Employment Contracts in Thailand & Things to Consider

Introduction:

Arguably, some of the most important legal documents that Companies in Thailand enter into are employment contracts given the legal liabilities and costs they can potentially impose. Employment agreements are also highly important to staff given that they can provide much of the framework for their rights and obligations in their careers. In relation to these types of agreements there are a number of key legal considerations that both employers and employees should be mindful of to ensure that they have a clear and effective contract which minimizes the likelihood of problems developing at a later stage. These various considerations are discussed in more depth below.

Clearly Identifying the Parties:

One of the most elementary issues which companies and employees alike make is that they fail to adequately identify the parties in an employment agreement. In our experience it is safer for all parties concerned to mention the following details as a minimum. In the case of a company/ juristic person we recommend that the full legal name of the company/ juristic person be mentioned along with its registered address and registration number. However, in the case of an individual we recommend that the agreement mention their name, home address and other identification such as a Thai national ID number or a passport number as well as the nationality on the passport. If possible the employee or contractor should attach a signed copy of their ID to the agreement.

Confidentiality & Trade Secrets:

Arguably one of the most important clauses which employers should consider including in their employment agreements is a confidentiality/ non-disclosure section which ensures that an employee or contractor will maintain the confidential information and trade secrets of their employer. With respect to these types of clauses, there are a number of key factors which employers should be mindful of. One of the most important considerations is to adequately define what constitutes ‘confidential information’ and ‘trade secrets’. In the case of certain types of businesses it can be prudent to list the types of information that are confidential in an annexure of schedule to the agreement. In our experience, clauses of this nature should try and cover a range of issues including:

1. How confidential information is to be handled by the employee in the course of their work i.e. all confidential documentation to be kept locked away in secure office location when not in use ;
2. When it must be returned to their employer, i.e. upon the expiration or termination of their employment agreement;
3. Under what circumstances can this information only be used for i.e. in the performance of the employees job responsibilities;
4. We also recommend that such clauses also mention that the employee won’t aid or abet an unauthorized third party to utilize, disclose and/or take the trade secrets or confidential information of their employer without first obtaining their employers prior approval in writing.

Intellectual Property

If an employee’s work role is to develop or create new technology or designs etc, then in the interests of fairness and clarity it would be highly advisable for their employment agreement to include a clause which addresses the issue of which party owns the Intellectual Property (IP) rights to such creations. Such a clause should as a minimum include the following details:

– Which party owns all copyright, patent and intellectual property rights to new creations, technology or designs;

– Will the ownership of these rights be subject to any limitations or additional consideration payable to the employee?

– Will these rights be exclusive or non-exclusive, on going or only for a limited time whereupon they will be transferred back to the employee or another party;

In order to safeguard its legal position with regard to IP, it is also advisable for an employer to include a clause in the employment contract which provides that the employee (in the course of their work) will not use a copyright, patent, and/or intellectual property of another party if it will constitute an infringement of the intellectual property rights of that other party.

Employee Role/ Job Responsibilities:

Another sensible inclusion which we recommend be included in an employment agreement is the job description of the employee which outlines their role and responsibility and perhaps who their supervisor is the organization. In many employment agreements, this is included as a schedule or an annexure to the main body of the contract. If this is done we recommend that it be referenced in the main body of the agreement i.e. the contract should provide that ‘the employee’s job description is attached at schedule A which is deemed to constitute a part of this agreement’. The benefit of including a job description to an employment agreement is that it makes it clear exactly what the role of the employee is and what their responsibilities are, which in turn can be beneficial for the Company should it need to take disciplinary action against an employee who fails to do their assigned job. Please note that if an employee’s job responsibilities change over time, this document should be amended and agreed to by the parties.

Employer Work Rules:

Often employment agreements in Thailand are quite brief as most of the key aspects of the working relationship are addressed in the employers’ work rules, given this, employers should be careful to ensure that their employment agreements make reference to the work rules. Moreover, those issues not covered by the employers work rules should be included in the agreement itself in order to ensure that they are adequately addressed. As a minimum, according to the Labour Protection Act (1998) the work rules for companies with 10 or more staff only need to cover eight issues, including working days and hours, holidays, rules related to overtime and work on holidays; date and place of payment of wages, overtime, holiday pay; leave and rules for taking leave, disciplinary actions and employee termination including severance pay.

