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The Thai Labour Protection Act regulates the basic rights of employers and leave entitlement, compensation, overtime, work hours, fund contribution and how to terminate employees.
An employer can terminate the employee’s employment contract with a statutory cause. However, if the employee was dismissed without statutory cause, the employer must make statutory payments to the employee.
This guide will highlight how to legally terminate an employment contract and the compensation that must be paid.
- Employees who are not entitled to severance pay are those who were terminated with statutory cause and employees who have worked for less than 120 days
- If the employer wrongfully dismisses an employee, they could be fined and/or face imprisonment
- Employees must be given at least one payment period worth of notice but not exceeding three months
- The dismissal process includes issuing a written notice, notifying the employee in advance, paying statutory payments, issuing the withholding tax certificate and job certificate, and closing the provident fund
Common termination scenarios
In Thailand, there are two common scenarios in that terminations can take place:
- Fixed-period employment
- Ongoing employment
Fixed-period employment means an employment contract stating when the employee’s work period starts and ends. The work duration for fixed-period employment must not exceed two years.
Fixed-period contracts can be used for the following types of work:
- A special project that is not within the normal business or trade of the employer
- Work that has a fixed schedule for the start and completion
- Seasonal work which the employee is required
Once the employee has completed the required work duration, the contract cannot be extended, otherwise, the contract will not qualify as a fixed-period employment contract.
Severance pay does not have to be paid when the fixed-period contract has been terminated.
Termination of employment for employment that is not for a fixed period can mean:
- The company prevents an employee from continuing to work and receive a basic pay, whether due to the termination of an employment contract or for any other reason
- The situation where an employee cannot work and be paid because the company can no longer operate its business
The termination of an ongoing employee must be notified by the employer before or on the date the salary is paid. Termination period will start on this date and last until the following pay date.
For example, if a company pays the employee’s salary at the end of each month and plans to dismiss an employee on June 30, the company must notify the employee no later than on May 30. The same will apply if the employee decides to resign.
In the case that companies need to dismiss an employee immediately, the company does not need to wait for the termination date. They can dismiss the employee and give severance pay.
However, there are certain cases which this does not apply to.
Reasons for employment termination in Thailand
According to section 119 of the Labour Protection Act, the company is not required to pay severance pay to an employee whose employment has been terminated for any of the following reasons:
- Dishonest performance of his duties or the intentional commission of a criminal act against the company
- Wilfully causing damage to the employer
- Committing negligent acts causing serious damages to the employer
- Violation of the company’s work rules and regulations or orders which are both lawful and equitable when the company has already issued the employee with a prior written notice
- Neglect of his duties for a period of three consecutive workdays without a reasonable cause, whether or not a holiday intervenes
- Being sentenced to imprisonment by a final court judgement
A wrongful dismissal occurs when an employer terminates or lays off an employee in a way that violates the employee’s rights under the Labour Protection Act.
When an employer violates the Labour Protection Act, they can be fined anywhere from THB 5,000 to THB 200,000 and/or imprisoned for up to one year.
The following situations are regarded as wrongful dismissals:
- Immediate dismissal without a clear and full explanation of the reason or the termination of the agreement without a serious cause or severance pay
- Termination of the agreement without payment of the unused annual leave
- Termination of the agreement based on the (claimed) violation of the work regulations by the employee without any prior warning
Filing a wrongful dismissal claim to the Labour Court
If the employee wants to file a wrongful dismissal claim with the Labour Court, the employee must provide proof that one or more legal rights were violated because of the termination.
Section 49 of the Act on the Establishment of and Procedure for Labour Court states that in the dismissal case, if the Labour Court thinks the dismissal is unfair, it shall order the employer to reinstate the employee at the same level of wage at the time of dismissal.
However, if the court thinks that such employee and employer cannot work together, it shall fix the amount of compensation to be paid by the employer which the Labour Court shall take into consideration the age of the employee, the working period of the employee, the employee’s hardship when dismissed, the cause of dismissal and the compensation the employee is entitled to receive.
Employers must provide at least one pay period’s notice before dismissing an employee. However, this notice period cannot exceed three months unless the employment contract specifies a longer notice period, in which case the employer must comply with the terms of the contract.
Dismissal procedure for termination without statutory cause in Thailand
Termination without statutory causes is more complicated than dismissing an employee with statutory cause. According to Thai labour law, the employer must take the following steps. Employers can also follow other procedures based on the company’s policies.
1. Providing a dismissal notice
The employer must provide a written dismissal notice consisting of the terminal information, reason and date of dismissal.
2. Notifying the employee in advance
According to section 17 of the Labour Protection Act, a notice in writing must be provided at or before the due date of wage payment in order to take effect on the following wage payment date.
3. Paying statutory payments
The employer must pay wage and overtime pay three days after the data of termination and other benefits such as severance pay, reimbursement for unused vacation time and payment in lieu of advance notice must be paid at the dismissal day.
4. Issuing the withholding tax certificate
The Revenue Code requires the employer to issue the withholding tax certificate on the compensation paid to the employee after deducting withholding tax from compensation derived from the termination.
5. Issuing a job certification
According to section 585 of the Civil and Commercial Code, the employer is required (upon request of the employee) to provide the employee with a job certificate that includes information on the employee’s work history and the number of years they have worked for the company.
6. Closing the provident fund
According to section 23 of the Provident Fund Act, the fund manager must be notified of the employee’s termination by the employer in order for the fund to be paid out to the employee in accordance with the fund’s Articles of Association within 30 days of the membership termination date.
Termination compensation: Severance pay in Thailand
Employees who have worked for 120 days or more are entitled to severance pay if they are terminated without cause. However, if employees have worked for less than 120 days and are dismissed without cause, they are not entitled to severance pay.
The new Labour Protection Act (No.7) B.E. 2562 (2019) became effective on 5 May 2019. The Labour Protection Act increased the number of days of the wage for terminating an employee with an employment period of 20 years or more.
The rates of severance pay are as follows:
|Rate of severance pay
|120 days but less than one year
|One year but less than three years
|Three years but less than six years
|Six years but less than 10 years
|10 years but less than 20 years
|20 years or more
When an employee is terminated, whether with statutory or without statutory causes, the employee is entitled to the following statutory payments:
|Wage until the employee’s last day of work
|Payment in lieu of advance notice
|Payment for unused annual leave
|Only accumulated unused annual leave
|Both accumulated and prorated annual leave
|Compensation for unfair dismissal
|At the courts discretion
To ensure that you have that the termination complies with the labour law and compensation is made correctly, you can engage with Acclime’s HR administrative services.
How Acclime can help with your HR needs
In conclusion, Thailand’s labour law ensures that both employers and employees are protected and treated fairly in the workplace. While employers have the right to terminate employees for misconduct, employees dismissed without statutory cause are entitled to statutory payments such as wages, payment in lieu of advance notice, severance pay, and payment for unused leave. These provisions in the labour law help to maintain a just and fair working environment for all parties involved, promoting a healthy and productive workforce. As such, it is important for employers and employees to be aware of their rights and responsibilities under the law in order to maintain a positive and harmonious working relationship.
Acclime’s professional HR team can assist with employing your staff via PEO, handling employment contracts, and lawful termination to ensure you comply with the laws and regulations in Thailand. Contact us if you need any assistance with employment and HR needs. We are ready to help.
Acclime is Asia’s premier tech-enabled professional services firm. We provide formation, accounting, tax, HR and advisory services, focusing on delivering high-quality outsourcing and consulting services to our local and international clients in Thailand and beyond.