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Supreme Court Views on Legality of Dismissal of Employees and Forfeiture of Rights

In three judgments in 2013 (102 Tai-Shang-Zi No. 1732 (2013), 102 Tai-Shang-Zi No. 1766(2013), and 102 Tai-Shang-Zi No. 1932(2013)), the Supreme Court dismissed all the suits brought by employees who claimed that their former employer should pay them salaries as their dismissal was illegal. The Supreme Court held that those employees' rights to claim against their employer had been forfeited as they did not make the claims until years after their dismissal.
The plaintiffs in the three cases were all flight attendants who had been laid off by an airline in 2001 on the grounds of business contraction or operating loss after airlines around the world sustained a decline in business following the 9/11 terrorist attacks. All the employees received severance pay when they were laid off, had never objected in the roughly nine years since they left, and had other jobs. It was not until 2011 that they instituted those suits, requesting that the court confirm the existence of the employer-employee relationships between them and the former employer, and claiming that the employer should pay them the salaries and allowances payable to them since 2001. Despite the employer's contention that the plaintiffs' right to claim had been forfeited, the courts of first instance and second instance all determined that the rights forfeiture theory should apply to employers' rights only, confirmed the existence of the employer-employee relationships, and ordered the employer to pay the salaries payable to those former employees.
These three cases were appealed. Indicating that the rights forfeiture theory was derived from the principle of good faith and should also apply to employees' rights, Supreme Court handed down a judgment in 2013 (102 Tai-Shang-Zi No. 1732 (2013)), which stated:
Paragraph 2, Article 148 of the Civil Code states, "A right shall be exercised, and a duty shall be performed, using means of good faith." According to the rear part of Paragraph 1, Article 1 of the Labor Standards Act, Paragraph 2, Article 148 of the Civil Code should also apply to matters governed by the Labor Standards Act. Where an obligee repeatedly fails to exercise a right exercisable within a given time limit and such failure creates a special circumstance that is sufficient to cause the obligor to justifiably believe that the obligee will never exercise such right, the court should consider the nature of the right, the type of the lawful act, the relationship between the parties, social and economic circumstances, changes in time and place, and other subjective and objective factors. If an obligee suddenly exercises his/her rights after having failed to exercise the same for a long period of time, and the exercise puts the obligor in a quandary and goes against the doctrine of fairness and justice in the case at issue, the obligee's exercise of the right at the time should be considered against the legal ethics derived from the principle of good faith (forfeiture of rights). Under such circumstances, the obligee's right should be restricted, and the obligee may no longer exercise it. Believing that the rights forfeiture theory should be applicable to labor issues, the legislators added Paragraph 2 to Article 148 of the Civil Code on January 4, 1982, and the legislative intent of this paragraph expressly states: "The principle of good faith should apply to the exercise of any rights and performance of any responsibilities."
In the same year, in Judgment 102 Tai-Shang-Zi No. 1766 (2013), the Supreme Court stated:
A labor contract for a non-fixed term should be deemed a contract for continuous work, where the safety and specificity shall be emphasized first. The existence of a labor contract entails payment of salaries, provision of services, calculation of the worker's seniority, appropriation of retirement pension, the enterprise's internal personnel deployment, adjustment of assignments, etc. As a labor contract has a profound effect on the rights and interests of the employer and the employee, any disputes over it must be promptly solved. The fact that the German Labor Contract Termination Protection Act (Kundigungsschutzgesetz) prescribes a time limit for instituting lawsuits to dispute the legality of dismissal further confirms that issues over labor relationships should not be allowed to remain unresolved for an extended time. The rights forfeiture theory is derived from the principle of good faith. According to the legislative intent for adding Paragraph 2, Article 148 of the Civil Code, there is no reason to exclude application of the rights forfeiture theory to the exercise of employees' rights.
The rights forfeiture theory had been cited in many court cases. However, in cases where the rights to be exercised had not yet lapsed, or the statute of limitation issue was not even raised, the Supreme Court rarely precluded a party from exercising his/her right on the basis of the rights forfeiture theory. And most cases where the rights were forfeited concerned disputes over real estate.
In cases regarding the legality of employee dismissal, the courts tended to be more tolerant even when a dismissed employee raised no objection at the time of dismissal, and had voluntarily signed an employment termination agreement and received severance pay. However, in the above three judgments, rendered in quick succession, the Supreme Court revoked the second-instance judgments that were favorable to the employees and expressly declared that employees' right to exercise their rights under the labor contracts could be forfeited. It seems that the Supreme Court's attitude toward this issue has slightly shifted. Nevertheless, whether the Supreme Court will further deregulate the criteria for determining rights forfeiture or cite the rights forfeiture theory to restrict the exercise of certain rights in more cases in the future remains to be seen.