The statutory entitlement to severance pay is a fundamental protection afforded to employees under Thailand’s Labour Protection Act B.E. 2541 (1998) (the “Labour Protection Act”). In principle, an employer terminating an employee’s employment is required to pay severance in accordance with the employee’s period of service. This obligation, however, is subject to specific statutory exceptions. Section 118, paragraphs three and four, establish circumstances in which an employer is exempt from the obligation to pay severance pay, thereby creating an important qualification to the general principle of statutory protection. These paragraphs provide as follows:
“The provisions of paragraph one shall not apply to an Employee whose employment is for a definite period and the employment is terminated at the end of that period.
Employment for a definite period under paragraph three is allowed for employment in a specific project which is not the normal business or trade of the Employer and requires a definite date to commence and end the work, or for work which is seasonal and the employment is made during the season. Such work shall be completed within a period not exceeding two years and the Employer shall make a written contract with the Employee at the beginning of the employment.”
The application of these exemptions has given rise to a body of Thai case law concerning the circumstances in which an employer may lawfully rely on them. This legal article examines several relevant cases concerning the statutory exemptions under Section 118, paragraphs three and four. These cases show how the Thai courts have interpreted these provisions and applied them to different factual circumstances.
Supreme Court Judgment No. 5180/2542
Background
The Plaintiff filed a claim against the Defendant seeking severance pay of THB 486,000, together with interest at the rate of 15% per annum from the filing date until full payment, and damages of THB 972,000. At the hearing, the Plaintiff withdrew the claim for damages arising from unfair termination.
The Defendant had employed the Plaintiff as a Project Manager’s Advisor and Designer under a written employment agreement commencing on 15 February 1997 for a period of two years. The Plaintiff’s final monthly salary was THB 162,000. On 28 July 1998, the Defendant notified the Plaintiff of termination effective 31 October 1998, before the expiry of the two-year contractual period.
The Labor Court held that although the contract specified a two-year employment period, the contract allowed the Defendant to terminate the employment at any time. Therefore, the specified two-year period was not genuinely binding, and the Plaintiff was not an employee employed under a genuine fixed-term contract within the meaning of Section 118, paragraph three of the Labor Protection Act B.E. 2541 (1998). The Labor Court ordered the Defendant to pay THB 486,000 in severance, together with 15% annual interest from 3 December 1998 until full payment. The Defendant appealed to the Supreme Court.
Court’s Opinion
The Supreme Court held that a fixed-term employment contract qualifying for the statutory exemption from severance under Section 118, paragraph three must specify definite commencement and expiry dates, without any subsequent change, and the employment must actually terminate upon expiry of that specified period.
The Supreme Court further held that the law on severance pay is a matter of public order. Accordingly, the parties’ intention could not be relied upon to characterize an employment contract as a fixed-term contract where the contractual terms did not satisfy the statutory requirements.
In this case, Clause 9 of the employment agreement expressly allowed either party to terminate the contract at any time by giving two months’ prior notice. The contract therefore did not constitute a genuine fixed-term employment contract. In addition, the Defendant terminated the Plaintiff’s employment before the expiry of the contractual period. Accordingly, the Plaintiff did not fall within the statutory exception under Section 118, paragraph three, and the Defendant was required to pay severance.
The Supreme Court therefore upheld the Labor Court’s judgment..
Supreme Court Judgment No. 6142-6144/2555
Black Case No. Ror 348-349/2553
Background
The case concerned three employees whose employment contracts with the employer were for specified periods. The employees were engaged in connection with the employer’s elevator installation business and were assigned to work on a condominium project. When their respective employment contracts expired, the employer did not renew the contracts or provide them with further work. The employees subsequently claimed severance pay on the grounds that the termination of their employment entitled them to statutory severance pay under the Labor Protection Act B.E. 2541 (1998).
The employer argued that it was not required to pay severance because the employees had been employed under fixed-term contracts and their employment ended upon the expiry of those contracts.
The Central Labor Court ordered the employer to pay severance pay to all three employees. The employer appealed to the Supreme Court.
Court’s Opinion
The Supreme Court held that an employer may be exempt from paying severance pay where a fixed-term employment contract falls within the exceptions prescribed under Section 118, paragraphs three and four, of the Labor Protection Act B.E. 2541 (1998). However, the Court emphasized that the employment must first qualify as a genuine fixed-term employment contract before the statutory exceptions can apply.
In relation to the second and third employees, although their contracts specified particular employment periods, the contracts also allowed either party to terminate the employment by giving prior written notice. The Court therefore held that the employment periods were not sufficiently definite. As a result, the contracts did not qualify as fixed-term employment contracts under Section 118, paragraph three, and the employer could not rely on the exemption from severance pay.
For the first employee, the employment contracts were entered into consecutively for a total period exceeding two years. The Court therefore found that the employment did not satisfy the requirement under Section 118, paragraph four that the relevant work be completed within a period not exceeding two years.
The Court accordingly held that the statutory exceptions to severance pay did not apply. Since the employees had worked continuously for more than one year but less than three years, the employer was required to pay severance equivalent to at least 90 days’ wages to each employee.
