1. What are the principal regulations governing rights and obligations of employees?

The rights and obligations between employees and employers (hereinafter “Labor Relations? may, depending on the parties to the legal relationship, be divided into individual Labor Relations (i.e., employers and individual employees) and collective Labor Relations (i.e., employers or employers?organizations and the labor union). The main law governing individual Labor Relations is the Labor Standards Act. Other important and relevant regulations include the Labor Pension Act, Gender Equality in Employment Act, Regulations on Leave-Taking of Workers. The main laws governing collective Labor Relations are the Labor Union Law, Collective Bargaining Agreement Act, and Settlement of Labor Disputes Law. Other important and relevant regulations include the Protective Act for Mass Layoff of Employees, Employees?Welfare Funds Act, Labor Safety and Health Act, Labor Insurance Act, Employment Services Act, Protection for Workers Incurring Occupational Accidents Act, Employment Insurance Act, Business Mergers and Acquisitions Act.

2. Are there any maximum working hours prescribed for employees?

(1) General provision

According to Article 30, paragraph 1 of the Labor Standards Act, in principle, the regular work hours of an employee must not exceed eight hours per day, and the total work hours must not exceed 84 hours per two weeks.

(2) Maximum overtime

According to Article 32, paragraph 2 of the Labor Standards Act, the extension of work hours together with regular work hours must not exceed 12 hours per day and the total number of hours of overtime must not exceed 46 hours per month.

(3) Flexible work hours regime

In order to allow for the flexible use of work hours, the Labor Standards Act also provides for two-week flexible work hours, four-week flexible work hours and eight-week flexible work hours regimes for a company to choose from. The regimes are further explained below.

(a) Two-week flexible work hours regime
According to Article 30, paragraph 2 of the Labor Standards Act, in respect to businesses specified by the central competent authority, an employer may, with the consent of the labor union (or with the approval of a labor-management meeting if there is no labor union), allocate the regular work hours of any two work days within two weeks to other work days, provided that the hours allocated must not exceed two hours per day and the total number of working hours must not exceed 48 hours per week. Moreover, the central competent authority, the Council of Labor Affairs (which is equivalent to the Ministry of Health, Labor and Welfare in Japan), announced on March 31, 2003, that this regime is applicable to all businesses to which the Labor Standards Act applies.

(b) Four-week flexible work hours regime
According to Article 30-1, paragraph 1, item 1 of the Labor Standards Act, in respect to businesses specified by the central competent authority, an employer may, with the consent of the labor union (or with the approval of a labor-management meeting if there is no labor union), allocate the regular work hours within four weeks (i.e., 169 hours) to other work days, provided that the hours allocated must not exceed two hours per day.

(4) Eight-week flexible work hours regime

According to Article 30, paragraph 3 of the Labor Standards Act, in respect to businesses specified by the central competent authority, an employer may, with the consent of the labor union (or with the approval of a labor-management meeting if there is no labor union), allocate the regular work hours within eight weeks (i.e., 336 hours) to other work days, provided that the hours allocated must not exceed eight hours per day and the total number of working hours must not exceed 48 hours per week.

3. How can the services of an employee be terminated?

In respect to an employer’s right to terminate the employment contract, the Labor Standards Act
adopts a listed provision. The grounds for termination are provided under Articles 11 and 12 of the Labor Standards Act, which are summarized as below.

(1) Article 11 of the Labor Standards Act (the termination of a labor contract with advance
notice, which is equivalent to termination of employment under Japanese law)

Article 11 of the Labor Standards Act provides that no employer can, even by advance notice
to a employee, terminate a labor contract unless one of the following situations arises:
(a) the business ceases to operate or has been transferred;
(b) the business suffers an operating loss or contraction;
(c) business suspension for more than one month is necessitated by force majeure;
(d) a change in the nature of the business requires a reduction of workers and the relevant workers cannot be assigned to another suitable position; or
(e) a particular worker is clearly not able to perform satisfactorily the duties required of the position held.

