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What should I know before accepting to be a director, branch manager, or appointed manager of a Taiwan company? - Legal Relationship for Appointed Managers in Taiwan
Congratulations on being promoted to director of the Taiwan subsidiary. This is a moment of honor and joy! But do you know that as an appointed manager such as a director and branch manager, you will no longer enjoy the protection of the Labor Standards Act, including labor pension, severance pay, and annual leave! If one day the company wants you to leave, they don’t need to notify you in advance!
Mandate Relationships and obligations of an appointed manager/director
An appointed manager is someone who is appointed by the Company Law or Civil Law to have the right to manage and sign for the company’s affairs. Their relationship with the company is a mandate relationship, not a labor relationship. Therefore, they are not applicable to the protection of the Labor Standards Act, such as pension, severance pay, annual leave etc. The rights and obligations of appointed managers are mainly stipulated by the company’s articles of association or contract. Generally speaking, they have the following important obligations:
• Duty of care: It means that they have to execute company affairs with a reasonable, prudent and professional standard15.
• Duty of loyalty: It means that they have to be loyal to the company’s interests and not engage in competitive or self-interested or third-party beneficial activities15.
• Duty of compliance: It means that they have to execute company affairs according to shareholders’ meetings, board meetings or executive shareholder’s decisions. If appointed managers violate these obligations or violate laws/regulations/authority etc., they may be liable for compensation5.
As for their rights as appointed managers, they include:
• Agency right: It means that they can represent company in handling external affairs and sign for them4
• Business handling right: It means that they can manage internal business affairs4
• Remuneration right: It means that they can get remuneration according to articles of association or contract6
The Importance of Understanding the Legal Relationship for Appointed Managers
The Labor Standards Act protects workers who are employed by an employer for work and receiving wages. If the employment relationship is that of an appointed manager, then it is considered a mandate relationship under civil law regulations, and the Labor Standards Act no longer applies. It is important for managers to understand this legal relationship for their personal career development.
The Nature of the Contract for Managers
The nature of the contract for managers is judged based on substantial recognition, not just their title. Generally, according to civil commercial law system regulations, the contract nature for managers belongs to a mandate relationship. According to a letter from the Executive Yuan Council of Labor Affairs, appointing managers under the Company Law and appointing managers with the right to sign and manage business affairs for a firm under Civil Law Article 553 do not fall under the Labor Standards Act, and they are not considered workers.
For example, in the banking industry, some positions, such as those above manager level, are excluded from the scope of the Labor Standards Act. The relationship between these individuals and the employer is considered a mandate relationship and not an employment relationship, and therefore, they are not protected by the Labor Standards Act.
Differences Between Employment and Mandate Relationships
The differences between these two relationships are significant. Under the Labor Standards Act, employers must have legal reasons for firing a worker, pay severance pay when laying off a worker, pay retirement money when a worker meets retirement conditions, and pay occupational injury compensation when an injury occurs. However, under a mandate relationship, the employer does not have these protections. According to Civil Law Article 549 Paragraph 1, "Any party can terminate a mandate contract at any time." When a manager is dismissed, they cannot seek judicial relief based on improper dismissal by the company. Retirement money, severance pay, occupational injury compensation, and other labor conditions are self-agreed between the appointed manager and the enterprise unit and do not fall under the rights and obligations regulated by the Labor Standards Act.
Extension questions :
Q1: We have hired an employee in Taiwan and designated them as the director of our Taiwan company. What changes can they expect in their insurance fees and benefits?
Ans: The relationship between a Taiwan company and its director is not considered employer and employee, which means the director is not considered an employee and will not be covered under the Employment Insurance Act. This means, being the director, you will lose the company's contribution to their pension, which is typically 6% of their salary. However, as you still work for the company, you still have coverage of labor insurance.
First, he will lose his pension contributed by the company, which equals 6% of his salary.
Second, his personal contribution to the National Health Insurance fee and Labor Insurance fee will increase from 2% of his salary to 9% of his salary.
If David, a Taiwan employee, gets TWD 100,000 per month before promoted the director. One day, he gets promoted to be the director of the company and has 10,000 salaries raised per month. Is it a real raise for him?
Before David promoted to be director, his personal contribution to health insurance and labor insurance is about 2%, of his salary. The company’s contribution is about 18% of his monthly salary, which is 18,000.
After he becomes the director, his personal contribution becomes from 2,000 to 9,000 and he also lost his pension contribution from the company, equal to 6,000. So basically, David needs to pay an extra 7,000 (9,000-2,000) and also lost 6,000 pensions contributed from the company. The total monthly loss is 15,000, even though he has 10,000 salaries raised per month. For David, it may not be a good deal for David. Some companies raise their salary by more than 15% to compensate for the loss due to Taiwan's insurance and pension system.