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Treatise on Issues of Labor Rights Protection by Enterprises during Economic Recession - Beginning with Unpaid Leave, Suspension without Pay and Transfer

Ling Wang
Lee Tsai Partners Attorneys-at-Law - Taipei Office

January 18, 2013

Since the financial tsunami in 2008, enterprises have suffered from reduced demands for manpower due to a sharp decline of orders during economic recession and mostly adjust the work hours of employees in the form of “unpaid leave,” “suspension without pay” or “job transfer” to continuously reduce labor cost.  The various economic statistics in Taiwan have been weak again since 2012.  According to the statistics released by the Council of Labor Affairs, there were as many as 3000 people on unpaid leave in Taiwan in March 2012.  This figure was slightly reduced to 547 in August 2012, even though the market has still shown continued pessimism.  It stands to reason that unpaid leave will also worsen in the fourth quarter, triggering more labor rights protection issues such as suspension without pay or transfer.  Such issues pertain to three methods by which an enterprise adjusts labor relations, namely, “unpaid leave,” “suspension without pay,” and “job transfer.”  Their legal characteristics and relevant requirements are explained below. 


1.      Unpaid leave. 

Unpaid leave is not a term defined under the Labor Standards Law, and its substance should be understood as follows.  The controversial issue is whether an employer may assert, with respect to reduced wage payment to the employees for their reduced work hours, that wages may be exempt in accordance with Article 266 of the Civil Code on the ground that changes in economic cycles are reasons not attributable to the employer. 


In this regard, it is held in practice and by the competent authority that the boom or bust of the economy and the availability of orders are the risks that an enterprise is supposed to assume and are different from reasons not attributable to enterprises.  Therefore, the Council of Labor Affairs holds that although the government does not prohibit the practice of unpaid leave, relevant provisions of the Labor Standards Law and the Notice for Negotiated Reduction of Work Hours by the Employer and Employees to Accommodate Impact from Economic Cycles promulgated on December 1, 2011 shall still be followed when measures of unpaid leave are taken.  In addition, the Council of Labor Affairs issued the Lao-Dong-2-0970130987 Circular of December 22, 2008 to communicate that although work hours can be temporarily reduced with a pro rata reduction of wages subject to agreement between the employers and the employees after negotiations if the employers suffer from suspension or reduction of production due to economic recession, it is still necessary to follow Article 21, Paragraph 1 of the Labor Standards Law, which stipulates that “the wages shall be agreed by the employer and employee, provided that they shall not fall below the minimum statutory wage," to safeguard the basic livelihood of workers.  Therefore, the monthly wages paid to full-time workers whose wages were previously paid by month as agreed still shall not fall below the minimum statutory wage (NT$17,280). 


2.      Suspension without pay. 

Measures regarding suspension without pay are only stipulated in the Regulations of Leave-taking of Workers and the Gender Equality in Employment Law.  However, such measures are conducted only upon voluntary application of the employees.  In this connection, can an employer unilaterally request such measures and obtain the consent of the employees to address the issue of excessive manpower of the enterprise? 


According to the Tai-88-Lao-Dong-2-0035940 Circular of August 19, 1999 and the Tai-90-Lao-Zi-2-0008271 Circular of March 15, 2011 from the Council of Labor Affairs, “if a business organization does not intend to terminate labor contract for the above-mentioned reasons (under Article 11 of the Labor Standards Law), the employment relations continue to exist and no arbitrary decision may be made to compel workers to apply for suspension without pay,” and “although there are provisions about suspension without pay under Article 5 of the Regulations of the Leave-taking of Workers as stipulated by the Labor Standards Law, still if the employer seeks to deal with factors such as economic cycles or corporate losses via suspension without pay, this should be determined by employment-management negotiation, and the employer shall not arbitrarily take such measure.” 


3.      Job Transfer. 


As previously stated, since suspension without pay cannot be unilaterally decided by an employer, most employers deal with and allocate excessive manpower mostly by way of “job transfer” in practice.  Therefore, there are controversies in practical opinions regarding whether an employer enjoys the “job transfer authority," i.e., whether the transfer measures taken by the employer require the consent of the employees. 


According to the gist of the 94-Ju-Lao-Jien-12 Judgment rendered by the Hsinchu District Court, since job transfer involves changes to the elements of the original contract between the parties, the employer is still required to obtain the consent of the employees prior to job transfer unless it is stipulated in the contract that the authority to change the job descriptions of the employees shall be exercised by the employer. 


However, the majority of the practical opinions currently hold that to the extent the five principles for job transfer as promulgated by the Ministry of the Interior on September 5, 1985 are satisfied, job transfer is an employment adjustment measure to avoid termination of employment and the employees do not have the right to refuse (the 93-Chung-Shang-Keng-(1)-74 Decision of the Taiwan High Court, the 93-Lao-Su-139 of the Taipei District Court, the 95-Lao-Jien-Shang-19 Judgment of the Kaohsiung District Court and the 96-Lao-Shang-12 Decision of the Taichung Branch of the Taiwan High Court).


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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