Newsletter
IMPACT ON BUSINESSES OF MASS REDUNDANCY LAW
The Protective Law for Mass Redundancy of Employees (PLMRE) was promulgated by the President on 7 February 2003. To give busi-nesses a buffer period in which to prepare themselves, the PLMRE will not come into ef-fect until three months after the promulgation date. The PLMRE mainly prescribes procedures to be followed by business entities before mak-ing redundancy that meet the definition of a mass redundancy. The provisions include: a duty to notify the labor union or labor representatives in advance and present a written redundancy plan, a duty to consult in good faith, and to assist workers in finding reemployment, powers to prevent company officers leaving the country if arrears of wages, retirement fund contributions, and severance pay exceed certain amounts, and a duty to provide financial statements and related information. Entities that violate the PLMRE are subject to fines ranging from NT$30,000 to NT$500,000. Once coming into effect, the PLMRE will have a substantial impact on en-terprises' labor relations and personnel costs. The main points of the PLMRE, and some legal issues that may arise from it, are outlined below:
I. Scope of Application
The PLMRE defines a "mass redundancy of employees" as the termination of employees on any of the grounds defined by Article 11 of the Labor Standards Law (LSL) (i.e. termination due to cessation of operations, sale of business, losses, contraction of business, changed nature of business, or employees' confirmed incompetence for duties), or due to a merger, acquisition or restructuring, if the number of workers or pro-portion of the workforce terminated (not in-cluding workers employed under fixed-term contracts) reaches any of the following thresh-olds:
1.Calculation based on a single factory premises of a single business entity:(1)Where there are less than 30 employees, termination of more than 10 employees within a period of 60 days;
(2)Where there are 30 to 199 employees, termination of one-third of the em-ployees within a period of 60 days, or more than 20 on one day; or
(3)Where there are 200 or more employees, termination of one-third of the em-ployees within a period of 60 days, or more than 50 on one day.
2.Calculation based on the total employees of a single business entity: In the case of a business entity with 500 or more employ-ees, the PLMRE applies to any termination of one-fifth or more of the total employees within a 60-day period.
The PLMRE does not explicitly define the terms "business entity" or "single factory premises" and therefore there is likely to be doubt over how an enterprise should calculate whether its ter-mination of employees is a mass redundancy within the meaning of the law. Article 1 of the PLMRE provides: "Matters not governed by this law shall be governed by the provisions of other laws." Article 2 Item 5 of the LSL defines a "business entity" as an organization, in any of the sectors to which the LSL applies, that employs workers to perform work. As interpreted by the Ministry of the Interior (MOI), a single business entity encompasses its head office and its branch organizations, while in the view of the Judicial Yuan, "business entity" means the entirety of a company, enterprise or firm, and not its indi-vidual internal departments.
The term "single factory premises" also appears in the Labor Union Law. According to an in-terpretation of the term issued by the Council of Labor Affairs (CLA), "single factory premises" refers not only to factories and mines, but to any place of work; however, the CLA did not further define the term "place of work." If we look for terms similar to "place of work" in current leg-islation, we also find the term "establishment," which according to interpretations issued by the MOI and CLA means a place that is a focus of economic activity (such as a factory, farm, or office), judged by whether it has a single set of accounting records stamped by the tax authori-ties, or is able to separately undertake various business registrations.
Thus "business entity" as referred to in the PLMRE can probably be taken to mean the whole of a company, enterprise or firm; as for "single factory premises," it is not clear at this time whether the above interpretation of "estab-lishment" can be applied, or whether the term refers to all premises where employees work. But this question affects which threshold applies when a business entity calculates the number of its employees, and as such is a fundamental issue for the application of the PLMRE.
In particular, if an enterprise needs to lay off workers when it acquires part of the operations or assets of another company, should it base its calculation of the number of employees on the number employed at a single factory premises, or need it only apply the standard for business en-tities with 500 or more employees? There is a pressing need for timely further clarification from the government authority.
The PLMRE applies where a business entity terminates employees due to merger, acquisition, or restructuring. But according to the provisions of the Corporate Mergers and Acquisitions Law (CMAL) and interpretations by the CLA, at the time of a merger, acquisition or restructuring, if employees refuse offers of continued employ-ment, the old employer must give such employ-ees prior notice of termination of their employ-ment contracts, and pay them severance pay, in accordance with the LSL. However, because such declining workers are among those to be retained, and are not on the list of employees to be terminated, there is also doubt about as to whether their number should be included in the number of employees to be terminated, as re-ferred to in the PLMRE.
