American Chamber of Commerce in Thailand
12 February 2016 Annual HR/Legal Update
By: Pramote Srisamai and Douglas Mancill
High Level Guidance on Thai Labor Law
The climate for workplace relations in Thailand is generally stable and hence favorable for foreign investors. Large-scale, acrimonious labor disputes are relatively uncommon in Thailand. But labor relations are more highly regulated in Thailand than they are in the U.S.. For example, Thailand does not have “at will” employment. Terminated employees in Thailand are generally entitled to severance payments based on their term of service. As a generalization, Thai labor law is prescriptive in nature and therefore less flexible than U.S. law.
There are a wide range of laws governing labor relations in Thailand, including, among others, the Civil and Commercial Code (CCC), the Labor Protection Act, B.E. 2541, the Labor Relations Act, B.E. 2518, the Act Establishing Labor Courts and Procedures, B.E. 2522, the Workmen’s Compensation Act, B.E. 2537, the Social Security Act, B.E. 2533, the Promotion of Careers to Thais Act, B.E. 2499, Home Labor Protection Act, B.E. 2553, Safety, Sanitation and Environment of Working Act, B.E. 2554, and regulations promulgated under these acts. Labor disputes in Thailand are generally adjudicated in specialized labor courts. Appeals from labor court decisions go directly to the labor law division of the Thai Supreme Court.
2. Employment Conditions
The CCC fundamentally governs a “hire of services” contract. A hire of services is defined as a contract where an employee agrees to render services to an employer in return for remuneration for the duration of the services. The employer generally cannot transfer its right to a third person without the consent of his or her employee and the employee can only have a third person render services on his or her behalf with the consent of the employer.
The Thai Labor Protection Act provides for additional and obligatory employment benefits that are applicable to employment relationships in general. Some, but not all, of these obligatory benefits are briefly mentioned below. The Labor Protection Act is not applicable to all employees and not all of its provisions are applicable to all employees.
3. Work rules and regulations
An employer hiring 10 or more employees is required to establish, maintain, register and publicize at the place of work rules and regulations that must, at a minimum, contain the following:
- working days, normal working hours and rest period(s);
- holidays and rules for taking holidays;
- rules for overtime pay and work on holidays;
- date and place of payment of wages, overtime, holiday work and holiday overtime pay;
- rules regarding leave and the taking of leave;
- disciplinary rules and measures;
- grievance procedures; and
- rules pertaining to termination of employment, severance pay and special severance pay.
The work rules and regulations must at least provide for the minimum benefits prescribed by Thai law. Work rules and regulations can provide for more generous benefits than required by Thai law, but they cannot reduce employee “benefits” to below those provided for by Thai law. Determining what constitutes a “reduction in benefits” is not always easy. Further, in practice, this is sometimes a difficult and sensitive issue when, for example, the parent company’s compliance obligations provide for disciplinary measures in situations where Thai law may not permit such disciplinary measures. Counsel qualified on local and foreign anti-corruption matters should now review work rules and regulations.
One issue that often surprises human resources managers familiar with U.S. practices is the amount of statutory severance pay to which employees are entitled in Thailand. The amount of severance pay is based on the term of service and is summarized in the table below.
|Time period employed||Severance pay|
|At least 120 days, but less than one year||30 days basic pay|
|At least one year, but less than three years||90 days basic pay|
|At least three years, but less than six years||180 days basic pay|
|At least six years, but less than 10 years||240 days basic pay|
|At least 10 years or more||300 days basic pay|
4.2 Termination Without Payment of Severance
Pursuant to Section 119 of the Labor Protection Act an employer is not required to pay severance to an employee who is terminated for any of the following reasons:
- voluntary resignation;
- dishonesty in the performance of duties or intentionally committing a criminal act against the employer;
- intentionally causing loss to an employer;
- gross negligence causing a substantial loss to an employer;
- under certain narrow circumstances, violation of the work rules and regulations (a prior written warning within the past year is typically required);
- desertion of duties for a period of three consecutive days without reasonable cause, irrespective of whether a holiday intervenes; and
- imprisonment by reason of a final judgment, except for a petty offence or an offence resulting from negligence that does not result in any damage or loss to employer.
