Could an Employment Contract Have a Probationary Period?

Probationary period was originally regulated by Chapter 2 of the Enforcement Rules of the Labor Standards Act (“ERLSA”), which had a provision stipulating that “the probationary period for employees shall not exceed 40 days.” However, these regulations were removed from the ERLSA on June 12, 1997, which led to the following issues: (1) Could an employment contract have probationary period? (2) If so, how long could the probationary period be? (3) What should an employer do if, during the probationary period or after the probationary period ends, it believes that the probationary employee's performance or attitude is not suitable for permanent employment? This article summarizes Taiwan courts’ opinions on the above issues as follows for reference.

First, the Supreme Court recognizes that if a probationary period is necessary considering the nature of the work, the employer and the employee may agree to include a probationary period in the employment contract. This allows the employer to assess the employee's work attitude, personality, skills, and work-related abilities. Meanwhile, the employee may also get to know the workplace, work environment, and company’s culture.  By doing so, the employee could evaluate the company’s environment and development potential and decide whether to be continually employed (see Taiwan Supreme Court Civil Judgment 109-Tai-Shang-Zi No. 2374).

Regarding the length of the probationary period, the Taiwan High Court Civil Judgment 109-Lao-Shang No. 12 clearly stated that "based on the freedom of contract, the employer and the employee may freely agree on the length of the probationary period.  Such agreement shall be lawful and valid if it is does not violate the public policy,  principle of good faith, or mandatory regulations…It is not appropriate to have an unlimited probationary period.  Rather, the probationary period should be limited to the extent necessary to evaluate the employee's ability.  A period ranging from three to six months should be reasonable."

Furthermore, during the probationary period, the employer may conduct assessments based on its need at any time to (i) evaluate the employee's abilities, behaviors, and character; (ii) observe the employee's business performance, ethics, adaptability to the company’s culture, and responsiveness, and (iii) make an objective evaluation with specific facts on employee’s performance and determine whether the employee is suitable for permanent employment before/at the end of the probationary period. As long as the employer does not abusively exercise its rights (e.g., the reason to terminate is obviously not related to occupational suitability or the job content), the employer may enjoy greater discretion during the probationary period if it believes that the probationary employee is unsuitable for the job. Termination of the employment contract before/at the end of the probationary period is considered appropriate even if  the statutory causes under the Labor Standards Act (“LSA”) are not strictly complied. Accordingly, discharging a probationary employee for incompetence is sufficient if the employer could reasonably prove that the employee is generally incompetent for the job (see Taiwan High Court and Affiliated Courts, Legal Seminar dated November 25, 2020, Civil Proposal No. 11).

In addition, the employer may enter agreement with the employee who does not pass the examination and extend the probationary period, giving such employee a chance to make improvements (see Taiwan Supreme Court Civil Ruling 110-Tai-Shang-Zi No. 1). However,  to protect the interests of the probationary employee, Taiwan New Taipei District Court Civil Judgment 101-Zhong-Lao-Su-Zi No. 3 held that, besides having employee’s consent, a reasonable cause is required if the probationary period were to be extended, e.g. the probationary employee is hospitalized, making it impossible to examine his/her suitability, or the extension is for the probationary employee’s interest.  Otherwise, the extension for probationary period is not allowed.

As for the permanent employee who has passed the probationary period examination, if the employer finds the employee not suitable for the job shortly after the examination and intends to terminate the employment contract, the statutory causes under Articles 11, 12 and 13 of the LSA shall be strictly complied.

(The article is originally in Chinese which can be found here.)

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Could an Employment Contract Have a Probationary Period?