One important factor which employers should consider is what should occur if a conflict or inconsistency arises between the employer’s work rules and the employment contract. In order to address such an issue, it is a good idea to include a clause in an employees’ agreement stating which document is to supersede the other should such a conflict or inconsistency arise. When drafting such a clause it is advisable that state that such superseding shall only apply to the extent of any conflict or inconsistency.

Non-compete Clauses:

One popular clause which many employers seek to use in their employment agreements is non-compete clauses which aim to prevent staff from working with competing employers or directly competing with their previous employer within a specified time period. In relation to these type of clauses there are a number of key issues which employers should be aware of, including:

1. The amount of time which an employer can prevent an ex-employee from setting up a competing business or working with a competing employer cannot be indefinite, rather the Supreme Court has issued judgments which hold that generally speaking 2 years is an acceptable amount of time length, however it will depend on the fact of each case, if such a non-compete clause were excessively long the clause could be struck down for breaching section 150 of the Civil and Commercial Code (CCC) which provides that ‘an act is void if its object is expressly prohibited by law or is impossible or is contrary to public order or good morals’.
2. If such a clause is used then the Employer should clearly state what a competing business is, the purpose of the clause and should also clearly state when the clause will take effect from and until when. One approach would be to list the competing businesses in an annexure to the agreement but please note that if such a clause extends too far to businesses which are not direct competitors then it is likely to be struck down by the Courts as it will be found to be unduly infringing on the rights of the employee to earn an income and as such contrary to section 150 of the CCC.

Dates & Timing:

One of the most common errors made in employment agreements is the lack of clarity concerning dates and timeframes. In terms of timing, employers should be careful to ensure that they specify exactly when the employment period shall commence as this could be important in terms of determining future issues such as severance pay entitlements. In relation to timing, some companies use wording such as ‘reasonable time’ but we recommend that they should try to avoid using such terms given that they are too subjective and as such unclear as one party may consider 1 week as a ‘reasonable’ time whereas another may consider it as meaning 1 month. Timing is also important in terms of notice clauses which spell out how notice can be given and when a notice is deemed to be received. We recommend that a notice clause be clear on when a notice is deemed to be received as it could be important in determining exactly when an event occurred such as a termination notice becomes effective.

Compliance with Labour Protection Act & Regulations

Arguably one of the most important things which employers and employees should consider when entering into an employment agreement is whether the agreement is in compliance with this key piece of legislation and its associated regulations. However, before considering compliance parties should consider section 4 of the Act which provides that it does not apply to:

(1) Central Administration, Provincial Administration and Local Administration;

(2) State Enterprises under the law governing laboiur relations of state enterprises;

Moreover, reference also needs to be made to the Ministerial Regulations of 2541 (1998) which provide that:

1. This legislation does not apply to employers carrying on the business of a private school but only in respect to headmasters and teachers;
2. Employers who engage staff to do housework which is not part of a business operation and employers who employ employees to do work that is not intended to seek economic profit are not entirely outside the scope of this legislation, rather only certain sections don’t apply to these employers.

If a clause within an applicable employment contract conflicts with the provisions of Labour Protection Act by giving an employee less benefits than they would have under this legislation then the clause will be overruled by the provisions of the Act to the extent of the conflict/ inconsistency. For instance, if an employment agreement provides that if an employee is terminated after 120 days but less than 1 year they shall only be entitled to severance pay of 21 days of their last wage rate, then such a clause will be voided and replaced by section 118(1) of the Act which provides that the terminated employee under these circumstances shall be entitled to not less than 30 days wages at their last wage rate.

General Recommendations:

In addition to the above matters, we also have a number of other suggestions for Employment Agreements, including:

1. Have each party initial each page to the employment agreement to prove that the entire agreement has been agreed to by both parties;
2. Ensure that when signing the agreement, the parties have their signature witnessed;
3. In the case of a company, the person(s) signing on its behalf should ensure that they are duly authorized to sign on its behalf and that the execution of the employment agreement is in accordance with not only its internal policies and procedures but also complies with its articles of association as it may require that any agreements signed its behalf be approved by the board or require the signature of an authorized director.

Dharmniti Law Office Co., Ltd.
2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330
Tel: (66) 2680 9777 Fax: (66) 2680 9711
Email: ryan@dlo.co.th or info@dlo.co.th