(2) Article 12 of the Labor Standards Act (the termination of a labor contract without advance notice, which is equivalent to disciplinary dismissal under Japanese law)

Article 12 of the Labor Standards Act provides that in any of the following situations any employer may terminate a labor contract without advance notice where an employee:
(a) misrepresents any fact at the time of signing a labor contract in a manner which might mislead his/her employer and cause him/her to sustain damage therefrom;
(b) commits a violent act against or grossly insults the employer, his/her family member or agent of the employer, or a fellow worker;
(c) has been sentenced to temporary imprisonment in a final and binding judgment, and is not granted a suspended sentence or permitted to commute the sentence to the payment of a fine;
(d) is in serious breach of the labor contract or in serious violation of work rules;
(e) deliberately damages or abuses any machinery, tool, raw materials, product or other property of the employer or deliberately discloses any technical or confidential information of the employer thereby causing damage to the employer; or
(f) is, without good cause, absent from work for three consecutive days, or for a total of six days in any month. Where an employer desires to terminate a labor contract pursuant to items 1, 2, or items 4 to 6 of the preceding paragraph, he/she may do so within thirty days from the date he/she becomes aware of the particular situation.

4. Are there mandatory requirements for grant of leave or public holidays?

(1) Holidays (in accordance with the provisions under the Labor Standards Act)

(a) Regular Days Off: For every seven days, an employee is entitled to at least one day of rest, as a regular day off for the employee.

(b) Holidays: Employees must be granted leave on commemorative holidays, Labor Day and other days that the central competent authority deems as holidays. According to the Interpretive Letter (77) Lao-Dong-Er-Zi No. 20123 issued by the Council of Labor Affairs on September 6, 1988, upon negotiation and agreement between the employer and the employees, holidays may flexibly be exchanged with or replaced by other
work days.

(c) Special Leave (which is equivalent to paid leave in Japan): Article 38 of the Labor Standards Act provides that, where an employee continues to work for the same employer or business entity (the “Company? for a certain period of time, he/she is entitled to special leave on an annual basis. Where the employee has worked for the Company for more than one year but less than three years, the employee is entitled to seven days of special leave. Where the employee has worked for the Company for over three years but less than five years, the employee is entitled to ten days of special leave. Where the employee has worked for the Company for more than five years but less than ten years, the employee is entitled to 14 days of special leave. Where the employee has worked for the Company for more than ten years, for each additional year of service, the employee is entitled to an additional day of special leave, provided that the aggregate number of days of annual paid leave does not exceed 30 days.

(2) Leave

According to the provisions of the Regulations on Leave-Taking of Workers enacted pursuant to Article 43 of the Labor Standards Act, and Articles 14, 15 and 20 of the Gender Equality in Employment Act, an employee is entitled to the following leave up to the specified ceiling of each aggregate number of days.

(a) Marriage leave: Where an employee is getting married, he or she is entitled to eight days of paid leave.

(b) Bereavement leave: Employees are entitled to leave to attend a funeral in accordance with the following.
(i) Where the parents, adoptive parents, step parents or spouse of an employee is deceased, eight days of paid leave.
(ii) Where the paternal or maternal grandparents, children, parents of the spouse, adoptive parents or step parents of the spouse of an employee is deceased, six days of paid leave.
(iii) Where the siblings, paternal or maternal grandparents of the spouse of an employee is deceased, three days of paid leave.

(c) Sick leave (which is equivalent to non work-related sick leave in Japan): Where an employee is required to be treated medically or to rest for injury, sickness or medical reasons, the employee may take sick leave pursuant to the provisions below. Where the aggregate number of days of sick leave taken in a year does not exceed 30 days, half-wages must be paid.