As should be evident from the above, it is very difficult to legally terminate an employee without paying statutory severance. Criminal penalties potentially apply for failing to pay statutory severance. In addition, employers may be required to pay a surcharge of 15% every seven days of the outstanding amount.
4.3 Notice of Termination
In addition to severance pay, when employees with an unspecified term (most employees) are terminated without “cause”, they are entitled to notice of termination (or pay in lieu of notice), which must generally be at least one full wage period unless the termination falls within Section 583 of the CCC, which provides:
If the employee willfully disobeys or habitually neglects the lawful commands of his employer, absents himself from service, is guilty of gross misconduct, or otherwise acts in a manner incompatible with the due and faithful discharge of his duty, he may be dismissed by the employer without notice or compensation.
4.4 Simplified Example
Assume Mr. A is a senior employee of a company and earns a basic salary of 100,000 Baht per month (this makes the math easy) and has been employed since 1 January 2012. (To make this example even easier, we assume that this is the total amount of his compensation even though there are sometimes disputes about whether additional amounts should be included in the calculation of basic pay.)
For purposes of this simplified example, we assume he is paid monthly, paid at the end of each month, and his employment contract has no termination notice provision. We also assume that the company cannot justify Mr. A’s termination under Section 119 of the Labor Protection Act (this is typically the case).
If we assume the company terminates Mr. A with immediate effect at the close of business on 12 February 2016 and without prior notice, he would be entitled to at least the following amounts:
- Payment through Date of Termination (12 February 2016): Mr. A would be entitled to pay through the date the termination notice was issued; this is normal in most jurisdictions.
- Payment in Lieu of Notice: This amount must equal wages from 13 February 2016 through the end of March 2016. Because Thai law requires payment of one full wage period in advance, some conclude that he would be entitled to one month’s pay. This is notcorrect. Here, Mr. A would be entitled to (a) pay up through the end of the pay cycle when he was terminated (wages from 13 February 2016 through the end of February); and (b) payment of one full pay cycle (wages for the entire month of March). To make this example simple, we assume this amount is approximately 160,000.
- Severance Pay: Because Mr. A has worked at least three years, but less than six years, he is entitled to 180 days severance pay. To make our example simple, we will assume this is the same as six month’s pay, or Baht 600,000.
- Payment of unused annual leave: Paid on a proportional basis up to 12 February 2016.
Total: Mr. A would be entitled to about Baht 760,000 for severance and payment in lieu of notice (excluding unused annual leave). In actual practice, however, there are often a number of complications that make calculation of the exact amount of severance difficult.
4.5 Unfair Termination
Employees can also claim damages from an employer for “unfair termination” on top of the statutory amounts to which they are entitled. Determination of what exactly constitutes “unfair termination” is not always clear and is within the discretion of the labor court if an unfair termination action is brought. As a very general principle if you cannot establish a termination was fair or justified (office closure), be prepared for the possibility that damages for unfair termination may be awarded.
4.6 Direct Liability of Management
Directors can be held directly liable under some circumstances for violation of Thai labor laws. A managing director, director or a person who has responsibilities for operations of the company may also be liable. A terminated employee can file a private criminal action against such parties and persons for failing to pay statutory severance. In practice, terminated employees do occasionally file private criminal actions alleging an intentional failure to pay statutory severance, to gain leverage or when the termination is particularly contentious.
5. Proposed Changes
At various times various parties have proposed changes to the Thai labor laws. As with any piece of proposed legislation, they may or may not be enacted and these proposed changes to Thai labor law can change during the legislative process. As general rule, we pay closer attention to legislation that has either been approved by the Thai cabinet or the Employment Department. We will, of course, monitor developments as they occur.
This overview does not constitute legal advice.
For more information about Thai law, visit our website at:
Mr. Douglas Mancill firstname.lastname@example.org
Mr. Pramote Srisamai email@example.com
Price Sanond Prabhas & Wynne Ltd
16th Floor, Q House Sathorn
11 South Sathorn Road Bangkok 10120
Tel: 02 679 1844
Fax: 02 679 1864