The legislative intent of the PLMRE, as stated in Article 1, is to prevent workers' interests from being harmed or jeopardized by mass termina-tion without prior warning. This is why the PLMRE is framed to require an employer, in advance of a mass redundancy, to present a written redundancy plan, and to inform and consult with its labor union or labor representa-tives. It would appear that the only reasonable interpretation in keeping with the spirit of the legislation is that workers whom the employers intend to keep ought not to be included in the calculation. This view is supported by the fact that the PLMRE provides that the redundancy plan should state the criteria for the choice of employees to be terminated, and that the em-ployer must inform and consult with its labor union or labor representatives at least 60 days before the date of the mass termination.
One should also consider the practical conse-quences if workers who refuse offer of continued employment do have to be included in the cal-culation. The plan for a mass redundancy must be communicated to the labor union or labor representatives 60 days beforehand. But ac-cording to the provisions of the CMAL, the em-ployers in a merger or acquisition must issue written notices of continued employment 30 days before the record date of the merger or ac-quisition. Employees receiving offers of reten-tion must indicate within 10 days after receipt whether they wish to remain in employment, and those who fail to respond are deemed to have agreed to the offers. In other words, the current employer will not know for certain whether such workers will decline to remain in employment until only 20 days before the merger or acquisi-tion record date. Thus there would be a conflict between the time points applied by the PLMRE and the CMAL, which would create difficulties in practice.
Thus, it would appear that the declining workers should not be included in the calculation of the number of employees to be terminated as re-ferred to in the PLMRE, but this point requires further clarification from the government au-thority.
II. Duty to disclose
The most important aim of the PLMRE is to prevent mass redundancy without warning. Therefore, except in sectors designated by the CLA, any business entity planning for mass termination must, 60 days before the event, dis-close a written redundancy plan to the govern-ment authority, the labor union, representatives of the labor or all employees of the affected de-partment. But the 60-day minimum period is waived in the case of natural disasters and other emergencies or unforeseen circumstances. A business entity that violates this duty of notifi-cation may be fined from NT$100,000 to NT$500,000.
The plan must state the reasons for the redun-dancy, the departments affected, the dates, the number of persons affected, the criteria for se-lecting those employees to be terminated, the method of calculating severance pay, and a plan for reemployment assistance. The PLMRE does not mandate how criteria for termination should be formulated if the business entity is terminat-ing only part of its workforce, but the CLA ex-plains that when a business entity needs to downsize its workforce, it should preferably give priority to retaining union members. However, whether or not to join a labor union is surely a matter of a worker's freedom of association, and union and non-union workers should be afforded equal protection, whether at the time of em-ployment or of termination. Thus, it remains to be seem whether the CLA review will be upheld by the court.
The PLMRE also provides that a business entity may not terminate employees on the grounds of race, language, social class, ideology, religion, political affiliation, place of ancestral origin, gender, appearance, physical or mental disability, age, or the holding of a labor union office, and that terminations that violate these provisions shall be void. In such cases the government au-thority will order the business entity to reinstate the employees within a specified period, and in case of non-compliance will use specially allo-cated funds to subsidize the terminated em-ployees to take legal action. This provision is based on the principle of equality of opportunity in employment; however, the scope of its appli-cation is not clearly defined. Therefore whether the criteria that a business entity formulates to select workers for termination may include such factors as seniority, wage level, employment grade, work efficiency, performance rating, or degree of cooperativeness, is a matter for careful consideration.
III. Duty to consult
Labor and management should conduct consul-tations within ten days after a redundancy plan is presented. If either side refuses consultation or are unable to reach an agreement, the govern-ment authority should, within ten days after a request by any concerned party, call together both sides to constitute a consultation committee. Such committee should comprise five to 11 members, including a representative appointed by the government authority as chairperson, and equal numbers of representatives from both sides. Where the business entity concerned has a labor union, the labor representatives should be dele-gated by the labor union. A business entity that refuses consultation or fails to notify the entire affected workforce that they should elect repre-sentatives may be fined NT$100,000 to NT$500,000.