(i) Where the employee is not hospitalized, the aggregate number of permitted days of sick leave may not exceed 30 days in a year.
(ii) Where the employee is hospitalized, the aggregate number of permitted days of sick leave may not exceed one year within a period of two years.
(iii) The aggregate number of permitted days of sick leave for non-hospitalization and hospitalization may not exceed one year within a period of two years.

(d) Leave for occupational accidents (which is equivalent to work-related sick leave in Japan): Where an employee is injured, disabled or sick as a result of an occupational accident, the employee must be granted leave during the period of medical treatment or rest.

(e) Personal leave: Where an employee needs to take care of personal matters, the employee may take personal leave, provided that the aggregate number of days of personal leave taken must not exceed 14 days per year. Wages need not be paid during personal leave.

(f) Leave for public duties: Where an employee must be granted leave for public duties pursuant to laws and regulations, the employee must be granted leave according to the actual number of days required, during which wages must be paid.

(g) Menstruation leave: Where a female employee has difficulty carrying out her work as a result of menstruation, she may request menstruation leave for one day per month. The number of days of menstruation leave taken will be included in the calculation of days of sick leave. The calculation of wages is made pursuant to the provisions on sick leave.

(h) Family care leave: Where an employee has to take care of a family member who requires a vaccination or who is seriously ill, or where an employee must personally attend to his/her family member for other important reasons, the employee may take family care leave. The number of days of family care leave taken will be included in the calculation of personal leave and may not exceed seven days per year. The calculation of wages is made pursuant to the provisions on personal leave.

(i) Maternity leave and paternity leave: Please see the explanations under Sections 6.7 and 6.8.

(3) Procedure for taking leave

Where an employee must take leave, he/she must specify the reason for taking leave and the number of days of leave to be taken orally or in writing in advance. However, in the case of sudden illness or emergency, the employee may ask others to complete the leave-taking procedure on his/her behalf. When taking leave, the employer may request the employee to submit the relevant documents of proof.

5. Can employment contracts contain restrictive covenants such as non-compete clauses?

Whether or not non-compete clauses can be included in an employment contract depend on the timing of the prohibition, i.e., whether competition is prohibited during the term of Labor Relations or whether competition is prohibited after the termination of Labor Relations.

(1) Prohibition of competition during the term of Labor Relations

Since employment contracts are personal contracts, during the term of the Labor Relations, employees owe their employer a certain degree of loyalty. Thus, even if there is no explicit agreement between the parties, employees are still subject to a non-compete obligation.

(2) Prohibition of competition after the termination of Labor Relations

Prohibition of competition after the termination of Labor Relations would directly restrict the freedom of employment of employees after they leave the company, which would impact their right to work and survival. Thus, in principle, only when the parties have explicitly agreed to the said prohibition (e.g., signed an agreement, waiver or consent letter, etc.) and where the prohibition is legitimate and reasonable, will employees be subject to a non-compete obligation. In practice, factors determining whether a prohibition is legitimate and reasonable include:
(a) necessity of protecting the trade secrets of the former employer;
(b) the title and position of the employee during the term of his/her employment;
(c) whether the restrictions on the place of re-employment, period and area of non-compete are reasonable;
(d) whether the former employer has provided adequate compensation to the dismissed employee during the non-compete period; and
(e) whether the act of competition of the dismissed employee has violated the good faith principle.

6. Can the employment contract compel employees to work for an establishment for a minimum period of time?

The Labor Standards Act of Taiwan does not forbid the employer from requiring its employees to work for a minimum period of time. However, the minimum period of employment clause in a labor contract must comply with the following criteria before such clause is enforceable:
(1) there must be some necessity and reasonableness for an employer to require its employees to work for a minimum period of time (e.g., whether there is there any interest that the company is seeking to protect through the minimum period of employment clause, or considering all aspects, including the length of the minimum period, training period, training costs spent by the company and replaceability of the employees, etc, whether the clause is reasonable); and
(2) if the contract provides for a penalty, the amount of such penalty must be equivalent to the interests of the company to be protected, balanced against the ability of the employee to pay off such amount.

