This website uses cookies to improve your browsing experience. By continuing to use this website you agree to our use of cookies. For more information on our use of cookies, click here to review the Cookies Policy.。
An employer who wishes to enter into a post-termination non-compete agreement with its employee is required by Subparagraph 4, Paragraph 1, Article 9 of the Labor Standards Act (the "LSA") to provide reasonable compensation for the employee's loss suffered as a result of not engaging in a competing business; otherwise, such agreement will be void. As for the definition of "reasonable compensation," Paragraph 1, Article 7-3 of the Enforcement Rules of the Labor Standards Act provides the following four criteria in this regard: "the amount of monthly compensation shall not be less than 50% of the average monthly wage of the employee at the time of separation," "sufficient to cover the employee's living expenses during the non-compete period after separation," "comparable to the loss suffered by the employee in complying with the non-compete restrictions regarding the period, area, scope of business activity and employment," and "other matters relevant to determining the reasonableness of the compensation basis. Therefore, "50% of the average monthly wage at the time of separation" (i.e., the "half-pay compensation") is the statutory minimum amount of non-compete compensation. A non-compete agreement will be invalid if the compensation thereunder is lower than this threshold. Even if the employer has offered compensation of above 50% of the average monthly wage at the time of separation, the court will still examine the other criteria to determine whether the non-compete compensation offered by the employer is reasonable.
A further review of recent court rulings reveals that there is no uniformity in practice as to exactly how much an employer should add to the amount of the half-pay compensation to meet other reasonable criteria for it to be a "reasonable compensation". Some courts have ruled that even if an employer only offers the half-pay compensation, if such amount has been agreed to by the employee in writing and is several times higher than the minimum wage, and the employee has not proved that he or she has suffered a loss that is not commensurate with the compensation, it should be considered sufficient to cover his or her living expenses, and the post-employment non-compete agreement between the parties will be valid (Taiwan High Court Civil Judgments No. 109-Lao-Shang-52 (2010) and No. 109-Chung-Lao-Shang-42 (2010)). Meanwhile, other courts have also made reference to the average monthly consumption expenditure per person published by the Directorate General of Budget, Accounting and Statistics of the Executive Yuan (Tainan District Court Civil Judgment No. 106-Su-71 (2017)) and the minimum living expenses published by the local governments (Taiwan High Court Kaohsiung Branch Civil Judgment No. 109-Lao-Shang-37 (2010)) to determine that even if an employer offers half-pay compensation, if the amount is lower than the monthly expenditure per worker in the county or city where the employee lives or only slightly higher than the minimum cost of living, it would not be deemed sufficient to cover the employee's living expenses and is not considered "reasonable compensation". As such, the non-compete agreement will be deemed invalid.
The Supreme Court recently made a determination on the definition of "reasonable compensation" in a judgment pertaining to a non-compete agreement. In this case, the departed employee's monthly average salary was NT$56,220 for the six months before his departure. The employer offered the employee the half-compensation, i.e., NT$28,110, as the non-compete compensation under the non-compete agreement between them. Nevertheless, in Civil Judgment No.109-Lao-Shang-210 (2010), the Taiwan High Court considered that the employee was a middle-level technician earning less than NT$60,000 per month, but he was the sole breadwinner of his family and had to raise a minor child together with his spouse who was on a leave of absence to raise the child. The court therefore averaged the monthly expenditure of each person in Hsinchu County, where the employee worked, and Miaoli County, where he lived (NT$24,391 and NT$18,057 respectively) and multiplied it by three to determine that the normal monthly household expenditure/expense of a family of three should be NT$63,672. Hence, the employer's half-pay compensation of NT$28,110 was not enough to cover the employee's living expenses during the non-compete period, and was thus ruled not reasonable. However, the Supreme Court Civil Judgment No. 111-Tai-Shang-1831 (2022) overruled the aforementioned decision of the Taiwan High Court. The reasoning of the Supreme Court is that the amount of the compensation agreed between the employer and the employee is not lower than the threshold of half-pay as provided by the law, and whether the amount of the non-compete compensation is reasonable or not should be determined based solely on the employee himself, without regard to his family members.
Thus, Supreme Court Civil Judgment No. 111-Tai-Shang-1831 (2022) highlights the following two key points:
1.Non-compete obligations may not only apply to high-ranking employees with high salaries, but may also apply to middle-level employees with average salaries.
2.Non-compete compensation is not aimed at covering the living expenses of the employee's family during the non-compete period.
