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​ 

December 15, 2023
Employment law specialists from Tilleke & Gibbins’ office in Bangkok provided the Thailand chapter to the Guide to Restructuring a Cross-Border Workforce from International Employment Lawyer. This global guide, which covers 45 jurisdictions worldwide, examines the issue of workplace restructurings, particularly in relation to the needs of multinational companies. The Thailand chapter was written by partners Pimvimol (June) Vipamaneerut and Chusert Supasitthumrong along with associates Chomanut Arif, Dusita Khanijou, and Ketnut Pukahuta. The Q&A-style chapter focuses on key areas related to workplace restructuring, covering each of the following topics in detail: Reduction in workforce; Restructuring or reorganization of the business; Changing terms and conditions; and Areas to watch. A PDF of the Thailand chapter can be downloaded through the button below. Tilleke & Gibbins also provided the Cambodia, Laos, Myanmar, and Vietnam chapters to the Guide to Restructuring a Cross-Border Workforce 2024. To browse the full guide for all 45 jurisdictions, please visit the International Employment Lawyer website.
December 15, 2023
Employment law specialists from Tilleke & Gibbins in Vietnam provided the Vietnam chapter to the Guide to Restructuring a Cross-Border Workforce from International Employment Lawyer. This global guide, which covers 45 jurisdictions worldwide, examines the issue of workplace restructurings, particularly in relation to the needs of multinational companies. The Vietnam chapter was written by partner Kien Trung Trinh, counsel Sarah Galeski, and associate Dung Thi Phuong Le. The Q&A-style chapter focuses on key areas related to workplace restructuring, covering each of the following topics in detail: Reduction in workforce; Restructuring or reorganization of the business; Changing terms and conditions; and Areas to watch. A PDF of the Vietnam chapter can be downloaded through the button below. Tilleke & Gibbins also provided the Cambodia, Laos, Myanmar, and Thailand chapters to the Guide to Restructuring a Cross-Border Workforce 2024. To browse the full guide for all 45 jurisdictions, please visit the International Employment Lawyer website.
December 15, 2023
As part of its membership in Lex Mundi, Tilleke & Gibbins has published an updated edition of its Guide to Doing Business in Thailand for 2023. This guide outlines the key factors for starting and operating a business in the Thai market. Issues covered include: Investment incentives Financial facilities Exchange controls Import and export regulations Structures for doing business Requirements for the Establishment of a Business Operation of the Business Cessation or Termination of the Business Labor legislation, relations, and supply Tax Immigration requirements This publication is part of Lex Mundi’s Country Guides series prepared by member firms in more than 100 jurisdictions worldwide. The guides serve as a useful resource for planning international business strategy and researching new markets. The full Guide to Doing Business in Thailand is available through the button below.
October 20, 2023
On September 18, 2023, the Vietnamese government issued Decree No. 70/2023/ND-CP (“Decree 70”) amending and supplementing certain provisions of Decree No. 152/2020/ND-CP (“Decree 152”), which regulates foreign workers working in Vietnam and the recruitment and management of Vietnamese workers working for foreign entities in Vietnam. While Decree 70 relaxes some conditions relating to foreign workers, the general goal of protecting and prioritizing domestic labor over foreign labor remains. The major changes introduced in Decree 70 are summarized below. 1. Amended Definitions and Requirements for Worker Classifications Decree 70 introduces several changes to the requirements for foreign workers to be classified as “experts” and “technical workers.” Under Decree 152, foreign workers needed to hold bachelor’s degrees or receive training directly related to their intended job positions in Vietnam. However, under Decree 70, experts are only required to have a university degree or higher and at least three years of relevant work experience suitable for their intended positions in Vietnam. Similarly, it is no longer necessary for technical workers to have training in a specific technical field to be eligible to work in Vietnam. Instead, a technical worker is defined as someone who has undergone at least one year of training and possesses at least three years of working experience suitable for their intended job position. Additionally, Decree 70 clarifies and expands the scope of the term “executive director”. Accordingly, an executive director can be (i) the head of a branch, representative office, or business location of an enterprise (which helps clarify the previous definition of “executive director” in Decree 152); or (ii) an individual who oversees at least one field within an agency, organization, or enterprise while being under the direct supervision of the head of that agency, organization, or enterprise. 2. Application for Work Permit The general procedure for