In its recent public statement, the Ministry of Labor (the "MOL") has announced that it will soon publish a new administrative guideline with respect to employment-related noncompete provisions. This will be a first-of-its-kind regulation in the realm of noncompetes for employees.
There is currently no legislation in Taiwan that specifically governs employment-related noncompete provisions. In practice, employers typically bind important employees to noncompete restrictions as part of the employment agreement. Binding employees to noncompetes during their term of employment usually does not raise too much of a concern. However, enforcement of post-employment noncompete provisions is generally decided by courts on a case-by-case basis. Courts will typically look at all circumstances of the case including:
- The employee's rank, the scope of geographic restrictions, and scope of restricted activities;
- Other terms of the noncompete obligation;
- Whether the employer has a legitimate legal interest to be protected (e.g., IP or trade secret), and
- Whether any compensation is provided as consideration for the noncompete obligation.
Although recent decisions suggest that courts are leaning toward requiring some compensation as consideration for the noncompete, case law does not yet provide any clear guidance as to what minimal level of compensation is required in order to make the noncompete valid and enforceable.
The MOL has confirmed that the new guideline will provide that noncompete provisions should only be signed with the purpose of protecting trade secrets, intellectual property, or superior techniques, and the restricted period should not exceed two years (post-employment) at a maximum. Compensation is another key to upholding the validity of a noncompete provision. The new guideline will also provide that an employee subject to a post-employment noncompete restriction should be compensated by at least 50 percent of such employee's monthly salary. Employers will no longer be able to argue that compensation for the noncompete is included already in the employee's normal salary compensation.
Currently, the MOL is aiming to officially publish this new administrative guideline in mid to late October 2015.
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