It goes without saying that the employment of employees is essential for many Japanese companies operating business in Thailand, but they must comply with the regulations of the Thai labour legislation with regard to employment. Below is an overview of the labour legislation in Thailand, taking into account the differences with Japan.
According to statistics from the Thai courts, as of 2020, more than 70% of cases brought before the Labour Court were related to dismissal. The next most common cases are related to the payment of wages and compliance with work rules or collective agreements.
Furthermore, even if the case is not brought to a labour tribunal, continued employment without understanding and complying with the Thai labour laws and regulations may lead to a backlash from employees, resulting in the resignation of talented personnel, or even collective bargaining such as sabotage or strikes, which could bring factory operations to a standstill. Therefore, it is very important for Japanese companies in Thailand to understand Thai labour legislation. Below is an overview, with comparisons to Japan.
Thai labour law has three statutes: Labour Protection Act, Labour Relations Act and Occupational Health and Safety Act. For social welfare, there is the Social Welfare Act.
The Labour Protection Act is equivalent to the Japanese Labour Standards Act and regulates working hours, leave, wage calculation, employment regulations, termination conditions and procedures. As there is no equivalent law to the Japanese Labour Contract Act in Thailand, labour contracts are governed by the provisions of the Civil and Commercial Code on employment contracts and Labour Protection Act.
The Labour Relations Act provides for negotiations and consultations with workers and trade unions. The Occupational Health and Safety Act, as the title of the law states, regulates matters relating to safety considerations for workers at workplaces and factories. The Social Welfare Act regulates the rates of social welfare contributions for workers, how they are paid and how and what they are guaranteed.
In Thailand, the Labour Court Establishment Act and the Litigation Act provide a system whereby workers can easily file a case with the Labour Court for violations of Thai labour law, including unfair dismissal. This means that Japanese companies, as employers, have to comply with Thai labour law on a regular basis, taking into account the risk of being sued in court. Therefore, in order to comply with the Thai Labour Code, it is necessary to take practical and pragmatic measures, taking into account how the law will be interpreted in court and whether there is evidence that can be dealt with in court. Such a response can be effectively supported by a law firm with experience, including in labour tribunals. A lawyer can also help with dismissal procedures, be in the presence of dismissal, and can help you to avoid as much trouble as possible in the future.
Labour issues are a headache for employers, both in Japan and in Thailand. Thai labour legislation itself, like that in Japan, is favourable to workers. However, if too much emphasis is placed on compliance with labour laws and too much fear is placed on the risk of labour lawsuits, bold personnel reductions and dismissal of problematic employees may be postponed, which in the long run may have a significant impact on the company's cash flow, profit and loss. In many labour issues, decisions have to be made flexibly, depending on the balance between company management and the financial risk of a labour lawsuit. In this respect, having a lawyer anticipate the financial risks in the event of a labour lawsuit can make it possible to deal with current redundancies and dismissal of problematic employees.
Labour legislation differs between Japan and Thailand. In many cases, similar provisions are interpreted differently. An incorrect understanding of labour legislation may lead to problems with workers. Below is an overview of the content of labour legislation in Thailand.
Under Thai labour legislation, the validity and content of employment contracts, working regulations, probationary periods and fixed-term employment contracts are largely the same as in Japan. However, there are some differences in content, which are briefly discussed below.
Employment contracts
Under Thai labour law, employment contracts are also concluded by verbal agreement between employers and employees, and there is no specific obligation for companies to issue written documents such as a notice of working conditions/employment, like in Japan. However, it has been common practice for some time to draw up a written employment contract. In particular, Thai employers and employees attach particular importance to the details agreed in the employment contract. It is common practice to ask for the employee's agreement each time to any changes or transfers in the initially agreed job title or department. With regard to salary, once a pay rise has been given, the employee's consent is also required for a pay cut. Therefore, in order to avoid problems between employers and employees, it is common practice to draw up a written amendment or partial additional agreement to the employment contract not only for the initial employment contract, but also for each subsequent change in the main working conditions, such as job type, workplace and wages.
