Amendments to Thailand’s Labour Protection Act (LPA) on May 5, 2019, ushered in significant changes to a variety of labour laws, resulting in increased statutory severance pay, increased maternity leave benefits, implementation of paid necessary business leave, changes in wage payments during temporary suspension of business, interest payments for non-payment of wages in certain situations, and new workplace relocation procedures. These changes to the LPA also enhanced employee protections by setting out key amendments to the law governing transfer of employment.
Definition of “Transfer of Employment”
The LPA defines a transfer of employment as a change of employer, including when functions or employees are transferred from one juristic person to another, and when a merger with another juristic person results in a new entity.
It is important to understand the practical impact of this definition, as it may not always be apparent at first glance. For example, under the definition above, both the acquisition of a company by asset purchase and the formation of a new company following a merger between two companies would fall within the scope of a transfer of employment. On the other hand, an acquisition by way of a share purchase would not fall within this scope, because the employment relationship case remains intact, and there is no change of employer.
As a general principle, an employer may only transfer its rights under an employment agreement to another party with the consent of the employee. While the obligation to obtain prior consent from employees was stipulated in the Thai Civil and Commercial Code, the LPA was silent on the issue until the 2019 amendments. In order to remove previous ambiguities and to afford greater protection to employees, the amended LPA now confirms that before a transfer of employment, the employer must obtain consent from the employees who are to be transferred.
The basic procedures for fulfilling this requirement as part of a business transfer transaction are twofold—firstly informing the employees about the transfer, and secondly, obtaining their consent. The notice to employees must explain the circumstances surrounding the transfer, and it should be sent to the employees well in advance of the effective date of transfer (in order to avoid needing to make payment in lieu of notice if termination becomes necessary). The consent must be written and should be kept for the employer’s record.
If the employees consent to the transfer, the existing employer will have no post-transfer obligations to the employees (except for any liabilities that accrued prior to the transfer). The new employer will assume all the rights and responsibilities owed to the transferred employees by the existing employer. Significantly, the new employer is also required to recognise employees’ continuity of service—in other words, an employee’s start date with the existing employer will be also be observed by the new employer, making for one continuous tenure of service unbroken by the transfer of employment.
Employee consent is also required for the new employer to modify existing rights, wages, benefits, and welfare. As such, if the new employer wishes to provide new employment terms and conditions that are not the same as those previously agreed upon between the transferred employees and the existing employer, the new employer must obtain further consent and agreement from the transferred employees.
If the employees refuse to consent to the transfer, they would remain employed by the existing employer, and the existing employer would have to either continue employing those employees or terminate their employment.
If the existing employer opts for termination, this would constitute termination without cause, which means the employer would be obligated to do the following:
- Provide the required advance notice of termination or make payment in lieu of the advance notice period;
- Pay statutory severance based on each employee’s last wage rate, with the total amount (ranging from 30 days’ to 400 days’ wages) depending on the length of the employee’s service with the employer;
- Pay wages, overtime pay, holiday pay, and holiday overtime pay accrued through the last day of employment;
- Compensate employees for their accrued unused annual leave;
- Return any security deposit that had been paid; and
- Pay all other payments due under the applicable employment agreement and other applicable terms of employment.
Employees are typically aware of their rights to severance and other payments due upon termination of employment. Therefore, they may refuse to agree to the transfer in order to put pressure on the employer, who would then have to terminate the employees and pay severance and other payments. To avoid these various expenses, employers can offer incentives to the employees for agreeing to a transfer. The incentives could take many forms, such as a one-time bonus, improved post-transfer terms of employment, or negotiation on other aspects of the employer-employee relationship.
Furthermore, the new employer is not allowed to reduce the employees’ remuneration or employment benefits without their consent. This requirement can sometimes result in unexpected obstacles to a transfer of employment, as it might be difficult to determine whether the remuneration and benefits offered by the new employer constitute a reduction or an improvement on those of the existing employer.
The potential ambiguity can be dealt with by undertaking a consent exercise in order to record that each employee agrees to the remuneration and benefit package that they will receive with the new employer. This removes the subjective element of the question, which might be answered differently by each employee, and replaces it with written evidence that the new terms are acceptable and comparable to (or better than) the ones the employees have been enjoying.
This kind of careful planning and execution of the employment transfer process can help avoid or mitigate complications and ensure that employees remain fully on board with the change—a bedrock for the success of company operations.
About the author
As head of Tilleke & Gibbins’ non-contentious employment practice, firm partner Pimvimol (June) Vipamaneerut leads teams handling matters related to Thai employment law.
June’s client work focuses on labour protection, employment agreements, termination of employment, labour unions, transfers of employment, due diligence in mergers and acquisitions, work rules and regulations, social security, and workmen’s compensation. She is also involved in drafting and revising various publications on Thai labour and employment law, including for the World Bank, Lex Mundi, Multilaw, the American Bar Association, and periodicals.
Author: Pimvimol (June) Vipamaneerut, Partner, Tilleke & Gibbins. Please send any comments or questions about the content of this article to Zac Robinson at [email protected]
Series Editor: Christopher F. Bruton, Executive Director, Dataconsult Ltd, [email protected] Dataconsult’s Thailand Regional Forum provides seminars and extensive documentation to update business on future trends in Thailand and in the Mekong Region.