Monthly Archives: June 2014

Employee Termination in Thailand — caution, not as simple as you might assume

Occasionally an employer-employee relationship does not work out. In fact, sometimes the relationship degrades to such a degree, that one or both of the parties wishes to terminate it immediately. In general, for the employee this is simple. Unless the employee’s contract contains a provision which otherwise regulates the employee’s self-termination, he or she may simply quit by giving notice of termination of the employment at least one full wage payment cycle before such termination is to take effect. However, for the employer who wishes to terminate an employee the situation is not so simple.

The Labor Protection Act (1998)(the “LPA“) was largely enacted to protect employees whom it assumes are generally in a less powerful position than their employer and, therefore, in need of such protection. However, the LPA does allow an employer to terminate an employee for “cause” as the LPA defines such — in other words, any one of the following limited reasons:

  1. the employee has worked dishonestly or intentionally committed a criminal offence against the employer;
  2. the employee intentionally caused damage to the employer;
  3. the employee committed a negligent act that caused serious damage to the employer;
  4. the employee violated the employer’s work rules, regulations or any lawful and fair order of the employer, and the employer given the employee a written warning of such violation within the previous twelve months. (Note however, where the violation is particularly egregious, the employer is not required to give such a warning);
  5. the employee was absent from work, without justifiable cause, for at least three consecutive working days; or
  6. the employee was sentenced to imprisonment by a final court judgment. However, if the imprisonment is for an offense of mere negligence or a petty offense, that offense must have caused damage to the employer for this reason to qualify.

It is very important to note that if employer does terminate an employee for such “cause” the employer must also notify the employee of the reason the termination at that time — if not, the employer will not be permitted to claim that the termination was for “cause” and the termination will be treated the same as if it were without cause.

However, if an employer terminates an employee for any other reason than “cause” as defined above by the LPA, the employer may be held liable for any one or more of the following:

  1.         “Payment in lieu of notice”

Section 582 of the Civil and Commercial Code of Thailand, requires an a party to an employment agreement to give the other party notice of termination of the employment at least one full wage payment cycle before such termination is to take effect. However, notice need not be given more than three months prior to the termination being effective (where, for example, a wage cycle was longer than three months).

In other words, if for example, an employee is paid at the end of every month, it is 12 March, and the employer wishes to terminate the employee as soon as possible without such liability — then, the employer cannot terminate the employee at the end of March because that would not be one full wage cycle. Thus, the earliest the employer could properly terminate the employment without this liability would be 30 April — even if the employer gave the employee notice on 12 March. Note however, the employer could wait until 31 March, to give notice of termination effective 30 April, without being liable. If however, in our example, the employer did give notice on 12 March of termination on 31 March, the employer would then be liable for a full month of pay because the employee should have been allowed to work until the end April.

  1. “Severance Pay”

Pursuant to Section 118 of the LPA if an employer terminates an employee without “cause” as defined by the LPA, the employer may be held liable to the pay “severance” pay to employee in the following amounts depending on the duration of employment.

Employment Term Severance Payable =

Amount Equal to these Days at the Employee’s Most Recent Wage

120 days ≤ 1 Years 30
1 ≤ 3 Years 90
3 ≤ 6 Years 180
6 ≤ 10 Years 240
10 Years or more 300


  1. “Unfair Dismissal Compensation”

Apart from the above-mentioned employer liabilities, if the termination of employment is found to be “unfair”, under Section 49 of the Establishment of and Labor Court Procedure Act (1979) (“Act”) the court may also require the employer to pay any amount of additional compensation to the employee for such unfairness that the court deems appropriate.

The Act does not explicitly define what the term “unfair” means. That said, the following summaries of actual labor court rulings provide some guidance as to when such unfair is and is not likely to be found:

A.  an employer’s termination of an employee was found to be unfair;

1.  an employee’s husband was working for other competitive company;

2.  an employee worked as a technician in a field which required a legal license but employer discovered that employee’s license was expired and terminated the employee. Many of the employee’s co-worker technician’s licenses were also expired too, but they were not terminated because of that;

3.  an employer’s business’s annual profit decreased compared to previous years and yet remained profitable but in response, the employer terminated an employee; and

4.  an employee was gambling outside of working hours, and the applicable employer work regulations stated that the punishment for such conduct would be a financial penalty, but instead the employer terminated the employee.


