Downsizing in the Crisis – your liabilities

Many businesses are reviewing costs and one of the measures under consideration may include reduction of the workforce.  In accordance with Thai Labour Laws, making staff redundant owing to financial reasons or as a result of the recession is considered to be “termination without cause” and therefore subject to severance payments as follow: –

The following legal claims may arise from making staff redundant: –

1. Termination of employment without proper advance notice

An employer is required to inform their staff that they are to be terminated at or before the current pay date in order for the termination to be effective for the following pay date i.e. if the current pay date is 27 February 2009, notice of termination should be given

on or before 27 February 2009 for this to be effective from the date of the payment of the March 2009 salary.  In the event that an employee is terminated with immediate effect, a payment in lieu of the one month notice period is required.

Longer notice periods may be required in the event that this is specified in an employee’s contracts, e.g. if the employee is subject to three months notice, this must be given on or before 27 February 2009 if he/she is to be terminated effective from the pay date for May 2009, otherwise a payment in lieu of three months notice may be required.

2. Termination of a fixed term employment agreement prior to the maturity date

In this event, the employer may be liable to pay out the remaining period of the contract.  However, the employer will not be subject to the payment if the agreement is for a fixed period of not more than two years and the employment was made for a specific project which is not deemed to be in the employer’s “normal course of business” or for seasonal work.

3. Unfair termination/dismissal

Even in instances where full severance payments have been made in accordance with the Labour Code, an employee who has been terminated may still file a claim for unfair termination with the Labour Court.  In the event that the Court rules in favour of the employee, the most common rulings are that: –

• the employer is instructed to rehire the employee; or
• the employer is ordered to pay compensation to the employee.

In considering these cases, the Court may consider the following matters: –

• was any action taken by the employer to avoid the unnecessary termination of the employee; and
• were the termination and justifications given conducted in good faith?

It is noted that the Courts consider that the loss of business does not necessarily constitute an acceptable reason for the termination of an employee, but rather that this is a result of mis-management.

4. Suggested action prior to making redundancies.

•  Advance notice of the problems facing the business and the possibility of redundancies should be issued to the staff.
• Development of an action plan in respect of manpower issues and the rotation of work between different departments.
• Attempt to resolve the matter by alternative means, such as shortening of working weeks/hours, cessation of overtime, a freeze on new employment and early retirement schemes.
• Consultation with your Legal advisor prior to proceeding with redundancies or other cost cutting measures such as shortening the hours of work.
• Employment of an “outplacement service” provider to mitigate the effects of redundancy on the workforce.