In Thailand, it is possible to enter into a contractual agreement for certain types of work, such as advisers. In this case, the Thai Labour Act does not apply. However, even if the title of the contract is a subcontract agreement, if the content of the contract is such that it in effect recognises the right of the employer to direct the work, such an agreement may be regarded as an employment contract and subject to the Thai Labour Law, as is the case in Japan. When drafting such a contractor agreement, it is essential to consult a lawyer to ensure that the Thai Labour Law does not apply. It should be noted that it is not common for a company and an employee to have a delegation agreement, partly because the Thai Civil and Commercial Code does not define it as a typical contract. Almost all use a contractor agreement. However, in the case of a contractor agreement, tax issues may arise, such as the imposition of stamp duty and the contractor's obligation to collect and pay VAT, depending on its income, so it is necessary to take into account issues other than labour law.
Working regulations
Companies (employers) employing 10 or more employees must prepare and inform their workers of income and expenditure regulations in Thai.
Working regulations stipulate the working days, working hours, holidays, overtime, absenteeism, service regulations, dismissal and other matters that should be stipulated in the law, but they can also stipulate other details. Previously, after the working regulations were drawn up, they had to be submitted to the jurisdictional labour ministry office. At that time, the labour bureau officials would point out any violations of the law or other administrative guidance. However, since the obligation to submit such documents has now been removed, there is virtually no opportunity for companies to find out in advance about illegal content in employment regulations or employment regulations that have been amended through illegal amendment procedures, until they are pointed out through collective bargaining or a labour tribunal. Therefore, the review of working regulations and advice on amendments by lawyers is more important than in the past.
As in Japan, the principle of unfavourable changes applies to amendments to working regulations, and the content must comply with the Labour Protection Act. The main difference from Japan is the amendment procedure. In Japan, companies can unilaterally amend working conditions as long as the revised working conditions are well known and explained to the public and the content is reasonable. In contrast, under Thai labour law, amendments to working regulations without the agreement of all employees (or their representatives) on matters that constitute a disadvantageous change are generally considered to be illegal.
In practical terms, even for companies with less than 10 employees, it may be advantageous for the company to have a set of working regulations in place, especially in the event of a court case, when dealing with various aspects of employee treatment or dismissal.
Probationary period and fixed-term employment
In Thailand, a probationary period of up to 119 days is generally stipulated. As in Japan, the contract during the probationary period is also an employment contract and is subject to Thai labour law in the same way as an employment contract after full employment. The reason why the period is generally 119 days is because under Thai Labour Law, if the employment period is 120 days or longer, compensation for termination of employment must be paid for at least one month.
The difference between this and a post-hire employment contract is that the grounds for dismissal that are deemed fair tend to be slightly more relaxed than in the main employment contract. However, even in the case of dismissal in the absence of a full employment offer, a notice of dismissal must be given at least one month before the date of dismissal or, alternatively, one month's wages (which is slightly less precise, but will be described here simply as such) must be paid and the dismissal must be immediate.
Employment contracts usually have no fixed term such as an end date, but fixed-term employment contracts with a specified end date, for example, one year, are also permitted. The difference between an employment contract with no fixed term and a fixed-term employment contract is that the latter does not require the employee to give notice of termination of employment at least one month before the end of the employment contract. At the end of the employment period, the obligation to pay compensation for termination cannot be evaded, depending on the length of employment. However, even in the case of fixed-term contracts, the obligation to pay termination compensation may be exempted in the case of seasonal employment or employment on a project for a certain period of time.
In the case of a fixed-term employment contract, if the employee is dismissed in the middle of the employment period, the same notice of dismissal and payment of compensation for dismissal depending on the period of employment will arise as in the case of an employment contract without a fixed term.
