When technology and automation replace workers: Thai labour law termination rules
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When technology and automation replace workers: Thai labour law termination rules

In this era of rapid technological advancements, the introduction of new computer programs, algorithms, and artificial intelligence has resulted in the automation of many business operations that were previously manually operated by a human workforce, thus resulting in a necessary reduction in the number of employees.

The Thai Labour Protection Act contains a specific provision that governs the reduction of employee numbers due to the adoption of machinery or technology. Section 121 of the act states that specific obligations are imposed where an employer terminates employees “by reason of reorganising work units, production process, distribution or services arising from the utilisation of machinery, or a change in machinery, or changes in technology, where it becomes necessary for the Company to reduce the number of employees.”

A misconception many employers have is that Section 121 governs all cases of termination arising from a business re-organisation. However, the law clearly states that this section will only apply when a termination stems from a re-organisation “arising from the utilisation of machinery, or a change in machinery, or a change in technology”. Accordingly, other cases of business reorganisation that do not involve changes in respect to machinery or technology do not fall within the scope of section 121.

Section 121 obligations

When the termination does fall within the scope of section 121, the employer must take a number of steps:

1. Give notice of termination to the employees

As a general matter, an employer must provide employees who are terminated without cause advance notice of termination at least one full payment cycle in advance of the effective date of termination (called the “one pay period notice”), or pay of wages in lieu thereof. If a longer notice period is stated in the employees’ employment agreement or the work rules or policies, the employer is obligated to comply with the longer notice period.

However, if the employees are terminated specifically due to utilisation or change of machinery, or a change in technology, the employer is obligated to provide advance notice of termination of at least 60 days to the employees who will be terminated. If the employer fails to give the 60-day notice, the employer must pay special severance pay in lieu of notice—equivalent to 60 days’ wages at the employees’ last wage rate.

2. Notify the labour inspection officials

In notifying the labour inspection officials of the termination, the employer is required to provide the date of termination of employment, the reasons for termination, and the names of all the affected employees. The notification must be made at least 60 days prior to the date of termination.

An employer’s failure to notify the labour inspection officials within the requisite timeframe may result in a fine of up to THB 20,000. Significantly, the penalty may also be enforced against any directors or other persons who are authorised to act on behalf of the employer in relation to the particular termination case—which may include human resources personnel.

3. Pay special severance

An employer will be required to pay special severance equivalent to a certain number of days’ salary at the employee’s latest salary rate, based on that employee’s years of service, as follows:

Length of Service                                        Severance Pay

≥ 120 days but less than 1 year                           30 days
≥ 1 year but less than 3 years                              90 days
≥ 3 years but less than 6 years                          180 days
≥ 6 years but less than 10 years                        240 days
≥ 10 years but less than 20 years                      300 days
20 years or more                                                400 days

In addition, the employer must make payment in lieu of any unused annual leave to the employee.

4. Pay additional special severance

If a terminated employee has worked for the employer for more than six consecutive years, the employer will also be obligated to give them additional special severance pay equal to no less than 15 days’ wages, at the employees’ last wage rate, for each complete year of work beyond the sixth year.

For example, if the employee has worked for eight years, the employer is obligated to provide special severance pay of 30 days (15 x 2), in addition to the special severance pay outlined in section 3.

The total special severance pay under these circumstances is capped at 360 days of wages at the last wage rate. For employees who receive wages based on work units performed, the severance pay may not exceed the wages received for the last 360 days.

If the period of service is less than one year, 180 days will be counted as one full year of service.

Potential claim for unfair termination

An employer who terminates employees without sufficient and justifiable reason and evidence may be subject to claims for unfair termination, even if the employer had made all payments due to the employees upon termination. If a court finds that the employees’ termination was unfair, it may order the employer to reinstate the employees, if the employees so request, or pay damages for unfair termination. The prescription period for an unfair termination claim is 10 years, calculated from the termination date.

Given the stringent obligations imposed upon employers, coupled with these potential penalties for a failure to comply, it is therefore essential that employers carefully assess the best possible methods for bringing an employment relationship to an end when an employee’s role is eliminated due to the utilisation of technology.

In addition, employers should go beyond that by being prepared to defend their position and prove that any termination of this nature was indeed fair, by ensuring that they retain clear evidence of:

- Why the restructuring, due to the utilisation of new technology, is required;
- Why the utilisation of new technology eliminates the role of those particular employees, or renders them incompatible with the new technology; and
- How the employer attempted to find another position for the employees within the organisation, but there was no suitable position available.

In addition to being generally good practice, being able to prove these points could be the difference between success and failure in a court case for unfair dismissal.

Authors: Pimvimol (June) Vipamaneerut, partner and head of the firm’s non-contentious employment practice, and Dusita Khanijou, consultant. Please send any comments or questions about the content of this article to Andrew Stoutley at andrew.s@tilleke.com.

Series Editor: Christopher F. Bruton, Executive Director, Dataconsult Ltd, chris@dataconsult.co.th. Dataconsult’s Thailand Regional Forum provides seminars and extensive documentation to update business on future trends in Thailand and in the Mekong Region.

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