Tsar & Tsai Legal Cultural and Education Foundation Seminar –  Challenges of Termination of Employees to Companies

If an employee engages in illegal activities and has been sentenced to imprisonment by a final judgment and is not granted a suspended sentence or permitted to commute the sentence to payment of a fine, an employer can terminate the labor contract pursuant to Subparagraph 3, Paragraph 1, Article 12 of the Labor Standards Act. However, in most cases, an employer can only terminate the labor contract in accordance with Subparagraph 4, Paragraph 1, Article 12 of the Labor Standards Act. (“Where a worker is in serious breach of the labor contract or in serious violation of work rules.”)

In practice, courts’ determinations of “in serious breach of the labor contract or in serious violation of work rules” are based on the following tests: (1) substantial determination test: a court’s determination of “in serious violation of work rules” is not based on whether an employer lists the illegal conduct in work rules; (2) ultima ratio test: an employee is in serous breach of the labor contract and it is hardly to be expected that the employer would punish the employee by other means apart from dismissal; (3) proportionality test: whether the dismissal is an equivalent way to punish an employee’ violation. The criteria for determination include the types of violations, the employee as a first offender or repeat offender, intentional or negligent conduct, the risk or loss of the employer and the business caused by the employee, the relationship between the employee and the employer, and the seniority of the employee; (4) necessity of immediate dismissal test: whether the employment relationship is disturbed by the violation and it is necessary for the employer to terminate the labor contract immediately.

The following are the common cases that companies terminate labor contracts pursuant to Subparagraph 4, Paragraph 1, Article 12 of the Labor Standards Act. For example, regarding cases where an employee receives kickbacks from suppliers, there was a precedent in which the court held that the employee’s receipt of kickbacks from a supplier several times had violated his duty of loyalty to the employer. The supplier even raised the quotation caused by the kickbacks it had paid. Due to the fact that the employee did not protect the interest of the employer and did not prevent or reduce damages of the employer, the employee was in serious breach of the duty of loyalty under the labor contract, and in serious violation of work rules. Therefore, the dismissal was appropriate. For expense reimbursement fraud cases, the court held that the employee’s multiple false expenses reimbursed conducts violated the employee’s duty of loyalty, which seriously affected the company’s internal management. The employee was in serious violation of work rules, so the employment could be terminated.

In order to avoid unnecessary disputes, it is recommended that companies list the misconducts which may lead to dismissal in work rules and ensure that all employees are aware of it. Moreover, under Paragraph 2, Article 12 of Labor Standards Act, where an employer desires to terminate a labor contract pursuant to Subparagraphs 1 and 2, Subparagraphs 4 to 6 of the preceding paragraph, he/she shall do so within thirty days from the date he/she becomes aware of the particular situation. The court held that the commencement date of the thirty-day preemptive period should start from the date that the employer finishes the internal investigation process and the employer is convinced by the objective facts of the employee’s violation. Therefore, companies should be mindful of the commencement date of the said thirty days in order to protect the interests of both employers and employees.