Asia-Pacific employment law bulletin 2023

Thailand

Although the impact of the Covid-19 pandemic gradually subsided over the course of 2022 and most of the workforce in Thailand have now returned to the workplace, Thai labour law remained largely unchanged in 2022. Despite the absence of any material legislative developments in Thai labour law in the past twelve months (apart from the abortive attempt to amend the law in relation to working from home), a common issue that continues to receive attention is unfair termination. 

Deconstructing unfair termination

Partly as a result of Covid-19, 2022 saw far more instances of companies dismissing employees in order to save costs or to restructure, which has led to the terminated employees (i.e., employees who did not voluntarily sign a “separation agreement” and accept a mutually agreed payment in relation to the termination of their employment) bringing claims in the Thai Labour Court on the ground of unfair termination.

Although employers have a right to terminate employees under Thai law with the obligation to pay severance (a statutory amount based on the employee’s aggregate months of service), what remains unclear and a significant source of uncertainty is what constitutes “unfair” termination and the quantum of additional compensatory damages which may be awarded to an unfairly terminated employee.

Termination for cause vs without cause

Termination under Thai law can be either “for cause” or “without cause”.

Termination for cause is where termination is based on one or more of the statutory grounds, including the employee willfully disobeying or habitually neglecting lawful commands of the employer, absenting himself or herself from service, being guilty of gross misconduct (Section 583 of the Civil and Commercial Code), performing duties dishonestly or intentionally committing a criminal offence against the employer, willfully causing damage or negligently causing serious damage to the employer, violating work regulations or lawful orders of the employer or being sentenced to imprisonment by a final court judgment (Section 119 of the Labour Protection Act).

In case of termination for cause, the employer is required by law to only pay the employee wages until his or her last working day and accrued but unused annual leave. In other words, the employer is not required to pay severance or payment in lieu of notice of termination.

In the case of termination without cause, where the termination of an employee in Thailand does not fall within any of the above statutory grounds, the employer is required to make all of the above payments to the terminated employee (i.e. salaries until the last working day, severance payment, payment in lieu of notice, and salaries for accrued but unused annual leave).

It should be noted that the concept of termination “for cause” under Thai law is narrow relative to what may be considered “cause” in other jurisdictions.  For example, poor performance of an employee in itself is generally not a basis for terminating an employee in Thailand “for cause,” and thus the employer would be required to make all the payments set out above.

Compensatory damages for unfair termination

Section 49 of the Act on Establishment of Labour Courts and Labour Court Procedures, B.E. 2522, empowers the Labour Court to determine that a termination is unfair and to order the employer to pay compensatory damages to the employee for unfair termination, taking into account the employee’s age, service period, hardship and reason for dismissal.

Such compensatory damages are in addition to the amounts an employer must pay by law to employees who are terminated without cause (as set out above).

When is a termination without cause “unfair”?

What constitutes unfair in the context of a termination without cause remains unclear under Thai law. For example, if an employer dismisses an employee on the basis that the employer deems it necessary to prevent further deterioration of its financial condition (but the employer has not yet suffered financial losses), Thai courts have typically regarded termination in such circumstances as “unfair”.  On the other hand, there are court precedents that indicate that termination of an employee in such circumstances may not necessarily be unfair if the employer has other valid reasons for the termination and the employer has followed a fair and transparent procedure before dismissal.

Can termination for cause be “unfair”?

Typically, termination for cause under Thai law will preclude the terminated employee from claiming damages for unfair dismissal, assuming the Court agrees that the employee was terminated for cause. However, this is not always the case as a termination for cause may be regarded as “unfair” if the employer has not complied with the required procedures for terminating an employee for “cause”.  For example, where an employer wishes to terminate an employee for cause, it must specify the facts which are the cause of termination in a letter of termination of employment or inform the employee of the “cause” of termination at the time of termination.

What is the exposure in respect of unfair dismissal claims?

In our experience, the Thai Labour Court typically grants compensation for unfair termination based on the number of years of service by the employee at the rate of one month’s wages per one year of service.  For example, if the employee has been employed for three years before termination, a “rule of thumb” is that the Labour Court would generally order three months’ wages as compensatory damages for unfair termination.  However, this is just a “rule of thumb” and the lack of legislative guidance and/or limitations continues to leave room for substantially larger claims by employees in the Labour Court and/or in negotiating exit packages.

Hunton Andrews Kurth: Stephen John Bennett and Wipanan Prasompluem