You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

July 13, 2012

Debunking the Myths of Fixed-Period Employment Contracts

Subscribe to Updates
Bangkok Post, Corporate Counsellor Column

Fixed-term employment contracts are easily misunderstood by employers. Some mistakenly believe that fixed-term contracts will absolve them of the duty to make severance payments to their employees, while others assume that labeling an employment contract “fixed-term” will grant it such status. However, the law sees fixed-term employment contracts very differently, and this article will bust the many major myths surrounding such contracts in Thailand.

Myth 1: An employment contract is a fixed-term contract if it is labeled as such.

On the contrary, a fixed-term contract must satisfy a number of requirements as set out in the Labor Protection Act (LPA). The LPA requires such an agreement to contain a clause specifying a predetermined fixed period for employment and therefore specifying a termination date. It must be a written agreement and contain, at minimum, (1) a clause setting forth the term of employment, and (2) a clear indication that employment will terminate at the end of such period.

Myth 2: An employer can extend a fixed-term employment contract.

The fixed-term contract must not contain a clause allowing either party to extend the period of employment. Otherwise, a court may determine that the contract does not qualify as a fixed-period employment contract.

In addition, if an employer enters into multiple, back-to-back, fixed-term contracts with the employee, the court may believe that the employer actually intended to hire the employee on a permanent basis. The court may, by its discretion, invalidate the provisions of the contract that establish a fixed term of employment.

Myth 3: No payments are due on termination, if the employer terminates a fixed-term contract.

Employers may avoid paying severance, remuneration in lieu of advance notice, and/or compensation for unfair termination only where the fixed-term employment contract is made in accordance with the LPA and Supreme Court precedent opinions.

In order for a fixed-term employment contract to absolve an employer of the responsibility to pay statutory compensation on termination, the contract must:

  1. Be in writing (as of the start of the employment period);
  2. Be specifically for a special project that is not within the normal business or trade of the employer, where the schedule for start and completion of work is fixed; or apply to work of a temporary nature that has a fixed schedule for its start and completion; or apply to seasonal work for which the employee is engaged; and
  3. Be for a period of two years or less. The work specified in the contract must also be of the type that can be completed within two years.

As indicated above, the employer must terminate the contract on the expiration date. Any extension may cause a court to determine that the contract is not a fixed-period employment contract.

Myth 4: No payments are due on termination, if the contract recites the requirements in the LPA and the employer terminates the contract on the expiration date.

The Supreme Court has determined that the following situations, in which the employer may have intended to enter into a fixed-term agreement, did not actually qualify as fixed-term contracts:

  • The employer’s business was in construction and the employee was hired as a construction worker; the Supreme Court ruled that the employee was employed in the normal business or trade of the employer.
  • The contract contained a clause allowing the employer to terminate it prior to the designated termination date if the employer had no work to assign to the employee.
  • The contract contained a clause entitling either party to terminate it prior to its termination date.
  • The contract was for a period of employment longer than two years.

In such cases, the Supreme Court held the employment contracts were not fixed-term, and the employees were therefore entitled to severance pay and remuneration in lieu of advance notice.

If, however, a contract is considered to be a fixed-period employment contract under the law, and the employer terminates the employee based on the expiration of the contract, it would be considered fair termination. The employee would not be entitled to severance, remuneration in lieu of advance notice, or compensation for unfair termination. Please note that the LPA is a law regarding public order and good morals, and any employment contract provisions that fail to comply with the LPA will be void. It is important to seek legal advice both prior to drafting and prior to seeking to enforce a fixed-term employment contract.

