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

September 5, 2014

Subcontracted Workers and Employer Liability

Bangkok Post, Corporate Counsellor Column

Businesses in Thailand, particularly manufacturers, have used workers employed as subcontractors through agreements with third parties to meet fluctuating demand, reduce labor costs, and otherwise benefit from the flexibility that subcontracted employees provide.

However, the addition of Section 11/1 of the Labor Protection Act (LPA) in 2008 and its interpretation by the Supreme Court in 2012 makes a number of significant changes to Thailand’s labor law that may expose employers using subcontractors to liability. The following article explains the current law and looks at situations where employers are likely to incur liability under Section 11/1. The goal is to raise employer awareness and thereby reduce the risk of liability resulting from subcontracted employees.

LPA Section 11/1

The LPA generally provides strong protection to employees in Thailand. Enacted in 1998, it sets the standards and employee benefit rules with which employers must comply, including those related to minimum wage, working hours, overtime pay, etc. Employer violations of the LPA carry both civil and criminal penalties, and employees have ample access to the labor courts.

Within a few years of the LPA being enacted, the Labor Ministry found that businesses were using subcontractor agreements to avoid their obligations under the Act. The ministry viewed this as an abuse resulting in an inequality between the wages and benefits of regular and subcontracted employees. In 2008, parliament amended the LPA to include Section 11/1 in an attempt to clearly define the obligations of businesses using subcontracted employees. Its aim was to protect subcontracted employees who do the same work as regular employees, where such jobs were part of the “production process or business” of the company.

LPA Section 11/1 states:

“Where an operator authorizes a person to provide personnel to work, which is not a job placement business, and such work is part of the production process or business under the responsibility of the operator, and whether or not such person will supervise the performance of work or be responsible for payment of wages to those who do such work, the operator shall be deemed the employer of those engaged to do such work.

The operator shall arrange for an employee hired for a wage who works in the same manner as an employee under a direct employment contract to, without discrimination, receive fair rights, benefits, and welfare.”

Although the addition of Section 11/1 appeared to be a clear call to businesses to change their practices, many may not have been aware of the amendment or may have believed that the benefits they provided to subcontracted employees were already “fair.”

Whatever the reason, they continued to provide different benefits and welfare to subcontracted employees, resulting in the filing of lawsuits for violations of Section 11/1. The LPA sets forth criminal liability in the form of a fine not exceeding THB 100,000 for violations of this section.

Case Study

The following example may help to clarify Section 11/1 and an employer’s obligations:

A vehicle manufacturer operating a production facility in Thailand produces each vehicle using multiple production processes. All of the processes are essential to the production of the vehicle and are thus considered part of the “production process or business” of the company. The company provides its regular employees with a Cost of Living Adjustment, a food allowance, and a transport allowance.

If this company hires a subcontractor to provide employees to work in any stage of the production, and the work is the same as that performed by its regular employees, then the subcontracted employees will be deemed employees of the company for the purposes of Section 11/1. Thus, the company must provide “fair rights, welfare, and benefits” to all subcontracted employees, without discrimination. But what does “fair” mean?

Fair Rights, Welfare, and Benefits

In 2012, the Supreme Court faced such a case. In that case, the company provided what it believed to be “fair” rights, welfare, and benefits to the subcontracted employees, but which were actually significantly less than those provided to its regular employees.

The Supreme Court ruled that the company, in order to comply with Section 11/1, must pay its subcontracted employees the same benefits and welfare as it did to its regular employees. In other words, “fair” means the “same” when it comes to providing benefits to subcontracted employees.

In conclusion, the Supreme Court’s interpretation of Section 11/1 means that subcontracted employees can no longer be used as a method for reducing labor costs, and employers utilizing subcontracted employees must be aware of their obligations in order to avoid potential claims in the future.

