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

Subscribe to Updates
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.

Download Full Article
Related Professionals

Practices

Employment

Location

RELATED INSIGHTS​ 

August 23, 2021
Since July 13, 2021, the Thai government has issued a series of resolutions offering relief measures for persons insured under sections 33 (regular employees), 39 (former employees still paying contributions to the SSO) and 40 (freelancers) of the Social Security Act B.E. 2533 (1990) (the SSA) who have been affected by the COVID-19 prevention measures under the Emergency Decree on Public Administration in Emergency Situations B.E. 2548 (2005), including the business closures required in some provinces. The latest cabinet resolution extends relief measures to SSA-insured persons in 29 provinces designated as maximum control areas (or “dark red” provinces). The provinces are grouped into three categories based on when they received that designation (which, in turn, impacts the duration of the relief which they receive): Two types of relief measures have been announced—one for parties under section 33 of the SSA, and one for parties under sections 39 and 40.   Section 33 (Regular Employees) Monetary assistance is available for Thai nationals insured under section 33 of the SSA (and their employers) engaged in the following business activities: Administrative and support activities Arts, entertainment, and recreation Automotive repair Construction Food and accommodation Information and communication activities Professional activities in science and academia Services Transportation and storage Wholesale/retail Employers must submit an application to the Social Security Office (SSO) through the online portal (www.sso.go.th/eservices) in order for them and their employees to receive the assistance payments. Each qualifying employee receives THB 2,500 per month if they are registered with the SSO within the deadline, while registered employers receive THB 3,000 per qualifying employee, up to a maximum of 200 employees (i.e., THB 600,000), as summarized in the table below.   Section 39 (Former Employees Still Paying SSO Contributions) and Section 40 (Freelancers) THB 5,000 assistance payments are available for Thai employees insured
Read More
August 23, 2021
Ho Chi Minh City has been locked down for months in an effort to fight the challenging fourth wave of the Covid-19 pandemic. We explore the various options available to employers to cut labor costs, as well as government relief measures to support both workers and employers.
Read More
August 5, 2021
With the latest wave of COVID-19 continuing to have a serious impact on Thailand, many businesses have been looking for ways to survive. Some have temporarily reduced employees’ wages, while others have resorted to a complete or partial halt to operations. In these unprecedented circumstances, it is vital that business owners understand the legal criteria and steps for implementing a temporary cessation of operations in Thailand, as outlined in this article. Any business can apply for a temporary cessation of operations under section 75 of the Labor Protection Act (LPA) if there is a necessity and a significant cause, such as the business being unable to operate as usual, and if the necessity is not considered force majeure under Thai law. (If it is deemed force majeure, an employer may be able to withhold all wages—more on this below.) If these criteria are met, the employer can choose whether to seek temporary cessation of operations on a whole or partial basis, depending on the actual situation and necessity. The employer then has to inform a labor inspection officer and the employees at least three business days in advance of the intended cessation of operations. Once this is done, operations may be halted, but the employer must pay employees at least 75 percent of their wages, calculated based on the rate on their latest working day, and these payments must continue throughout the entire cessation period. “Necessity” and force majeure Though the LPA does not indicate what qualifies as a “necessity” allowing an employer to call for a temporary cessation, past rulings from the Supreme Court provide some guidance on this issue. For instance, reduced purchase orders from customers and financial difficulties faced by the employer can amount to a situation of “necessity.” Additionally, the situation has to be significant
Read More
July 28, 2021
Lawyers from Tilleke & Gibbins’ labor and employment team including Kien Trung Trinh, Sarah Galeski, and Nam Ngoc Trinh have written the Vietnam chapter of Practical Law’s Employment and Employee Benefits Global Guide. The 2021 edition of the handbook provides a high-level comparative overview of employment laws and regulations across 32 jurisdictions around the world. Tilleke & Gibbins also contributed the Myanmar chapter of the guide. The Vietnam chapter covers a wide range of typical employment matters, such as limitations on working hours, paid leave requirements, minimum wage, and health and safety obligations. In addition, the guide provides insight on a number of topics of special interest to foreign investors doing business in Vietnam, including the following: Mandatory contents of a labor contract; Visas and permits required for expatriate employees; Employers’ obligations for protecting employees’ privacy and personal data; Procedural requirements for the dismissal of an employee; Employer and parent company liability. The 2021 edition also includes a special section on Covid-19 related provisions of labor law. To read the Vietnam chapter, click on the link below.
Read More