Employers often believe that fixed-term employment contracts provide advantages over indefinite-term agreements because of the complexity of terminating workers under Thai law. But in reality, fixed-term contracts are subject to a variety of restrictions under Thai law which can lead to significant, and often unexpected, legal pitfalls for employers. This article highlights some of the key issues to help managers understand the law when entering into fixed-term employment contracts.
The Labor Protection Act (LPA) is the primary statute governing fixed-term employment contracts. Under the LPA, a fixed-term employment contract must be in writing when the employment period starts. Fixed-term contracts must also explicitly state that they are “fixed” by stipulating a predetermined period of employment. In other words, the contract must state when the work period starts and when it will end.
Another important feature of fixed-term contracts is termination. The work period in such agreements cannot exceed two years. In addition, there must be a clear indication that employment will terminate at the end of the period. And importantly, the contract cannot contain a clause allowing either party to extend the period of employment. Otherwise, the contract will not be considered to be a fixed-term employment contract, as decided by the Thai Supreme Court.
Use of Fixed-Term Employment Contracts
Fixed-term employment contracts can only be used for certain types of work, such as:
In addition, the work must be a type that can be completed within two years, so as to align with the maximum length for fixed-term employment contracts. The employer is required to terminate the contract within the specified fixed period. Any extension will preclude the contract from being considered a fixed-term employment contract.
An important benefit for managers is that severance does not have to be paid when a fixed-term employment contract is terminated. Of course, the contract must be deemed to be a “fixed-term” contract for the severance exception to apply. If the Labor Court considers that an employment contract does not meet the requirements that categorize fixed-term contracts, the employer will be required to pay severance. As such, employers should take care when drafting and using fixed-term employment contracts to avoid liability with regard to severance and remuneration payments.
Supreme Court Precedents
To evaluate the qualifications for fixed-term employment contracts, it is helpful to look at Supreme Court precedent cases. The Supreme Court has ruled that an employer is obligated to pay severance to an employee in the following cases:
Supreme Court precedents are not binding law in Thailand (unlike in common law jurisdictions). However, they have strong influence on lower courts. And while lower courts are not obligated to follow the precedents, they are highly likely to do so.
As a result, employers should carefully consider their employment objectives when using fixed-term employment contracts. A wrong move can result in litigation and costly payouts to workers.