Working hours, holidays and leave are generally the same as under Japanese labour law, with the following differences.
Working hours
According to the Thai Labour Code, in principle, the start and end time of work must be set within 8 hours per day and 48 hours per week. These start and end times are referred to as normal working hours, and any work outside of these hours is considered overtime. This differs from Japanese labour law, which does not consider overtime work as long as it is within legal working hours.
There is no specific statutory requirement for variable working hours, flexitime or deemed working hours, as in Japan. In Japan, rest periods are at least 45 minutes for an eight-hour working day, whereas in Thailand, as a general rule, employees must be given at least one hour rest within a five-hour period.
Holidays and leave
Statutory holidays include weekly rest days, public holidays and annual paid leave. Weekly rest days are holidays that must be granted at least one day per week. National public holidays are holidays designated by the company as 13 or more days off, including May Day, from among administrative holidays, religious holidays or customary holidays. Annual paid leave is paid leave granted to workers with at least one year's service for six working days per year.
Other rights are also granted to workers to take paid leave based on specific reasons, a system that does not exist in the Japanese labour code. For example, 30 days as sick leave with pay and 45 days as maternity leave (and a further 53 days as unpaid leave). Instead, there is no system of childcare leave or family care leave as in Japan (although there are individual payments from social welfare, for example during maternity leave).
Unlike in Japan, annual paid leave is only legally required to be granted to workers who have worked for at least one year for at least six days each year. For this reason, many Japanese companies have a system in their employment regulations that provides for the granting of additional annual paid leave days in stages according to length of service, as is the case in Japan. With regard to taking paid leave, the employer has the authority to approve the date on which leave is to be taken as in the employer has the right to specify the date.
With regard to wages, particularly with regard to monthly salary, most employees in Thailand are paid on a monthly daily basis. This means that the monthly salary amount is fixed each month, but any late arrivals, unpaid leave, or absences are deducted. As a rule, employees are also paid for holidays such as weekends and public holidays other than working days. This has an impact on the calculation of premium pay for overtime and working on holidays, which is discussed below. It is important to note that if the working day is used as the denominator in the hourly rate calculation, the hourly rate will be higher than the correct calculation, resulting in an overpayment of premium pay.
Furthermore, a minimum wage is determined for each region. As for severance pay, most companies use it as a substitute for severance pay, as the company is obliged to pay compensation for termination of employment according to the length of service only when the employee retires at retirement age or when the employee is dismissed for company reasons. Few companies have a separate severance payment system, as is the case in Japan.
Companies must pay extra wages to workers for overtime work, working on holidays. The premium wages must be paid above the legally stipulated threshold as follows.
In addition, there is no provision in the Thai Labour Code for extra pay for late night work.
As in Japan, disciplinary action must be stipulated in employment regulations. The content of disciplinary action is almost the same as in Japan, with 'warning', 'reprimand', 'pay cut', 'suspension from work', 'demotion', 'dismissal on the grounds of argument' and 'dismissal on disciplinary grounds' being common in Japanese companies in Thailand. However, there are cases where the consent of the employee is required for salary reduction, suspension from work, demotion and dismissal, and there are certain conditions stipulated by law, so the company must ensure that these punishments are carried out in accordance with these conditions.
As in Japan, there are two types of dismissal: normal dismissal (dismissal for company reasons) and disciplinary dismissal. In the case of ordinary dismissal, the same applies in that, in principle, a notice of dismissal must be given. However, the notice deadline is not 30 days prior to the date of dismissal. Under the Thai Labour Protection Act, a dismissal can take place on or after the next month's payday by giving notice of dismissal by the previous month's payday. It should also be noted that normal dismissal also requires payment of compensation for termination in accordance with the Thai Labour Protection Act at the time of termination.
In addition, there may be cases where the employee files a complaint with the labour court that the dismissal was for unfair reasons in relation to a normal dismissal. In such cases, the labour court deliberates whether the dismissal was for an unjustified reason and, if so, issues an order for the company to rehire the employee or pay compensation.
