Mutual Termination of an Employment Agreement

In Thailand, the main ways an employment agreement are terminated are through employee resignation or the employer terminating the employee either with or without cause. However, another way in which an employee-employer relationship can be terminated is through a mutual separation agreement whereby both parties (employer and employee) mutually agree to terminate the legal employee-employer relationship. In this article, we shall discuss several key issues relating to this type of contract as well as what topics should be covered in such agreements.

What is the key benefit to employers if they mutually terminate the employee relationship with their employee?

The key advantage to mutual termination is that it can help to prevent an employee claiming unfair termination compensation from their employer after termination takes effect. However, it is worth noting that even after an employee signs such an agreement which confirms that they wish to voluntarily mutually terminate their employment and they leave their employment, they can still file a case with the labour court arguing that they were unilaterally terminated by their employer and seeking compensation for unfair termination. However a suitably drafted mutual separation agreement can be solid evidence to effectively counter such argument by showing that the relationship was not terminated unilaterally but was done jointly and voluntarily.

Timing in the Agreement & Advance Notice of Termination

Arguably, one of the most important issues which should be covered in the agreement is when the mutual termination of the employee relationship shall take effect. This is up to the parties but it would be prudent to give certain employees several days after signing the Agreement before the termination took effect as they may need to arrange certain matters such as expat staff needing time to get ready for the cancellation of their non-immigrant visa on the day that their work is terminated.

For mutual termination of the employment relationship. there is no need for the parties to give advance written notice to the employee in accordance with section 17 of the LPA as it is up the parties as to when the mutual termination of the employment contract shall take effect; this is due to the legal principle of freedom to contract which is held by the parties.

Employee Payment for Mutual Termination

In most cases an employee would be unwilling to voluntarily enter into an agreement which mutually terminated their employment given that mutual termination would not entitled them to severance pay under section 118 of the LPA. Hence to persuade an employee to voluntarily enter into such a contract, often an employer needs to provide the employee with some sort of financial incentive. Moreover, if the effective termination date shall be after the signing date of the mutual separation agreement then it would be prudent to have the agreement provide that the payment shall be made when all of the immediate obligations on the employee have been complied with as this would help to compel their compliance with such matters such as the return of property to their employer.

Topics to Cover in the Mutual Separation Agreement:

A mutual separation agreement can be brief or highly detailed depending on what the parties wish to cover, however if an employer wishes to safeguard their legal position then the writer recommends that the contract should consider covering the following matters:

• Return or destruction of the employer’s confidential materials held or under the control of the employee. Moreover, it would also be wise for the contract to cover the handover of all pending assignments to a representative of the employer.
• The return of all company equipment or assets held or controlled by the employee such as keys, laptop computer, swipe cards, vehicles, uniforms etc.
• It may also be prudent to consider using a suitably drafted non-compete clause which has limited scope in terms of location and timing. It may also be a good idea to state in the agreement which commercial competitors (if any) the employee is not permitted to work for during such non-compete period.
• Adding a non-disparagement clause to prevent the employee from bad mouthing the employer or its management can be a prudent course of action, especially if the relationship between the employer and the employee is strained.
• The agreement should expressly state that both parties wish to voluntarily terminate the employee relationship as of the specified termination date. To further safeguard the employer, it would also be advisable for the contract to provide that the employee understands and accepts that their employment is not being unilaterally terminated by the employer and that the mutual termination does not constitute constructive termination by the employer.
• If there are any clauses in the employment agreement which conflict with clauses in the Mutual Separation Agreement then it would sensible to address such conflicts and state which shall apply so that confusion and conflict can be avoided. Similarly, if the mutual separation agreement is made in Thai language and another language then a clause should be added into the contract which stipulates which language version shall prevail in the case of a conflict or inconsistency between them.
• An indemnity clause is a vitally important clause to include in the agreement as it can help to provide the parties with recourse in case the other party breaches or defaults on their contractual obligations.
• The agreement should also provide that the employee shall be responsible for all taxes relating to payments received by them under the agreement.
• If the employee is a foreigner (non-Thai) then the agreement should also cover when the visa and work permit shall be cancelled and that the employee shall cooperate with the employee with respect to the cancellation process.

In conclusion, if you are planning on entering into a mutual separation agreement whereby the employer and employee are terminating an employment relationship then you must proceed carefully to ensure that you side is adequately protected from various risks such as compliance with applicable law or future legal claims etc.

Dharmniti Law Office Co., Ltd.
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