Non-Compete Clauses Lacking Compensation Cannot Be Cured by Unilateral Employer Payment in Taiwan

In Taiwan, it is widely accepted and rarely disputed that non-compete clauses for employees, which lack accompanying compensation, are deemed invalid. This principle was explicitly codified in the 2015 amendments to the Labor Standards Act, which stipulated that reasonable compensation is a necessary condition for post-employment non-compete clauses.

For senior executives, who may not be classified as "labor" under the Labor Standards Act and thus may not be subject to its provisions, courts have generally upheld that reasonable compensation is still a necessary condition for post-employment non-compete clauses.

However, the debate over the validity of non-compete clauses is far from settled, with several noteworthy issues remaining. For instance, if an employer signs a non-compete agreement without including a compensation clause, can they later pay the compensation at the time of the employee's departure to enforce the non-compete? Can the employee refuse such an arrangement? Essentially, can an employer unilaterally remedy a flawed contract by actually paying the compensation?

While this scenario might seem unlikely, it is possible in highly competitive industries where the employee possesses key competencies. Recently, a court case addressed such a situation. The court ruled that a post-employment non-compete agreement, which lacked a compensation clause at the time of signing, could not regain validity merely because the employer decided to pay compensation at the time of the employee's departure.

Post-employment non-compete clauses are frequently used contractual documents by companies. While businesses often reuse existing clause templates, it is essential to consider more tailored and thoughtful planning for their specific operations. For instance, beyond the previously mentioned issue that a non-compete clause without a compensation provision at the time of signing can lead to invalidity, employers should also consider scenarios where there is a non-compete clause at signing, but the employer does not intend to enforce it when the employee leaves.

These are important considerations that employers can think through more carefully when drafting employment contracts to create more appropriate and effective clauses.

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[This article provides only a general overview of the issues discussed and does not constitute legal advice or conclusions regarding any specific case. It also does not necessarily represent the positions of this firm or its clients. If you need specific legal advice, please consult a professional attorney.]

Benjamin, An-kuo LAI

Giant Group Law Firm

[email protected]