Where do employees go after a merger? Landmark case spells out their rights

Where do employees go after a merger? Landmark case spells out their rights

In pursuing its external growth, it is common for a company to merge with or acquire other companies. This generally takes the form of either an amalgamation of relevant entities or a transfer of one entity’s assets or shares to the other entity.

In Thailand, the concept of amalgamation is explicitly recognised and stated in the Civil and Commercial Code (CCC) and refers to a merger of two or more companies to form a new one. In this respect, employees of the amalgamated companies are undeniably valuable assets. However, in reality, employees of the amalgamated companies may not wish to continue working for the new company. Questions arise as to how best to deal with employees in a case of amalgamation.

According to Section 1243 of the CCC, the new company will receive all rights, duties and liabilities from the amalgamated companies (which are to be dissolved) after the amalgamation. Consequently, a strict interpretation of Section 1243 could mean that the employees of the amalgamated companies should be automatically transferred to the new company.

The new company would not be required to obtain approval or consent from the employees, and would only have the duty to ensure that the transferred employees are provided with rights and benefits no less favourable than those under their existing employment contract. In the case where employees do not wish to continue working for the new company, they may consider tendering their resignation.

A landmark Supreme Court decision in the case of an amalgamation in 2002 followed the above interpretation, albeit only partially, that all rights and duties relating to the employees of the amalgamated companies should be transferred to the new company after the amalgamation. Accordingly, the employees were automatically transferred to the new company.

However, the court went on to state that in a case where the employees expressed a clear intention that they did not wish to be transferred to the new company, no employment transfer would occur. Rather, their employments would be deemed terminated due to the dissolution of the amalgamated company.

The new company, as a bearer of rights and obligations of the amalgamated company, shall be legally responsible for payments of severance and other termination payments to employees. Therefore, even though the new company is not legally required to obtain consent from the employees as to whether they want to work for them, if some of the employees explicitly refuse to work for the new company, then they are entitled to do so and their employment will be considered terminated. The new company will thus be responsible for severance and termination payments.

It should be noted that this case did not involve an amalgamation under Thai law but rather involved an amalgamation in Japan that affected company branches in Thailand. To date, there is no Thai court precedent applicable to the case of transferring employees in an amalgamation under Thai law.

Interestingly, in the case of a transfer of assets and employees from one entity to another, unlike an amalgamation, consent of transfer from each of the transferred employees is legally required pursuant to Section 577 of the CCC. The Supreme Court has confirmed this requirement in recent cases and has also implied that the consent requirement under Section 577 should be applied to only the transfer of employment on grounds other than an amalgamation — for example, assets acquisition.

Therefore, one may question whether the precedent set by the 2002 case is still applicable to the case of amalgamation, given that the employee consent requirement under Section 577 is not applicable, because employees of the amalgamated companies should be automatically transferred to the new company without any need for their consent.

Nevertheless, the precedent in the 2002 case still plays an influential role in the issue of employees and amalgamation. In a case in September 2013 involving the amalgamation of two companies under Thai law, the lower Central Labour Court closely followed the precedents in the 2002 case by affording the employees the right not to join the new company, which would be deemed as termination by the amalgamated company. Note that this ruling is being appealed before the Supreme Court and it remains to be seen how the Supreme Court will approach this issue.

It is vital for companies to be aware of the legal position concerning employees in the case of amalgamation in order to consider and assess any potential impact it may have on the transaction as a whole — for example, the number of employees that are likely to refuse to work for the new company and the financial costs that the new company will incur.


Suriyong Tungsuwan is a partner and Nam-Ake Lekfuangfu is an associate at Baker & McKenzie Ltd. They can be reached at suriyong.tungsuwan@bakermckenzie.com or namake.lekfuangfu@bakermckenzie.com

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