or short-term fixed-term contract expires, the labor contract it should be regarded as an non-fixed term contract under the following circumstances: (1) the employee continues to work without the employer’s objection, or (2) although a new contract is signed, the term of employment under the old and new contracts exceeds 90 days with the gap period between the two contracts not exceeding 30 days.

3. Legitimate fixed-term contracts in judicial practice

In practice, a strict standard is applied to determine “whether a labor contract is of a fixed-term nature.”  Only a few cases have seen courts recognize the legitimacy of fixed-term employment contracts.  For example:

(1) One-day newspaper delivery men (105-Dian-Xiao-Zi-605 Decision of the Taiwan Taipei District Court )

(2) After-school care teachers between elementary school semesters (the 101-Lao-Shang-Zi-25 Decision of the Taiwan High Court Kaohsiung Branch Court)

(3) Personnel employed for specific projects (107-Tai-Shang-Zi-1794 Decision of Supreme Court)

(4) Chief engineer for a specific voyage of a particular cargo ship (the 110-Tai-Shang-Zi2704 Decision of the Supreme Court)

4. The impact of signing fixed-term contracts for continuous work

In the context of a contractual relationship between the parties, if the work performed is continuous, the contract should be a non-fixed term contract, as mandated by the law.  Violation of this provision would invalidate the covenant on the “specific service period” in the labor contract, and the contract should be treated as a non-fixed term labor contract.

An employer who signs a fixed-term employment contract for continuous work should be subject to a fine of NT$20,000 to NT$300,000 under Article 79 of the Act for violating Article 9, Paragraph 1 of the Act.

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