B. an employer’s termination of an employee was found not to be unfair, where:

1.  an employee’s performance was not sufficient during the employer’s “probation period”

2.  an employee was terminated in line with the employer’s work regulations retirement conditions; and

3.  an employer’s business was unprofitable for successive years and the employer had taken several steps to alleviate the costs of employing the employee (e.g. proffering a volunteer resignation option) but the employer eventually was forced to terminate the employee who did not agree to resign in order to save the business as a whole.

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What to know and do about bad debts in Thailand – Part II

In Part I of this two part article we noted the importance for your company to comply with the legal requirements to “write-off” uncollectable or “Bad Debts” so that your company would not be required to pay income tax on these uncollected monies. And we saw that under Section 65 of the Thailand Revenue Code (“RC“) and Ministry of Finance regulation No. 186 (1991) (“MR”) in order for Bad Debts to be written-off they generally my have (1) arisen from your company’s business and (2) it must not be too late to file a court action to collect them.

Now we look at the rest of requirements under the MR to write-off Bad Debts. These additional requirements are further outlined in the following clauses of the MR and in doing so the debts are categorized by amount as follows:

(i) debt(s) by a debtor exceeding Thai Baht 500,000 (Clause 4 MR);

(ii) debt(s) by a debtor between Thai Baht 100,000 and Thai Baht 500,000 (Clause 5 MR); and

(iii) debt(s) by a debtor not exceeding Thai Baht 100,000 (Clause 6 MR)

Different conditions for a write-off are applicable for the different categories. The strictest requirements are applicable to category (i). MR Clause 4 requires:

(1) “[d]emands for payment have been made and the matter has been pursued to the extend suitable to the case of such acts being expressly recorded and yet debts remain unsettled (…)” because “(a) the debtor died, is missing or proved to be missing and has no property to pay the debts or (b) the debtor dissolved his business, and the debt due from him to the other creditors with preceding preferential rights over his entire properties exceed the value thereof”; and either

(2)(a) a civil action has been brought against the debtor and after a court order or injunction the debtor does not have sufficient property to settle the debts; or

(2)(b) a bankruptcy action has been brought against the debtor and a compromise has been reached with the debtor with court approval or the debtor has been adjudged bankrupt and the first lot of the debtor’s properties have been shared out.

With regard to category (ii) debts, pursuant to MR Clause 5, the conditions for a write-off are the same as those for category (i) debt but that with regard to the requisite civil court proceedings it is sufficient that the court has accepted the plaint. Whereas with regard to the relevant alternative bankruptcy proceedings, the action against the debtor needs only to have been accepted by the court. However, in this case category (ii) debts, it is also required that the director or managing director of the juristic company creditor issue an order within 30 days from the last day of the relevant accounting period authorising the write-off of the Bad Debt.

Finally for category (iii) debts the requirement are the least strict. Pursuant to MR Clause 6, it is not necessary to comply with the requirements in MR Clauses 4 and 5. Court proceedings, for example, are not required. Rather, it is sufficient that “demands for payment have been made and that the matter has been pursued to the extent suitable to the case, and yet debts remains unsettled” provided that any court action in relation to the debt would entail higher costs in relation to the court proceedings than the amount expected to be recovered.

The final requirement is that once the creditor has complied with all above mentioned rules and regulations the creditor must write-off the receivable as a Bad Debt expense in the same accounting period. However, in case of a category (ii) debt, the accounting period in which this must be done is the accounting period when the relevant court accepts the civil complaint or the bankruptcy petition.

To manage the risk of unnecessary tax liabilities in connection with Bad Debts you should continually monitor company’s accounts receivable in order to keep abreast of its various debts and determine when and what action is appropriate and as needed competent tax counsel should be consulted directly.

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