The Labor Standards Act ("LSA") was significantly amended in May and June 2019 for the labor dispatch mechanism prescribed thereunder. Three new provisions were added and three were modified. The key points of the new regulations (the "Amendments") on labor-dispatching are summarized as follows:

I.Terms related to Labor Dispatch are Defined (Article 2, Item 6 to Item 10).

To codify the labor dispatch system, the Amendments have clear definitions for the three parties and their legal relationships involved in labor dispatching: (1) a "dispatching entity" means an entity engaged in the labor-dispatching business; (2) a "dispatch-requiring entity" means an entity that is actually supervising and managing a dispatched worker performing his/her job duties in accordance with a dispatch-requiring contract; (3) a "dispatched worker" means a worker who is employed by a dispatching entity but actually works for the dispatch-requiring entity; and (4) a "dispatch-requiring contract" means an agreement concerning labor-dispatched matters between a dispatch-requiring entity and a dispatching entity.

II.A Dispatching Entity Shall Not Sign a Fixed-Term Contract with Dispatched Workers (Article 9, Paragraph 1).

The labor authority issued the administrative ruling and the "Guidelines for Labor-Dispatching Rights" in 2009 to explain that dispatching entities are not allowed to sign a fixed-term contract with their employees engaging in regular work to meet their clients' demand. In addition, if a dispatch-requiring entity and a dispatching entity terminate the labor-dispatching service, the dispatched workers' right to work for the dispatching entity shall not be affected. The LSA and applicable regulations shall still apply where a dispatching entity terminates the employment contract with a dispatched worker.

The Amendments codify the above rules into the LSA. If a dispatching entity enters into a fixed-term contract with a dispatched worker, the dispatching entity may be subject to a fine of between NT$20,000 and NT$300,000. The authority may increase the fine by up to 50% of the maximum, by taking into account the size of businesses, the number of employees involved in the violation cases, or the circumstances of the violations, and the authority may publicize the names of the violators and their legal representatives. On the other hand, if a dispatching entity does not have adequate orders for labor-dispatching service and therefore there is a surplus of workers, it may only terminate the employment contracts, make the severance pay to the dispatched workers, and file the redundancy report with the competent authority in accordance with the laws.

III.A Dispatch-Requiring Entity Shall Not Ask a Dispatching Entity to Provide an "Identified Hiring" Service (Article 17-1).

The Amendments prohibit the commonly seen "identified hiring service" provided by a dispatching entity to a dispatch-requiring entity in the market. "Identified hiring" means that before a dispatching entity enters into an employment contract with a dispatched worker, the dispatch-requiring entity preforms the work regarding the recruitment, selection, appointment, or other actions to choose the candidates. After the Amendments took effect on June 21, 2019, any dispatch-requiring entity accepting the "identified hiring service" provided by a dispatching entity may be subject to a fine of between NT$90,000 and NT$450,000.

After the Amendments came into effect, the above "identified hiring" may trigger the following legal consequences and effects:

(1)A dispatched worker may notify the dispatch-requiring entity in writing to requesting the execution of an employment contract.

The dispatched worker may, within 90 days from the day the dispatch-requiring entity accepted his/her performance of service, express in writing his or her intention to sign an employment contract with the dispatch-requiring entity.

(2)An employment contract shall be deemed as formed in the event of the dispatch-requiring entity's failure to complete the negotiation with the dispatched worker within the statutory period.

The dispatch-requiring entity shall, within 10 days after receipt of the dispatched worker's intent to sign an employment agreement, negotiate with the dispatched worker the labor conditions and execute an employment contract. In case of failure to observe the above requirement, the employment contract shall be deemed to be formed between the parties from the next day after the 10-day period, and shall contain the same terms and conditions as those under which the dispatched worker actually provided the service to the dispatch-requiring entity.

(3)The dispatched worker's employment contract with the dispatching entity is deemed terminated.