In contrast, in the case of disciplinary dismissal, there are no specific statutory grounds for dismissal in Japan, but under the Thai Labour Protection Act, disciplinary dismissal is only permitted for reasons stipulated by law. In the case of a disciplinary dismissal, it is not necessary to give notice of dismissal or pay compensation for dismissal as required for a normal dismissal. However, as there is also no payment of compensation for dismissal, disciplinary dismissals tend to be deliberated more rigorously in labour tribunals than whether there were statutory reasons or not, or whether an ordinary dismissal was unjustified or not.
As a rule, labour disputes in Thailand are heard by the Labour Court. The Labour Court is a system that favours workers and allows them to file a complaint free of charge. There is also support for filing a complaint, even if the complaint is oral, which is heard by the labour court clerk and filed as a complaint.
Therefore, companies must not only comply with labour laws and regulations and take precautionary measures to avoid labour disputes in advance, but also keep written documents and records concerning compliance with labour laws and regulations to reduce the amount of damages and resolve disputes as soon as possible in the event that a labour court case is filed. For such measures, the support from a lawyer who is familiar with Thai labour law on a regular basis is essential.
Labour-related organisations in Thailand include trade unions, which are voluntary organisations, and labour welfare committees, which companies of a certain size are required to set up. A trade union is an organisation that negotiates and revises employment conditions, such as working rules and regulations, and collectively bargains with the company to improve welfare benefits. A trade union can be organised by a group of at least 10 workers who formulate a constitution and register it with the competent authority. A trade union comprising at least 20% of all workers at a workplace can be the subject of labour disputes and negotiations, including the right to demand improvements to labour agreements, including working regulations, and strikes in the event of failure to reach agreement on demands. Workers' committees are also allowed to be set up in workplaces of a certain size as a similar organisation, but their purpose is to form co-operative labour-management relations through labour-management consultations, and they do not have the right to demand improvements to employment conditions, including working regulations, or the right to strike.
In contrast, a labour welfare committee is a workers' organisation that companies are obliged to set up. It must be organised by at least five representatives of the workers' side. A labour welfare committee is required to be set up at each workplace in establishments with 50 or more workers. The purpose of this committee is labour-management consultations only on welfare benefits in the workplace. It does not have the right to demand improvements to labour agreements or the right to strike as does a trade union comprising at least 20% of all employees at the workplace.
In Thailand, deployment differs between a change of work location and a change of job title or position. In the case of a change of workplace, if the change has a significant impact on the worker's life, the worker may be entitled to receive statutory compensation for dismissal (special dismissal compensation) and resign from the company. It is understood that a change in job title or position requires the consent of the worker concerned if it constitutes a change to the worker's disadvantage. As in Japan, there is no requirement to stipulate this in the employment contract or working regulations, but it tends to be more advantageous in the event of persuasion of the worker or a labour tribunal if the employment contract or working regulations stipulate the company's right to reassignment with the worker's comprehensive consent in advance.
For workers hired in Thailand, companies are obliged to provide workers' accident insurance and social insurance. Both must be provided, even if only one person is employed.
Thai workers' accident insurance is fully paid for by the employer, but the rate varies from 0.2% to 1% of annual income, depending on the type of industry. Premiums are paid once a year by the company. Guarantees include medical care coverage, compensation for absence from work, disability and death benefits, including medical treatment and hospital room charges.
Thai Social Insurance is a combined system of Japanese social insurance, unemployment insurance and pension. Workers and the company contribute approximately 5% of their monthly wages to the insurance premiums. The company is obliged to pay the worker and company contributions to the Social Insurance Fund every month. In addition to health insurance, as mentioned above, social insurance in Thailand covers unemployment insurance, old age pensions and childcare benefits, although the hospitals where social insurance can be used are limited.
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