Thailand’s tourism and hospitality industry is among the most important contributors to its economy. Anyone familiar with that industry knows that it’s dictated by high and low “seasons”. Business peaks during the winter holidays and dips during the spring and fall. Thus, if you are running a business in the Thai tourism or hospitality sector, you need more help during the peaks and less during the dips. As a result, we are often asked about “seasonal employees”. Are there any legal issues with hiring people for just the peak season and then letting them go if the following dip does not justify (from a business perspective) keeping them on? Are there any legal issues with, for example:
- hiring someone 1 November 2016 to 30 April 2016 and then letting them go; or, if business warrants
- hiring them again by entering under a new employment contract running from 1 May 2017 to 31 October 2017, and then letting them go; or
- hiring them a third time for the next high season from 1 November 2017 to 30 April 2018?
The short answer is: “yes, there are” and perhaps the most significant is severance pay liability.
Employment matters are generally governed by the Labour Protection Act (1998) (“LPA”). The LPA was largely enacted to protect employees on the assumption that employees are in the weaker of the two positions in their relationship with their employer and, therefore, in need of such protection. This also means that, in any dispute with an employer, Thai labour courts are supposed to interpret the LPA in the light most favourable to the employee.
One of the most significant rights that the LPA provides to employees is the severance pay that is due to the employee should he or she be terminated for any reason other than the rather limited “termination for cause” reasons defined by the LPA. The amount of severance that is payable to an employee terminated without such cause increases the longer the employee is employed.
The only way for a worker’s employment to come to an end without terminating them for cause and without paying severance is to hire that employee under a “fixed-term” contract. But Section 118 of the LPA significantly curtails who can qualify as a “fixed-term” employee as follows:
a. 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
b. work which is occasional with a definite ending or completion; or
c. work which is seasonal and the employment is made during the season.
AND whether it is under (a), (b) or (c) above, such work must be completed within a period not exceeding two years and the employer must make a written contract with the employee at the beginning of the employment.
Furthermore, although it is recommended, Thai employment contracts generally do not need to be written. However, in order to be qualified as a fixed-term employment exemptible from severance payment, the said contract must be a “written contract”.
So what about (c)? Are high and low tourism season employees, “seasonal” employees?
There is no definition of “seasonal employment” under the LPA. Thai courts’ interpretation of seasonal employment is still based on Thailand being an agriculture-based country. Therefore, as far as we are aware, the meaning of “seasonal employment” as interpreted by Thai courts has been limited to agricultural seasons, not high or low seasons in the sense of tourism, hotel, or any other businesses. Accordingly, Thai courts do not interpret tourism and hospitality “seasonal” employment contracts as “seasonal employment” under the LPA. Thus, such employees would be entitled to severance pay upon termination pursuant to the LPA.
What about at least limiting the amount of severance payable by entering successive employment contracts so that severance liability would only apply to the period covered by the most recent contract? The LPA does not allow for that either.
Section 20 of the LPA provides that if the employee has not worked continuously because the employer intended to deprive an employee of any right under the LPA, all such employment periods will be considered cumulative in determining what rights the employee is entitled to. Thus, when there are successive fixed-term employment contracts they are most likely to be interpreted under the LPA as the employer’s attempt to deprive the employee’s right to severance pay for the cumulative term of employment. In other words, our employee in our example above would have the rights of a standard 18-month employee (not a 6 month employee). Therefore, that employee would be entitled to severance pay equivalent of 3 months salary (rather than one month) if terminated “without cause” as defined by the LPA.
This is true even if the employment agreement provides for reducing or extending the duration of the employment, or details the “motive” for the employment as “due to seasonal business fluctuations”. The employer under Section 118 of the LPA and its “pro-employee” perspective would still owe severance payment for the cumulative employment period.
DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in over 50 other countries. Visit them at: duensingkippen.com