Key Takeaways:
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Types of termination scenarios under Taiwanese law
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Legal grounds for termination and avoiding wrongful dismissal
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Notice periods and severance pay obligations
Introduction
In Taiwan, employee termination is regulated by the Labor Standards Act. This guide helps employers navigate the legal framework and ensure compliance.
Types of Termination Scenarios in Taiwan
In Taiwan, employers may terminate employees under several scenarios. However, each situation must be handled carefully to comply with the law and avoid disputes. The most common reasons for termination are redundancy, misconduct, and poor performance.
1. Redundancy
Redundancy occurs when an employee’s position is no longer necessary due to business restructuring, downsizing, or technological changes. Employers must provide valid reasons for the redundancy and explore alternatives such as reassignment before proceeding with termination. Proper documentation is essential to support the decision and demonstrate that the termination was necessary.
2. Misconduct
Termination for serious misconduct, such as theft, fraud, or harassment, is permitted under Taiwanese labor laws. However, employers must conduct a fair investigation and gather sufficient evidence before terminating an employee. The employee should be given an opportunity to respond to the allegations. Without following these steps, termination may be considered wrongful.
3. Poor Performance
If an employee fails to meet performance expectations, termination may be considered. However, employers must first provide clear feedback, offer training, and give the employee opportunities to improve. Only when these efforts fail and are documented can termination for poor performance be considered lawful.
Each scenario requires a clear process and thorough documentation to ensure compliance with the Labor Standards Act and protect the employer from disputes.
Grounds for Lawful Termination
In Taiwan, employers cannot terminate employees arbitrarily. The Labor Standards Act outlines the legal grounds for termination. These include:
- Serious Misconduct: Any behavior that severely violates company policy or the law.
- Incapacity: When an employee can no longer perform their duties due to health issues or other personal circumstances.
- Redundancy: Business restructuring or economic downturns that necessitate eliminating certain positions.
- Poor Performance: Documented evidence of an employee’s failure to meet reasonable job expectations, despite receiving training and support.
Employers must provide valid reasons and adhere to the legal process when terminating employees to avoid wrongful dismissal claims.
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Wrongful Dismissal Avoidance
Wrongful dismissal occurs when an employer terminates an employee without proper cause or fails to follow the legal procedures outlined in the Labor Standards Act. To avoid these claims, employers must:
1. Follow the Legal Process
Ensure that the dismissal is justified by one of the lawful grounds, such as redundancy, incapacity, or misconduct. Always conduct a fair investigation when terminating for misconduct.
2. Document Every Step
Maintain thorough documentation of all communications with the employee, including performance reviews, warnings, or any disciplinary actions. This documentation is crucial if the termination is challenged in court.
3. Offer the Right to Defend
In cases of misconduct or performance issues, always allow the employee to present their defense before making a final termination decision.
By following these steps, employers can significantly reduce the risk of wrongful dismissal claims and ensure that the termination is lawful and compliant with local labor laws.
Notice Periods and Pay in Lieu
In Taiwan, employers must provide employees with a notice period before termination, unless the dismissal is for serious misconduct. The required notice period depends on the length of the employee’s service:
- 10 days’ notice for employees with between 3 months and 1 year of service.
- 30 days’ notice for employees with more than 1 year of service.
Pay in Lieu of Notice
If an employer wishes to terminate an employee immediately, they may offer pay in lieu of notice, which compensates the employee for the notice period they would have worked. This payment must be equivalent to the employee’s normal salary for the duration of the notice period.
Failure to provide adequate notice or pay in lieu can result in legal disputes and claims for unfair dismissal.
Severance Pay and Long Service Payment
In Taiwan, severance pay is mandatory for employees who have worked for at least three years. The amount of severance pay is calculated based on the employee’s length of service and their average salary over the previous six months.
Severance Pay Calculation
Severance is typically calculated as half a month’s wages for each year of service. For employees with less than a full year of service, the severance pay will be prorated.
In addition to severance, long service payments may apply to employees who have worked for the company for several years and are being terminated for reasons other than misconduct. Accurate calculations of severance and long service payments are essential to avoid disputes and ensure compliance with labor laws.
Steps in the Termination Process
To ensure compliance with Taiwanese labor laws, employers must follow a structured termination process. The key steps are outlined below:
1. Document the Reason for Termination
Before initiating the termination, employers must clearly document the reason for dismissal, whether it’s due to redundancy, misconduct, or poor performance. Proper documentation is essential for protecting the company in the event of a dispute.
2. Issue Formal Notice
The employer must provide the employee with formal written notice of termination, adhering to the appropriate notice period. If immediate termination is necessary, pay in lieu of notice should be provided.
3. Calculate Severance and Final Compensation
Employers must calculate any outstanding wages, unused leave, severance pay, and long service payments (if applicable). These payments should be made promptly to avoid disputes.
4. Ensure Compliance with Legal Obligations
Throughout the termination process, employers must ensure that all legal obligations are met, including notice periods, severance payments, and documenting the reason for dismissal. Failure to follow these steps could result in claims of wrongful dismissal.
How AYP Can Help
Managing employee terminations in Taiwan can be complex due to the strict legal requirements under the Labor Standards Act. AYP’s Professional Employer Organisation (PEO) and Employer of Record (EOR) services help businesses navigate the termination process smoothly, ensuring compliance with local laws and minimizing legal risks. Our services include:
- Managing Terminations: We handle the entire termination process, from issuing notice to calculating severance pay and ensuring all legal requirements are met.
- Minimizing Legal Risks: AYP ensures that terminations are compliant with Taiwanese labor laws, reducing the risk of wrongful dismissal claims.
- Handling Employment Contracts: Our team ensures that employment contracts clearly outline termination procedures and are fully compliant with local regulations.
With AYP’s support, businesses can confidently manage employee terminations while ensuring compliance with Taiwan’s labor laws. Contact us today to learn how we can assist with your HR and compliance needs.
