Duration of Non-compete Agreement under Taiwan's Amended Labor Law

January 15, 2016

On November 27, 2015 Taiwan's legislation finalized a third reading of a proposed amendment (the "Amendment") to its Labor Standards Act (the "Act"), which was subsequently signed into law by the President on December 16, 2015.  The Amendment deals with a few important subjects, that is, (i) validity and duration of a non-compete clause often seen in an employment agreement; (ii) how an employer can make changes to the job that is to be performed by an employee; and (iii) agreement on minimum years of service.


Firstly, the Amendment sets the maximum duration of a non-compete clause in an employment agreement to 2 years following termination and lays down various requirements of a valid non-compete clause:- (a) the employer must have lawful interests of trade secrets it needs to protect; (b) the job enables the worker to be able to access or make use of such trade secrets; (c) the duration and limitation on territory, scope of job activity and prospective employers in a non-compete agreement must not exceed reasonable limits; and (d) the worker that suffers losses due to the non-compete clause should be entitled to compensation while such compensation does not include the remuneration he received on the job.  A non-compete clause shall not be upheld if it fails to satisfy any of the requirements, and any duration that has been specified longer than 2 years shall be shortened to no more than 2 years. (Article 9-1, the Act)


Secondly, the Amendment makes clear that if an employer intends to make changes to the job to be performed by a worker, even if this is consistent with the employment contract, the employer shall satisfy the following requirements:- (a) the change is necessitated for the management and operations of the business and there is no improper motive or purpose; (b) the wages and other terms and conditions of the employment are not adversely affected; (c) the job after changes must be one that the worker can be competent in both skills and physical capacity; (d) if the change to the job involves a commune to a more distant location for the worker, the employer shall render all necessary assistance; and (e) considerations must be given to the benefits of the worker's family life. (Article 10-1, the Act)


Finally, minimum years of service clause will not stand if the employer does not incur a cost to provide professional training to the worker or in its alternative provide reasonable compensation to the worker.  Moreover, if a worker was not able to observe a minimum years of service clause because of a circumstance beyond his control and thus needed to terminate his contact earlier than the agreed expiration of his years of service, he shall not be liable for the breach of his contract as well as damages, liquidated damages, refund of training cost, etc. (Article 15-1, the Act)