2.1 Statutory requirements
Subject to the satisfaction of relevant requirements stipulated in the Employment Contract Law, an employment contract may be terminated by the employer or the employee or automatically.
2.1.1 Termination by the employer without prior notice
The only circumstances in which an employer may terminate an employment contract without notice are where the employee:
- proves, during the probationary period, to be unable to meet the employment conditions;
- has seriously violated the employer’s rules and regulations;
- has committed gross misfeasance, causing great damage to the employer;
- has established a concurrent employment relationship with another employer, and has seriously affected the completion of work with so original employer, or refuses to rectify the situation after requested by so original employer;
- has caused the employer to conclude or amend the employment contract against its true intention by means of deception or coercion or taking advantage of the employer’s difficulties, and has thus made the employment contract invalid; or
- is convicted of a crime.
2.1.2 Termination by the employer with prior notice
The employer may terminate an employment contract upon 30 days prior written notice, or payment of one month’s wage in lieu of notice, in the following circumstances:
- the employee is sick or sustains a non-work related injury, and after expiration of the statutory medical treatment period, the employee cannot perform their work duties or other work duties arranged by the employer;
- the employee is unable to satisfactorily fulfil the job requirements and, after training and adjustment of their working position, the employee is still unable to fulfil the job requirements; or
- a major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it unperformable and, after consultations, the employer and the employee are unable to reach agreement on amending the employment contract.
When an employer proposes to terminate an employment contract unilaterally (with or without notice), it is required to give the labour union advance notice of the reasons for the proposed termination. The employer is required to have regard to any opinions put forward by the labour union, and must notify the labour union of the outcome of the matter.
2.1.3 Termination by the employee without prior notice
The circumstances in which an employee may terminate an employment contract without notice include:
- the employer fails to provide labor protection or work conditions as stipulated in the labor contract;
- the employer fails to pay the wage in full and in time;
- the employer fails to pay social security premiums;
- the internal rules and policies of the employer are in violation of any law or regulation and infringe the rights and interests of the employee;
- the employer has caused the employee to conclude or amend the employment contract against his/her true intention by means of deception or coercion or taking advantage of the employee’s difficulties, and has thus made the employment contract invalid;
- the employer compels the employee to work by using violence or threats or unlawfully restricting the employee’s personal freedom;
- the employer’s work instruction is in violation of rules and regulations, or the employer peremptorily orders the employee to perform dangerous operations which threaten the employee’s personal safety; or
- any other circumstances specified by law or administrative regulation.
2.1.4 Termination by the employee with prior notice
The employee may terminate an employment contract by giving 30 days’ prior notice to the employer. During the probationary period, the employee may terminate an employment contract by giving 3 days’ prior notice to the employer.
2.1.5 Termination by mutual consent
An employment contract may be terminated by mutual consent between the employer and the employee.
2.1.6 Automatic termination
The employment of an employee with an employer will automatically terminate if:
- term of the employment contract expires;
- the employee has reached his statutory retirement age;
- the employee dies, or is declared dead or missing by a court;
- the employer is declared bankrupt;
- the employer’s business license is revoked, or the employer is ordered to close or is closed down, or the employer decides on an early dissolution; or
- any other circumstances specified by law or administrative regulation.
2.2 Restrictions on the employer’s ability to terminate employment
As set out above, the circumstances in which an employment contract may be terminated with or without notice are prescribed by the Employment Contract Law. However, even where those circumstances apply (except where the employee is in any of the circumstances described in Section 2.1.1 above), the employer is prohibited from terminating any employee who:
- is engaged in operations exposing him to occupational hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or under medical observation;
- has been confirmed as having lost or partially lost his capacity to work due to an occupational disease or a work-related injury;
- has contracted an illness or sustained an injury, and is still in the statutory medical treatment period;
- is a female employee in her pregnancy, confinement or nursing period;
- has been working for the employer continuously for not less than 15 years and is less than 5 years away from his legal retirement age; or
- is in other circumstances that may be prescribed by law or administrative regulation.
2.3 Remedies
Potential remedies for wrongful dismissal include:
- reinstatement, if so requested by the employee; or
- compensatory damages equal to 2 times the statutory severance payment to which the employee is entitled, if the employee does not request reinstatement.
2.4 Severance payments
In general, severance is payable in most cases of termination of employment. Severance payments are calculated based on the length of service of the employee, and consist of 2 components:
- payment in respect of service rendered after 1 January 2008; and
- payment in respect of service rendered prior to 1 January 2008 (only applicable if the employee commenced working for the employer prior to this date).
Payments in respect of post 1 January 2008 service are governed by the Employment Contract Law which came into effect on that date.
- The basic formula is 1 month’s wages per year of service.
- Additional rules to be applied in calculating the payment are:
(i) A part year of service less than 6 months is regarded as a half year of service, corresponding to a half month’s wages in severance pay.
(ii) A part year of service greater than 6 months is regarded as a full year of service.
(iii) The monthly pay rate is capped at 3 times the monthly average wage of the municipality in which the employee works. Where this cap applies, the number of years to be used in the calculation is also capped, at 12 years.
Payments in respect of pre 1 January 2008 service are governed by the national and local rules that applied prior to the commencement of the Employment Contract Law, in the area where the employee is based. The national rules include the Measures on Economic Compensation for Termination or Violation of Employment Contract, which stipulates the method of calculating severance payment.
- The basic formula is one month’s wage per year of service, and any service period less than 1 year is regarded as 1 year.
- There is no cap for the monthly pay rate.
- In either of the following 2 circumstances, the number of years to be used in the calculation is capped at 12 years.
(i) The employer proposes to terminate the employment contract through mutual negotiation and reaches a termination agreement with the employee.
(ii) The employer terminates the employment contract for the reason that the employee is unable to fulfil the job requirements and, after training and adjustment of the position, the employee is still unable to fulfil the job requirements.
Most local jurisdictions adopt the same basic formula as that stipulated by these national rules, though the treatment of part years and the applicability of caps varies among jurisdictions.
2.5 Specific requirements applicable to redundancy
An employer effecting redundancies will rely on the statutory circumstance of there having been a ‘major change in the objective circumstances relied upon at the time of conclusion of the employment contract’, which renders the contract unperformable.
Additional rules (including labour union consultation obligations) apply to mass redundancy situations (ie where 20 or more employees or 10% or more of the workforce face retrenchment).
In summary:
1. The employer may only effect such redundancies if the circumstances described in the legislation apply, ie the employer is:
(i) initiating reorganization process in accordance with the bankruptcy law;
(ii) facing serious production and/or business operation difficulties;
(iii) switching production, adopting a major technological innovation or revising the business mode, and, after amendment of employment contracts, still
needs to reduce its workforce; or
(iv) having major change in objective economic circumstances rendering employment contracts unperformable.
2. The employer must notify all employees or the labour union 30 days in advance of the redundancies, and also notify the relevant labour administration department.
3. The employer is required to give priority to retaining certain types of employees, including:
(i) employees on longer term or open-ended employment contracts; and
(ii) employees who are sole breadwinners with senior and/or minor dependants.
4. If the employer hires new employees within 6 months of the redundancies, the retrenched employees must be notified and given preference for re-hire.
The employer is prohibited from terminating an employee who is under any of the circumstances described in Section 2.2 above by redundancy.
Additional obligations may also apply pursuant to rules imposed at the local level. It is important that these local rules are carefully checked.