When a dispatched worker signs an employment contract with a dispatch-requiring entity, his/her employment contract with the dispatching entity is deemed terminated, and the dispatched worker is neither responsible for the minimum service period as required, nor for refunding the training expenses.

(4)The dispatching entity shall pay the dispatched worker retirement pension or severance pay within the statutory period.

The dispatching entity shall pay the dispatched worker retirement pension or severance pay in accordance with the criteria and seniorities set forth in the LSA (i.e., Old Pension Scheme) and/or the Labor Pension Act (i.e., New Pension Scheme). Failure to comply with said requirement may be subject to a fine of between NT$300,000 and NT$1,500,000.

Furthermore, to protect dispatched workers' rights and interests, the dispatching entity and the dispatch-requiring entity shall not take any unfavorable measure against the dispatched worker for his/her expression of intent to enter into an employment contract. Any adverse disposition against the dispatched worker relating to the unfavorable measure shall be invalid and may trigger fine of between NT$90,000 and NT$450,000.

IV. A dispatched worker may request the dispatch-requiring entity to pay owed wages (Article 22-1).

The Amendments stipulate that if the dispatching entity is fined for failure to duly pay the owed wages to the dispatched worker, or ordered to pay the owed wages within a given period but fails to do so, the dispatched worker may request the dispatch-requiring entity to pay the owed wages. The dispatch-requiring entity shall make the payment within 30 days from the day the request is made. The dispatch-requiring entity may request for reimbursement by the dispatching entity, or offset the payment against the amount payable under the dispatch-requiring contract. That is, under the Amendments, the dispatch-requiring entity is liable for the owed wages to the dispatched workers if the dispatching entity fails to pay off the same, so the dispatched worker's right to claim for payable wages has double protection.

V.The dispatch-requiring entity and the dispatching entity shall be jointly and severally liable for compensation for occupational accidents (Article 63-1).

To protect dispatched workers' right to compensation for occupational accidents, the Amendments stipulate that the dispatch-requiring entity and the statutory employer (i.e., the dispatching entity) shall be jointly and severally liable for the compensation regarding occupational accident under the LSA. To encourage the dispatch-requiring entity to exercise its duty to supervise the dispatching entity in this regard, if either the dispatch-requiring entity or the dispatching entity has paid compensation with respect to the same accident under the Labor Insurance Act or other laws and regulations, both of the entities shall be entitled to offset such payments against the compensation payable thereunder. If an occupational accident is caused by the dispatch-requiring entity's and the dispatching entity's violation of the LSA or the relevant occupational safety and health regulations, the compensation paid by the dispatch-requiring entity or dispatching entity in accordance with the LSA may be offset against the damages arising from the same accident.

In the Amendments to the LSA regarding the new labor dispatch system, the most significant impact on dispatching entities and dispatch-requiring entities is the prohibition against the identified hiring (Article 17-1). If a dispatch-requiring entity is not allowed to select or appoint candidates prior to employment of dispatched workers by the dispatching entity, how can the dispatching entity lawfully expedite the recruitment process and find sufficient suitable dispatched workers to meet an urgent need of the dispatch-requiring entity? If a dispatch-requiring entity no longer needs the dispatched workers and requires termination of the dispatch-requiring contracts, it is very likely that the dispatching entity will not be able to arrange new jobs for such dispatched workers. Therefore, it leaves room for the competent authority's interpretation or the court's determination on a case-by-case basis as to whether the "business contractions" stipulated in the LSA (Article 11, Item 2) should apply in this connection. Based on the above, the amendment of Article 17-1 under the LSA poses an uncertainty and causes additional operational costs for dispatching entities in respect of the recruitment and matching services regarding dispatched workers, of which the cost will be transferred to the dispatch-requiring entities. Dispatch-requiring entities also need to be more cautious about the use of dispatch labor; otherwise, they can be at risk of violating the regulation on the identified hiring.