The consultation committee should meet at least once every two weeks. An agreement reached by a consultation committee will be binding on in-dividual workers. But the PLMRE does not make any provision as to how a consultation committee should reach an agreement, and therefore it is not clear at present whether its resolutions should be made by majority vote or by unanimous vote. However, the CLA appears to be leaning toward the view that unanimous decisions are more in keeping with the spirit of the PLMRE.
If a consultation committee is unable to bring about an agreement before the date of the re-dundancy, is the terminations still valid? If the business entity does indeed have statutory grounds for such terminations, the criteria for selecting employees for termination are not dis-criminatory, and severance pay and pension contributions have been paid as required, then even if labor and management are unable to reach an agreement, the plan should still be valid and effective. If there is any dispute, the parties should seek to resolve it in accordance with the Labor Disputes Settlement Law.
IV.Assisting dismissed workers in finding reemployment
The PLMRE imposes a duty on employers to assist terminated employees in finding new jobs. After a consultation committee has been consti-tuted, the government authorities should station employment service personnel at the workplace to assist both labor and management by provid-ing employment services and advice on voca-tional training. An employer may not refuse such assistance, and should also arrange times to allow employees to receive individual assistance from the employment service personnel. An employer who violates these provisions may be fined NT$100,000 to NT$500,000. After a mass redundancy, if the employer subsequently hires employees to do similar work, it should prefer-entially rehire employees terminated in the mass redundancy.
V. Restrictions on management traveling
If at the time of a mass redundancy a business entity is in arrears of payments of worker re-tirement fund contributions, severance payments, and wages in excess of certain total amounts (which vary according to the number of em-ployees terminated), and it fails to make up such payments within a time period set by the gov-ernment authority, the CLA may make an order prohibiting the company chairperson and offi-cers from leaving the country. But if (i) the business entity has provided a surety equivalent to the amount in arrears; or (ii) after liquidation and dissolution of the entity there are no re-maining assets to pay off such arrears; or (iii) a final allocation toward the arrears has been made in the course of bankruptcy proceedings, then the CLA may lift such ban.
VI.Provision of financial statements and re-lated information
The PLMRE also provides that in the case of business entities with 30 or more employees, if any of the following circumstances arises the persons or entities indicated below have a duty to notify the government authority, even where there is no mass redundancy: (i) if an entity with less than 200 employees is in arrears of wage payments by two months or more, or an entity with 200 or more employees is in arrears of wage payments by one month or more, the labor union or employees should notify the government au-thority; (ii) if an entity is in arrears of Labor In-surance contributions, Wage Arrears Repayment Fund contributions, or National Health Insurance contributions by two months or more and in an amount of NT$200,000 or more for any one type of contribution, the Bureau of Labor Insurance or the Bureau of National Health Insurance should notify the government authority; (iii) if an entity suspends work in all or a major part of its op-erations, the labor union or employees should notify the government authority; (iv) if a resolu-tion is passed approving a merger or acquisition, the labor union, employees, or business entity should notify the government authority; or (v) if there has been a major industrial dispute within the last two years, the labor union or employees should notify the government authority.
The above duties of notification are not manda-tory, and failure to notify attracts no penalties. Within three days after receiving such notifica-tion the government authority may order the business entity to produce financial statements and related information or provide explanations, and an entity that fails to comply with such order may be fined NT$30,000 to NT$150,000. Noti-fication of a business entity's resolution to par-ticipate in a merger or acquisition may be made not only by the entity itself, but also by its labor union or workforce. However, participation in a merger or acquisition is a matter for entrepre-neurial decision, and it is not clear how the labor union or workers would obtain accurate infor-mation to notify to the government authority. But if they do, the business entity may immedi-ately be required to produce financial statements and related information. Although the PLMRE requires the government officials to keep the information confidential, it will be worth watching in practice whether this will lead to difficulties in practice.
The PLMRE will not come into effect until 7 May 2003, and if CLA can clarify the various questions by then it will greatly reduce any ad-verse impact on enterprises and obstacles to en-forcement. Companies that expect to make large-scale redundancy should make appropriate arrangements in advance, to avoid breaking the PLMRE or provoking industrial disputes.