Download Full Article
Related Professionals

Practices

Employment

Location

RELATED INSIGHTS​ 

April 3, 2023
Most employers know that terminating employees for poor job performance is not easy. But it is actually legally possible—if employers have the right approach and take specific precautionary measures. However, failing to take these precautions can mean that an employer is either stuck with an incompetent employee or on the losing end of a lawsuit for unfair termination. This article will lay out some essential considerations for employers in Thailand regarding termination of employment for poor performance. First, understand that “poor work performance” is a lack of performance or ability, or an inability to work with other employees. It does not constitute a violation of work rules or regulations. In some cases, however, an employee’s failure to act in accordance with lawful instructions or commands of the employer, resulting in poor work performance, could also be considered a violation of work rules or regulations. This may be the case if the work rules or regulations clearly state that an employee must strictly comply with the employer’s instructions or commands. Second, an employer can, in fact, terminate an employee due to poor work performance. For example, this may be possible in the following scenarios: Records show that an employee’s work performance has fallen below the employer’s required standards, and the employee has not tried to improve his or her work performance for three consecutive years. In addition, it does not appear that the employer was biased when giving ratings or scores for the employee’s work performance. The job description of the employee includes coordination with employees in other departments, but the employee has not been able to do so. Therefore, the employee was reassigned to a new job function, but the employee still did not improve. This suggests that the employee has a lack of interpersonal skills and is not
Read More
March 23, 2023
On March 19, 2023, Thailand’s new work-from-home (WFH) legislation amending the Labour Protection Act (No. 8) B.E. 2566 (2023) was published in the Government Gazette. It will come into effect on April 18, 2023. The amendment aims to enhance employee protections to accord with current global standards, provide alternative working arrangements for employers and employees, increase workforce efficiency, and strengthen employees’ job security and a better quality of life. As we detailed previously, the new WFH legislation allows employers and employees to reach agreements that permit employees to work remotely. Since there are no accompanying criminal punishments relating to this new provision, and the legislation incorporates the term “may agree,” it appears that this WFH provision is not mandatory but is primarily intended to facilitate and encourage remote working agreements between employers and employees. For more details on the WFH legislation, or on any aspect of employment law in Thailand, please contact Tilleke & Gibbins at [email protected].
Read More
February 24, 2023
Many companies have moved to Southeast Asia to benefit from the advantages of this vibrant and diverse market. The region is already a manufacturing hub for a multitude of industries—computer and automotive products in Thailand, textiles in Cambodia, and footwear and electrical goods in Vietnam, to name a few—and an increasing number of companies worldwide are reconfiguring their supply chains to include regional suppliers. A key challenge is keeping up to date with employment law trends in these jurisdictions to ensure compliance with local regulations—and avoid costly, time-consuming business interruption. Here we outline trends and recent regulatory developments in Cambodia, Thailand, and Vietnam, and consider what they mean for employers. Cambodia The Ministry of Labour and Vocational Training (MLVT) is likely to pursue a more proactive enforcement strategy in 2023. Last May, the MLVT announced companies would be required to submit a twice yearly self-declaration on labour compliance through a new online system. The self-declaration form requires companies to confirm and upload evidence of compliance, and the MLVT online system—through which the ministry can easily determine if a company is compliant –generates a report that lists all fines. Companies should comply with the self-declaration requirement and carefully review the form to understand what fines will apply for non-compliance. On 1 October 2022, regulations relating to the National Social Security Fund (NSSF) pension system came into effect, and employers and employees began making NSSF pension contributions. Over the next five years, total compulsory pension contributions will amount to 4% of an employee’s wage, half of which is paid by the employer and half deducted from the employee’s salary. The contribution wage is capped at KHR 1.2m (USD 300). Employers are currently required to pay a relatively small amount (KHR 24,000, or around USD 6). This will increase to 10.75% over
Read More
January 19, 2023
The Thai parliament has passed the so-called Work from Home Bill—formally known as Labour Protection Act (No. 8) B.E. 2566 (2023)—which amends the country’s Labour Protection Act (LPA) to reflect current circumstances. The accompanying legislative remark states that the proposed amendments to the LPA will provide additional options for work arrangements between employers and employees, upgrade the level of labor protection, increase work stability, and improve quality of life for employees in Thailand. The legislation adds a single section to the LPA providing that an employer and an employee “may agree in the employment contract” that the employee is allowed “to bring work . . . to perform at home or at the residence of the employee or anywhere that the employee can work remotely through information technology, if the nature of the work permits.” The provision further provides that employers are responsible for ensuring that remote work agreements are in writing, either physically or electronically, and may include the following details: Period of the agreement; Normal working hours, rest periods, and overtime work; Criteria for overtime work, holiday work, and various types of leave; Scope of work and control or supervision by the employer; and Responsibility for arranging supplies and equipment, including necessary costs relating to the work. The amended LPA gives employees who work from home the right to refuse contact from the employer or the supervisor beyond working hours. In addition, employers must treat remote employees equally to on-premise employees. The most notable question surrounding this legislation is whether employers must allow employees to work remotely. The phrase “may agree” suggests that employers do not have to agree to allow an employee to work remotely. Another important aspect of the amendment is that there is no criminal punishment attached to it, which suggests that the legislation
Read More