Taiwan – Whether An Employer Can Unilaterally Terminate The Employment Contract.

 

13 January 2021

 

 

The Supreme Court rendered the 109-Tai-Shang-1518 Decision of July 23, 2020 (hereinafter, the “Decision”), holding that whether an employer can unilaterally terminate the employment contract on the ground of corporate losses should be determined based on the company’s overall operation and management capacity
 

According to the facts underlying this Decision, the Appellant was recruited by the Appellee as the General Manager for the China Area in mainland China (hereinafter, the “Contract at Issue”), and it was agreed that the monthly salary would be RMB 91,700 with the yearend bonus equivalent to one month’s pay, and that the Appellant would enjoy allowances for a car for his own use and for accommodation.  However, the Appellee refused to pay the yearend bonus and owed salaries and accommodation allowances on the ground of bad economic environment.  The Defendant subsequently negotiated to terminate the employment contract with the Appellant without success.  The Appellant requested the Appellee to pay salaries, yearend bonus and accommodation allowances in accordance with the labor contract, offer letter and Article 486 of the Civil Code.  The Appellee contended that the Appellant was retained as a managerial officer, and that even if the employment relationship under a labor contract was established, the terms of labor as agreed should be based on the Contract at Issue.  The Contract at Issue only provided for monthly salary and contained no provisions concerning the yearend bonus and accommodation allowances.  In addition, both parties agreed to terminate the labor contract between them.  Alternatively, the Appellee also orally indicated the intent to terminate the labor contract to the Appellant in accordance with Article 11, Paragraphs 1, 2, 4 and 5 of the Labor Standards Law (hereinafter, the “Law”).  The Appellant’s request that the Appellee should pay the compensation after the contract was terminated is legally baseless.  In addition, since the Appellant committed negligence or engaged in acts beyond his authority in handling matters mandated to him, a set-off against such a claim may also be requested when damages are claimed in accordance with Article 544 of the Civil Code.
 

According to the Decision, an employer may unilaterally terminate a labor contract in case of “losses” in accordance with Article 11, Subparagraph 2 of the Labor Standards Law.  However, whether an employer may unilaterally terminate the employment contract with an employee on the ground of “corporate losses” should be determined based on the overall operation and management capacity of the company rather than the operating status of an individual department or separate individual business items.  If only one department sustains losses while the other departments operate normally with profits and even with needs for workers, it is not appropriate to jump to the conclusion that a worker may be foretold that the labor contract will be terminated in order to prevent an employer from electing to discharge employees simply because of short-term fluctuations in the production volume and sales volume or in the sales performance of just one department.  In addition, an employer may lay off an employee only when there is no way to continue the employment of such employee in order to meet the principle that termination of employment should be the last resort.  A labor contract shall not be terminated if there are still alternatives.
 

It was further indicated in this Decision that although the department the Appellant was in suffered from losses, the Appellant contended that he was still handling matters relating to the layoff of employees, search of a new office location, leasing and handover of machinery.  Moreover, the emails the Appellee sent to its agents never mentioned any layoff and there were still dedicated personnel handling business with the agents in mainland China.  Therefore, the contention that the contract was terminated due to losses and a lack of an appropriate position for the placement of the Appellant is not true.  Otherwise, if it is still necessary for the other departments of the Appellee to maintain their operations in mainland China, has the overall sales performance of the Appellee turned a loss already?  Since the Appellant was asked to continue with the handling of relevant affairs, was the Appellant’s skill set absolutely not what the Appellee needed or does the termination of the labor contract with the Appellant meet the principle of last resort?  These questions are critical to the legality of the Appellee’s termination of the Contract at Issue.  The original trial court elected to determine that the Contract at Issue had been terminated without considering these issues and further rejected the Appellant’s claims for salaries and accommodation allowances is unlawful for insufficiency of grounds.  The gist of the appeal was not groundless.
 

 

For further information, please contact:  

 

Emily Chueh, Lee Tsai & Partners

lawtec@leetsai.com