7. Are female employees entitled to maternity leave?

According to Article 50, paragraph 1 of the Labor Standards Act, before and after a female employee gives birth, she may cease work and be given eight weeks of maternity leave. Where a female employee is pregnant for more than three months and miscarriages, she may cease work and be given four weeks of maternity leave. Where the aforementioned female employee has been working for the Company for more than six months, full wages must be paid during maternity leave. Where the aforementioned female employee has been working for the Company for less than six months, half wages must be paid during maternity leave. Moreover, according to Article 15 of the Gender Equality in Employment Act, where a female employee is pregnant for more than two months but less than three months and miscarriages, she is to be given one week of maternity leave. Where a female employee is pregnant for less than two months and miscarriages, she is to be given five days of maternity leave.

8. Are male employees entitled to paternity leave?

According to Article 15 of the Gender Equality in Employment Act, when the spouse of a male employee gives birth, the employer must grant the said employee three days paid paternity leave.

9. What are the requirements for the issuance of shares by a Taiwanese company to its employees/directors?

(1) Employees?stock options

According to Article 167-2, paragraph 1 of the Company Act, unless otherwise provided by law or by the Articles of Incorporation, a company may, upon the resolution of a majority of the directors present at a board meeting attended by more than two-thirds of the total number of directors, enter into a stock option agreement with its employees whereby the employees may subscribe, within a specific period of time, for a specific number of shares of the company. Upon the execution of the said agreement, the company must issue a stock option certificate to each employee. The stock option certificate obtained by the employee cannot be transferred, except to the successor of the said employee.

(2) Employees?subscription to new shares issued by the company

According to Article 267, paragraph 1 of the Company Act, when a company issues new shares, unless otherwise approved by the central competent authority, the company must set aside 10% to 15% of the total number of new shares issued for subscription by its employees. However, the same shall not apply to the company of which investment by foreign companies and nationals accounts for 45％ or more of the total capital of a company.

(3) Exclusion from application

Sections 6.9.1 and 6.9.2 are applied only to employers. Directors and supervisors of a company are excluded from the application of the aforementioned provisions. This means, in principle, that a stock option certificate shall not be issued to each director and supervisor and any new shares shall not be reserved for subscription by directors and supervisors. However, exceptionally, the same shall not apply to the case where a director has employee status at the company at the same time (on the other hand, there appears to be no such exception for supervisors because they are prohibited to be concurrently “a director, a managerial officer or other staff/employee of the company?pursuant to Article 222 of the Company Act).

10. Can employees of a Taiwanese company be granted employee stock options in a foreign company?

There is no explicit restriction imposed by the laws of Taiwan as to whether a foreign company may grant stock options to its Taiwanese employees. Thus, the determination of the legitimacy of such grant depends on the law under which the said foreign company is established.

11. Are employee stock options eligible for favorable tax treatment?

Income generated from the exercise of stock options by an employee is included in the calculation of the employee’s personal income tax and there is no favorable tax rate. The calculation of the aforementioned income is the difference between the then-current price of the shares on the day the stock option is exercised and the price of subscription. The said amount is included in the amount of income earned in the year when the stock option is exercised, on which income tax is levied in accordance with the law. The so-called then current price refers to the price of the shares, if the shares are those of a publicly listed or OTC company (excluding those of a company listed in the emerging market), at closing on the day the stock option is exercised. If the shares do not fall under those stated above, then the so-called then current price refers to the net value per share as determined by the most recent financial report audited and certified by an accountant issued prior to the day the stock option is exercised. The so-called day the stock option is exercised refers to the date when the company issuing stock options or its agent delivers the shares pursuant to the agreement. Where the company delivers the payment receipt for the subscription of shares first, the so-called day the stock option is exercised refers to the date when the receipt is delivered.