RELATED INSIGHTS​ 

August 12, 2024
With the growing prominence of ESG (Environmental, Social, and Governance) factors, businesses in Vietnam are increasingly recognizing their importance in driving global demand, societal impact, and economic value. A comprehensive acknowledgment of ESG-related legal requirements is critical for investors and companies operating in Vietnam to meet stakeholder expectations and ensure compliance. Our guide provides a basic overview of the rapidly evolving ESG landscape in Vietnam, covering a range of key issues for companies doing business in the country: What is ESG, and what does the ESG legal framework look like in Vietnam? Who needs to follow ESG regulations in Vietnam? What are the benefits of ESG compliance? How can enterprises enhance ESG best practices in Vietnam? Please click on the link below to view the full article.
August 2, 2024
On July 17, 2024, Thailand issued the Ministerial Regulation under the Revenue Code regarding Revenue Tax No. 394 (B.E. 2567) to increase the personal income tax exemption amount on severance pay for terminated employees. Under this ministerial regulation, terminated employees are exempt from personal income tax on their severance pay up to a severance pay amount equivalent to their last 400 days’ wages, capped at THB 600,000. This tax exemption does not apply to severance pay relating to retirement or the expiration of a fixed-term employment agreement. Previously, this exemption, which has been in effect since 1998, only applied to an amount equivalent to their last 300 days’ wages, capped at THB 300,000. This aligned with the maximum severance pay rate specified in the Labour Protection Act B.E. 2541 (LPA). However, when the LPA was amended in 2019, the maximum severance pay rate was increased from a rate equal to employees’ last 300 days’ wages for those who have worked for 10 years or more, to a rate equal to employees’ last 400 days’ wages for those who have worked for 20 years or more. The recent ministerial regulation was enacted accordingly to align with the updated severance pay rate and account for Thailand’s rising inflation rate. The new exemption rate applies to assessable income received from January 1, 2023, onward. For any excess severance pay withheld in 2023 and filed in 2024, individuals may request a tax refund from the Revenue Department, according to Revenue Department clarification. This should be done according to the applicable procedure within three years of the income tax return filing deadline. For more information on severance pay exemptions, or any aspect of employment law in Thailand, please contact Pimvimol (June) Vipamaneerut at [email protected], Ketnut Pukahuta at [email protected], Dusita Khanijou at [email protected], or Chomanut
June 20, 2024
“Forced labor” has many incarnations. Some forms are shocking, such as a case in 2021 where Vietnamese guest workers were brought to a Chinese-owned factory in Serbia that manufactured tires sold to European car companies. The guest workers allegedly had their passports taken away and were subjected to horrible living conditions, including a lack of food, forcing them to resort to hunting small animals in the nearby forest to survive. However, forced labor more often takes subtler forms, so that most people do not even recognize it as such. For example, a factory may receive an order with an extremely short production deadline, and the workers are instructed to work overtime hours. If the employees refuse to do so and stop working when their regular shift ends, they receive warning letters the next day. While less shocking than the situation of the guest workers forced to hunt squirrels to survive, it is also forced labor. ILO Convention No. 29 on Forced Labor defines forced labor as “all work or service…extracted from any person under the menace of any penalty and for which the said person has not offered…[them]self voluntarily.” The ILO names 11 indicators of forced labor: abuse of vulnerability, deception; restriction of movement, isolation, physical/sexual violence, intimidation and threats, retention of identity documents, withholding of wages, debt bondage, abusive working or living conditions, and excessive overtime. Excessive overtime in particular is common in the manufacturing sector in Southeast Asia, and debt bondage is also prevalent. Some companies demand employees provide a “training deposit” when they commence their employment, which they will have repaid provided they continue working for a minimum period. However, these common practices may soon be eradicated due to new supply chain due diligence legislation. Two such examples demonstrating this greater focus on forced labor within
April 12, 2024
On April 10, 2024, new minimum wage rates for workers in certain hotels in Thailand were published in the Government Gazette, taking effect on April 13, 2024. Under the Notification of the National Wage Committee on Minimum Wage Rate for the Hotel Industry, the new minimum wage rate is THB 400 per day, applicable to employees working in four-star (and above) hotels that have at least 50 employees and are located in the following specific areas: Bangkok: Pathumwan and Wattana districts Krabi: Ao Nang Subdistrict Administrative Organization areas Chon Buri: Pattaya city Chiang Mai: Chiang Mai municipality Prachuap Khiri Khan: Hua Hin municipality Phang-nga: Khukkhak sub-district municipality Phuket: Whole province Rayong: Phe subdistrict Songkhla: Hat Yai municipality Surat Thani: Koh Samui municipality Rationale The increase in the minimum wage is to drive and stimulate the economy in Thailand’s tourism industry, which is critical to the overall economy of the country. The ten areas identified above are those that earn a significant portion of their revenue from tourism. The decision underwent a public hearing process involving stakeholders. Although there were objections from some hotels claiming they were not yet ready to bear the increased costs, the law was enacted, taking effect on April 13, 2024. For more information on Thailand’s minimum wage regulations, or on any aspect of employment law in Thailand, please contact Pimvimol (June) Vipamaneerut at [email protected], Ketnut Pukahuta at [email protected], Dusita Khanijou at [email protected], or Chomanut Arif at [email protected].