The Supreme Court therefore affirmed the judgment of the Central Labour Court requiring the employer to pay severance pay.
Supreme Court Judgment No. 4111/2564
Background
On 9 January 2012, the Defendant employed the Plaintiff as an Advertising and Service Design Manager under a two-year fixed-term employment contract. The contract was subsequently renewed every two years. The final employment contract covered the period from 9 January 2016 to 8 January 2018.
The Plaintiff had entered into three consecutive two-year employment contracts with the Defendant, each specifying definite commencement and expiry dates. Although the second and third contracts contained a provision allowing either party to terminate the contract during a four-month probationary period by giving two weeks’ prior notice, the Court found that such provision did not apply to the renewed contracts, as there was no evidence that the parties intended to impose a new probationary period upon each renewal.
The Defendant operated a hotel business, while the Plaintiff was responsible for advertising and service design, including creative design, management of creative personnel, coordination with market representatives, and management of work assignments. The Defendant terminated the Plaintiff’s employment on 8 January 2018, upon expiry of the final contract.
Court’s Opinion
The Supreme Court held that the employment contract was a genuine fixed-term contract because each contract specified definite commencement and expiry dates. However, to qualify for the exemption from severance under Section 118, paragraphs three and four of the Labour Protection Act B.E. 2541 (1998), the employment must also fall within the types of work specifically prescribed by law, such as work under a specific project outside the employer’s normal business, occasional work with a definite completion date, or seasonal work, which must be completed within two years.
In this case, the Plaintiff’s duties as an Advertising and Service Design Manager were part of the Defendant’s ordinary hotel business and did not constitute any of the types of work qualifying for the statutory exemption. Accordingly, although the contract was fixed-term, the Defendant was not exempt from paying severance. Since the Plaintiff had been continuously employed for more than six years but less than ten years, the Plaintiff was entitled to severance equivalent to 240 days’ wages under Section 118(1)(4).
Supreme Court Judgment No. 7335/2549
Background
The Plaintiff was employed by the Defendant as a temporary debt collection officer from 16 August 2000, with a final monthly salary of THB 9,000. The parties entered into five consecutive employment contracts, each specifying a different employment period. Upon expiry of the fifth contract on 30 June 2003, the Defendant did not renew the Plaintiff’s employment and informed him approximately three days in advance that the contract would not be renewed.
The Plaintiff claimed that the employment contracts did not constitute genuine fixed-term contracts and sought severance pay, payment in lieu of advance notice, and damages for unfair termination. The Defendant argued that the Plaintiff was a temporary employee hired for occasional, non-permanent work and that the employment therefore fell within the statutory exceptions for fixed-term employment under Section 118, paragraphs three and four of the Labor Protection Act B.E. 2541 (1998).
The Labor Court held that the Plaintiff’s work was part of the Defendant’s ordinary business. Although the employment contracts were for fixed periods, the work was not a specific project, occasional work, or seasonal work falling within the statutory exceptions. The agreement stating that the expiry of the contract would not constitute termination and that the Plaintiff would not be entitled to severance was contrary to mandatory labor protection law and therefore void. The Defendant was consequently ordered to pay THB 27,000 in severance, with interest at 15% per annum.
Court’s Opinion
The Supreme Court held that, although the employment contract specified a definite period and the Defendant terminated the employment upon expiry of that period, the exemption from severance under Section 118, paragraphs three and four requires more than a fixed-term contract. The employment must also fall within one of the prescribed categories, namely: (1) work under a specific project that is not part of the employer’s normal business, with a definite commencement and completion period; (2) occasional work with a definite completion or achievement date; or (3) seasonal work performed during the relevant season, provided that the work is completed within two years.
In this case, the Plaintiff was hired to perform debt collection work, which arose from the Defendant’s ordinary business activities. The Plaintiff was merely hired temporarily to assist with the increased workload of collecting debts and relieving permanent employees. The work was therefore not a specific project, occasional work, or seasonal work within the meaning of Section 118, paragraphs three and four. Accordingly, the Defendant was required to pay severance.
The Supreme Court further held that the Defendant could not rely on the Plaintiff’s alleged misconduct as a ground for denying severance because the Defendant had terminated the employment solely on the ground that the employment contract had expired. Under Section 17, paragraph three of the Labor Protection Act, an employer cannot subsequently rely on a ground falling under Section 119 as a reason for termination when such ground was not stated at the time of termination.
As to the Defendant’s argument that the fixed-term nature of the contract exempted it from severance, the Supreme Court noted that the Defendant had appealed only on the basis that the contract had a definite employment period and had expired according to its terms. The Defendant did not challenge the Labor Court’s finding that the Plaintiff’s work was part of its ordinary business and did not fall within any of the statutory categories under Section 118, paragraphs three and four. Therefore, regardless of how this issue was decided, it would not change the outcome of the case, and the Supreme Court declined to consider the appeal on this point.
The Supreme Court therefore upheld the Labor Court’s judgment.
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