Terminating an employee in Taiwan requires more than good business reasons. Taiwan’s Labour Standards Act (LSA) sets out a narrow list of lawful grounds for dismissal, and courts consistently side with employees when employers can’t justify their decision. A wrongful dismissal claim can result in reinstatement orders, back pay liability, and significant reputational damage. If you’re a foreign company ending employment in Taiwan, getting the process right from the start is the only safe approach.
Grounds for lawful termination
The LSA draws a clear line between termination without cause and termination for cause. Both paths require documented justification. Picking the wrong one, or failing to document it properly, exposes you to a wrongful dismissal claim.
Termination without cause (lsa article 11)
Article 11 of the LSA lists the only circumstances in which an employer can terminate a contract without the employee being at fault. These are:
- Business closure or transfer
- Business contraction due to a loss or reduced capital
- Force majeure causing the business to suspend operations for more than one month
- A change in the nature of the business requiring a reduction in workforce, where no suitable alternative role exists
- The employee is genuinely incapable of performing the work they were hired to do
Each ground must be substantiated. “Restructuring” or “cost savings” aren’t standalone justifications under Article 11. If the business contraction or reorganisation argument is used, you need to show the reduction in workforce was necessary and that redeployment wasn’t feasible.
Termination for cause
For-cause dismissal is governed by LSA Article 12 and allows immediate termination without notice or severance. The grounds are specific: serious misconduct, a criminal conviction, deliberate damage to company property, engaging in a competing business without consent, continuous absence without justification, and similar serious failures. For-cause dismissal must be exercised within 30 days of the employer discovering the relevant facts. Miss that window and the right to terminate for cause lapses.
Notice periods
When terminating under Article 11, the employer must provide statutory notice based on the employee’s length of service. Pay in lieu of notice is permitted, and many employers choose this route to end the employment cleanly on the day of the decision.
| Length of service | Statutory notice |
|---|---|
| Under 3 months | None |
| 3 months to 1 year | 10 days |
| 1 year to 3 years | 20 days |
| Over 3 years | 30 days |
If you pay in lieu of notice, calculate the payment based on the employee’s average wage for the relevant period. Keep documentation showing the calculation and the date of payment.
Severance: old system vs new system
Taiwan runs two parallel severance systems, and which one applies depends on when the employee was hired. Getting this wrong is a common and costly mistake.
Pre-july 2005 employees (old system)
Employees who were hired and have been continuously employed since before July 1, 2005 may remain on the old Labour Standards Act severance system. Under this system, the employer pays 0.5 months of average wage for each full year of service on termination. Partial years are prorated. There’s no cap on the total number of years counted, so long-tenured employees can accumulate substantial entitlements.
Post-july 2005 employees (new system)
The Labour Pension Act, effective July 2005, replaced the old severance model for employees hired after that date. Under the new system, employers contribute 6% of the employee’s monthly wage to an individual pension account each month. Because those contributions have already been made throughout employment, no additional severance payment is owed at the point of termination. For most companies hiring in Taiwan today, this means termination severance liability is limited to whatever notice pay or unused leave is owed.
What this means in practice
If your Taiwan workforce was hired after July 2005 and has remained continuously employed since then, you don’t owe additional severance on top of notice pay. The 6% monthly pension contributions cover that obligation. However, if you have any employees who were on the payroll before July 2005 and have stayed continuously employed since, they may have accrued substantial severance rights under the old system. Audit this before initiating any termination.
For-cause dismissal
Dismissal for cause is the fastest route to end employment, but it’s also the highest-risk if the grounds don’t hold up. There’s no notice obligation and no severance entitlement, but the employer carries the full burden of proving the conduct meets an LSA Article 12 ground.
Document everything before acting: written warnings where applicable, witness statements, investigation records, and the date you first became aware of the misconduct. Taiwan courts will scrutinise the evidence carefully. If the cause ground fails, the dismissal becomes wrongful, and the employee is entitled to both reinstatement and back pay.
Probationary period terminations
Taiwan’s LSA doesn’t create a separate probation regime. Probationary employees enjoy the same termination protections as permanent employees, and the same LSA grounds and procedures apply from day one. Employers commonly set a three-month probation period, and it’s reasonable to assess performance during this window.
What you can’t do is treat the probation period as a free-fire zone for termination. If you’re ending employment during probation, you still need a valid LSA ground, the correct notice period based on service length, and documentation to support the decision. The shorter tenure simply means the notice period is likely to be shorter too.
Unused leave payout
Any annual leave the employee has accrued but hasn’t taken must be paid out at termination. This is a firm obligation under the LSA, not a discretionary benefit. The payout is calculated based on the employee’s daily average wage multiplied by the number of unused leave days.
Check your records carefully before the termination date. Disputes over leave balances are common in Taiwanese employment claims, and an underpayment here can turn into a separate legal exposure. Include the unused leave calculation in the final pay documentation.
Immigration obligations on termination
If the employee holds a work permit tied to their role with your company, the termination triggers immediate immigration obligations. You must notify the relevant authorities within 3 days of the termination date. Failure to do so is a regulatory breach on the employer’s side, regardless of the reason for termination.
Once employment ends, the foreign national has 14 days to either depart Taiwan or secure a new employer willing to transfer or sponsor their permit. Your obligations as the sponsoring employer end at termination, but the 3-day notification requirement must be met first. Build this step into your offboarding checklist so it doesn’t get missed in the administrative rush around a departure.
Wrongful dismissal risk
Taiwan courts treat wrongful dismissal claims seriously, and reinstatement is a live remedy, not just a theoretical one. An employee who successfully challenges their dismissal can be reinstated to their position and awarded back pay covering the entire period from termination to the court’s decision. That period can run to months or years if the case is disputed.
The practical implication is that every termination needs a documented paper trail. Written grounds, the timeline of events, notice calculations, final pay records, and any communications with the employee should all be retained. If the dismissal is challenged, the documentation you have on the day you terminate is what you’ll be relying on in court. Trying to reconstruct it after the fact rarely works in your favour.
How an EOR manages terminations in taiwan
Working through an Employer of Record (EOR) in Taiwan means the EOR holds the employment contract, manages the statutory notice and final pay obligations, handles the immigration notifications, and ensures the termination process is documented to the standard Taiwan courts expect. RemotePass supports compliant offboarding across Taiwan and across the region, reducing the legal exposure that comes with navigating LSA requirements directly. Book a demo to see how RemotePass manages compliant offboarding in Taiwan.
