2020 20 March

Thailand Legal Update: COVID-19 – Taking Action to Offset Losses

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This publication is the first in a series that will focus on workforce management in consideration of the COVID-19 outbreak in Southeast Asian countries.

Due to the predicted and foreseeable fall in demand for products and services and adverse effects on business operations and cash-flow over the course of the coming months, employers must brace themselves and make all due preparations to keep their business afloat. The available lawful options are set out below for those employers who envisage or need to take action regarding workforce planning to offset any adverse impacts on their company:

Compulsory leave

Under the Thai Labour Protection Act B.E. 2541, employers may unilaterally determine in advance when their employees are to use their annual leave, during the period of time where the business is down, unless otherwise provided in the work regulations or leave policy (e.g. the employer’s adoption of annual leave applications by employees and leave approval to be granted by an employer). By law, employers may set in advance the dates or periods of time (e.g. from April to May each year) during which employees are to take their annual leave. There is no specific notice period prescribed by law for the employer to announce the dates or period of time for compulsory leave but such an announcement must be notified in writing to all employees.

In the event that the company’s work regulations set out an employer’s approval system and do not envisage the employer’s right to unilaterally determine annual leave, the employer will not be able to dictate when or the duration for which employees are to use their annual leave. However, employers may still encourage employees to take annual leave at specified periods on the basis of an explanation relating to the best interests of the business (and to the protection of employment in the company). In the case of the COVID-19 crisis, transparent explanation of the need to ensure full production capacity after the crisis abates, and at the end of the year in particular, should be a good start to the process of adjusting the annual leave schedule.  

Working part-time arrangements

Employers may propose to employees that the number of their working hours be reduced to lower salary costs. Reduction of working hours and, by extension, of an employee’s salary is deemed a change of working conditions that is not favorable to the employee. Any such change requires the prior consent of the affected employee and should thus be considered carefully and agreed with the employee in writing.  

Suspension of business

Where whatever cause other than force majeure affects an employer’s business and renders the employer incapable of operating its business normally, the employer may temporarily suspend the business in whole or in part. In such a case, the employer shall give written notice to the employees and the Labour Inspector at least 3 working days prior to the date of suspension of business.

The duration of suspension depends on the company’s economic situation and should be determined on a case-by-case basis. In any case, according to previous Court decisions, for a situation to be recognized as triggering a suspension of business, the company must be able to demonstrate that it is unable to carry on normal activities and operations, e.g. a drastic drop in purchase orders or accumulated losses in excess of the registered capital amount.

Throughout the suspension period, the employer shall pay each employee at least 75% of employees’ daily wages received by the employees immediately prior to suspension of the business.

In the event of suspension of work due to force majeure, certain academics and judges take the view that employers will not be responsible for paying of wages to employees at all. The legal system of Thailand provides a specific definition of force majeure as:

any event that happening or pernicious result of which could not be prevented even though a person against whom it happened or threatened to happen was to take such appropriate care as might be expected from him in his situation and in such condition.”[1]

Based on the above, the party invoking force majeure should be required to prove to the Court a direct casual link between the supervening event and the party’s resulting inability to perform and that such a party had appropriate plans in place and implemented those plans (to achieve an appropriate level of care in the context). The Thai Supreme Court issued a relevant decision indicating that if a disease outbreak affects the ability to perform any contractual obligation of a debtor, such an event shall be regarded as force majeure, i.e. a mass culling of chickens directed by government officials due to a widespread distribution of the Avian Flu (bird flu) resulted in a seller being unable to deliver the chickens to purchasers (Supreme Court Decision No.5353/2552). However, this ruling has not produced any information on whether or not the obligor had put appropriate preventative measures in place to protect against such a situation. Therefore, it still remains to be seen how the Thai Courts will interpret the employer’s level of duty of care in creating a business contingency plan to be able to invoke force majeure.  

Redundancy scheme

Redundancy based on economic grounds is likely to be considered a sufficient justification when the employer can demonstrate that (i) it has continuously undergone losses or deficits from business operations and (ii) it must restructure the organization to ensure survival of the business. The employer must prove that there is no alternative option to decrease costs or reduce losses to maintain business operations.

According to previous Court decisions, redundancy will be justified if the criteria for selecting the employees to be terminated due to internal corporate restructuring are objective and based, for instance, on punctual attendance, leave or work performance. However, failure to demonstrate reasonable grounds for redundancy may lead the Court to view such termination as unfair and deem it as unfair dismissal.

In any event, redundancy based on economic grounds is not subject to a specific or simplified procedure under Thai law. An employer willing to terminate employment contracts on this basis must adhere to the procedures prescribed by law (i.e. statutory notice period, notification in writing, etc.) and make severance payment to its employees in accordance with their seniority in the company.

If you have any questions or enquiries with respect to this update or any other issue in relation to the Covid-19 outbreak and its implications for your business, please feel free to contact Kraisorn Rueangkul (Kraisorn@dfdl.com) and Marion Carles-Salmon (Marion.CarlesSalmon@dfdl.com).

[1] Section 8 of the Civil and Commercial Code of Thailand.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.


Contacts


Kraisorn Rueangkul

Partner

Kraisorn@dfdl.com


Marion Carles Salmon

Regional Legal Adviser

Marion.CarlesSalmon@dfdl.com

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