In the past, it was not uncommon for employers in Taiwan to require employees to sign post-employment non-compete clauses, although whether such non-compete clause can be legally enforceable was subject to legal parameters set by the Council of Labor Affairs of Taiwan. But Taiwan courts had sometimes applied their own criteria to determine the enforceability of such clauses, which were not always identical to those of the Council of Labor Affairs.
The Legislative Yuan of Taiwan amended the Labor Standards Act (Article 9-1) in order to more clearly stipulate the various criteria that a non-compete clause have to satisfy before it can be legally valid and enforced: (1) the employer must have a legitimate business interest that is worthy of protection; (2) the employee’s job position is one that affords opportunity for him or her to access trade secrets; (3) each of the limitations imposed by the non-compete clause must be reasonable; and (4) the non-compete clause must provide for reasonable compensation to the employee. Furthermore, the amended Labor Standards Act now clearly stipulates that a post-employment non-compete period cannot be longer than 2 years.
The Ministry of Labor recently amended the Rules governing the Implementation of the Labor Standards Act to further clarify this Article 9-1 of the Labor Standards Act:
- The geographical scope of the non-compete clause must be limited to the geographical areas where the employer has actual business operations;
- A non-compete clause must not restrict activities that are beyond the scope of work performed by the employee during the period of employment;
- Any restriction on working for another enterprise must be limited to such enterprise that has the same or similar business activities as the original employer, and who is a competitor of the original employer;
- Compensation that is at least equivalent to 50% of average monthly salary must be paid to the employee for undertaking post-employment non-compete obligation. Furthermore, such compensation must be sufficient for living expenses of the employee during the non-compete period, and must be sufficient to make up for the losses suffered by the employee as a result of observing the non-compete obligation.
From now on, it is clear that employers must abide by the above when drafting non-compete clauses for their employees. It is likely that any non-compete clause that is not compliant with the above will be held as not enforceable by a court of law in Taiwan.