Think Paying Severance Gives You Free Rein to Fire Anyone? The Most Common Legal Minefields in the Workplace!
"I already paid severance to the departing employee—why can they still take me to court, and why on earth did I lose the case?"
A small-and-medium enterprise owner I have known for years asked me this, his face full of bewilderment and resentment toward the justice system.
This reflects another widespread misconception in labor law.
Stop believing the myth that "paying severance means you can fire anyone whenever you want." Taiwan's labor regulations governing dismissal are far stricter than most employers imagine. One misstep can cost you not just substantial financial penalties, but your managerial credibility.
Here are seven workplace survival rules you cannot afford to ignore:
1. Severance Pay Is Not an "All-You-Can-Fire Buffet Voucher"
Many employers mistakenly assume: "I paid severance plus wages in lieu of advance notice—why can't I let them go?"
That is completely wrong. Severance pay is statutory compensation for a lawful separation; it is never an admission ticket an employer can purchase to secure unilateral dismissal power. Without valid statutory grounds (such as operational losses or an employee's demonstrated incompetence), no amount of money will save the termination from being legally null and void.
2. Dismissal Is the "Capital Punishment" of the Workplace—It Cannot Be Handed Down Lightly
Courts adhere to an absolute cardinal rule: the "Principle of Dismissal as a Measure of Last Resort" (解僱最後手段性原則).
This requires the employer to prove that termination was genuinely unavoidable—meaning you issued warnings, established improvement deadlines, provided coaching and training, and explored reassignment or alternative roles, all to no avail. If you bypass these intermediate steps and dismiss an employee outright, the labor court will almost certainly reject your defense.
3. Poor Performance? Firing Without a PIP or Proof of "Last Resort" Is Legal Suicide
Think an employee is "unfit for the job"? Talk is cheap in court.
Did you initiate a formal Performance Improvement Plan (PIP)?
Did you set concrete, measurable targets, assign reasonable deadlines, and provide coaching and resources?
Without a paper trail of documented counseling—or proof that you evaluated internal transfers and other measures first—dismissing someone simply because the boss subjectively feels "they aren't working out" will almost certainly constitute an unlawful termination.
4. The Price of Losing in Court: Paying Three Years of Back Wages for Zero Work + Reinstatement
This is an employer's worst nightmare. If an employee wins a lawsuit for the confirmation of the existence of the employment relationship (確認僱傭關係存在), the legal outcome is that the employment relationship was never severed.
If the lawsuit takes three years to resolve, you must pay all three years of accrued wages—plus statutory default interest at 5% per annum. What makes it worse: the employee was not required to work a single day during those three years. And to conclude the matter, you are legally obligated to reinstate them to their position.
5. Article 11 of the Labor Standards Act Is Not an À La Carte Buffet
A severance dismissal must strictly meet one of the statutory conditions outlined in Article 11:
Cessation of operations
Transfer of business
Operating losses
Business contraction
Suspension of work for more than one month due to force majeure
A change in the nature of business requiring workforce reduction with no suitable alternative work for reassignment
The employee is demonstrably incompetent to perform the assigned duties
If your business is profitable, orders are rolling in, and you merely want to "bring in fresh blood," you cannot arbitrarily invoke statutory severance clauses. The law demands objective evidence, not executive mood swings.
6. Employee Self-Protection: Never Rush to Sign a "Voluntary Resignation"
When a boss says, "Today is your last day, here's your severance," stay calm.
Never sign a "Voluntary Resignation Letter" or a "Mutual Contract Termination Agreement" under duress. Once you sign, you forfeit your statutory right to claim unlawful dismissal, risk losing unemployment benefits, and shred your ticket to seek judicial relief.
That said, labor and management can agree to part ways amicably through a mutually agreed severance, which can be structured as a lawful severance termination. In this situation, the employee has the legal right to request a Certificate of Involuntary Separation (非自願離職證明), and the employer cannot refuse.
7. Prevention Beats the Cure: Institutional Systems Are Your Best Defense
If you want to avoid catastrophic legal defeats, review your company's Work Rules and Performance Appraisal Policies immediately. From vetting statutory dismissal criteria to standardizing PIP processes and exit interviews, embedding governance under the rule of law into daily operations is the only way to prevent arbitrary management decisions from sinking the company when disputes arise.
Do you know business owners who still believe that paying severance entitles them to fire staff at will? Share this article with them—it may save them from facing an employee lawsuit they are virtually guaranteed to lose.
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