Rights of an Employer in relation to Severance Pay

Rights of an Employer in relation to Severance Pay

In this article, we shall examine the issue of whether senior staff such as a Chief Executive Officer (CEO) are entitled to severance pay from their Company (employer). We shall begin by looking at the key issue of whether a person is to be considered as an ‘employer’ or an ‘employee’ because under Thai law only employees are entitled to severance pay under the Labour Protection Act (1998) (hereinafter referred to as the LPA). In determining the issue of whether a person who works for a company is an employee or an employer it is necessary to consider the definitions of both terms under the LPA and to also determine whether the person exercises ‘management authority’ which in turn will require an investigation into several other issues including whether the person is under direct day to day supervision and whether they are subject to discipline from their company should they breach its rules & regulations.

Legal Definitions of Employer & Employee

According to section 5 of the LPA, an employee is defined as being “a person who agrees to work for an employer in return for a wage regardless of the work title used”. The same section in the Act provides that an employer means a person who agrees to accept an employee for employment by paying wages and shall also include:

1. A person designated by an employer to act on their behalf;

2. If the person is a juristic person, the term also includes a person authorized to act on behalf of such juristic person, and a person designated to a t on behalf of such authorized person of the said juristic person.

The above definition provides guidance on whether a person is to be considered as an employee or an employer but to determine if a person is one or the other it is necessary to consider several other issues which are examined below.

Does the Person Exercise Management Authority?

According to Thai labour law if another person exercises management authority/control over the person in relation to their work then this will be a key point in determining if they are to be considered as being an employee rather than an employer. If no other person(s) exercise such authority over the staff member and they themselves have management authority over other staff then they are likely to be considered as being an ‘employer’ according to Thai law.

What is Management Authority?

A person shall be considered to have management authority and to be an ‘employer’ according to Thai law if the following circumstances apply:

1. They have no set working hours such that they can arrive and leave work as and when they desire and there is no need for them to seek approval or consent in relation to arriving late or leaving early.

2. They are not under the work rules and regulations of the Company and are not subject to any disciplinary punishment by the Company (their employer).

Note: It is worth noting that in determining if a person is under work rules, often the person in question will refer to their employment contract which may provide that they shall be subject to the work rules and regulations of their employing company but in reality if they are able to ignore such rules and don’t need to comply then the Court may decide that the person is practically speaking not under the work rules and regulations of the company. However, in determining this issue it will depend on the evidence submitted to prove this point.

3. The person is not monitored on a regular basis by a supervisor who reviews their work product. In relation to this point, it is worth noting that just because a CEO may be monitored by a board of directors from time to time this will not mean that they are an employee.

4. They have the authority and power to legally issue orders/instruction to other staff i.e. assign work and to discipline staff for breaches of the Company’s work rules/ regulations.

Is an Employer entitled to Severance Pay upon Termination of their Employment?

When an Employment Agreement is terminated, if the person is in fact an ‘employer’ as explained above then according to Thai law, they are not entitled to severance pay in accordance with section 118 of the LPA. However, they may still be entitled to termination benefits depending on what their employment contract provides as their employment agreement may contain provisions which provide that they will be entitled to a specified amount of money/benefits should the contract be terminated or expire. Hence, if a person is appointed to a senior position in a company which is in fact a position where they exercise ‘management authority’ then it would be sensible if they include a section in their employment contract which provides for such benefits in case their employment is terminated or expires.

What Happens if a Person Changes their status from Employee to Employer?

Often in the course of a career, a person will move up the hierarchy within their company from junior staff member to eventually become more senior over time. This leads us to our next key issue which relates to what happens when a person goes from being an ‘employee’ to instead being an ‘employer’, are they entitled to severance pay at the point of the change occurring? In relation to this issue, the writer would like to point out that if a staff member is promoted such that they agree to change their status to instead be an ‘employer’ (such as CEO etc) then unless their contract provides otherwise they are not entitled to severance pay upon this occurring as such change may not to be considered as a termination of their employment given that according to the Thai labour law, termination of employment means any act where the employer refuses to allow an employee to work and to pay wages, either on the expiry of their contract of employment or any other causes. To safeguard a company’s interests it would be advisable for the employing company to specify in the promoted person’s new contract to state that upon the new promotion taking effect they agree to voluntarily resign from their old position.

Dharmniti Law Office Co., Ltd.
2/2 Bhakdi Building 2^nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok,
Tel : (66) 2680 9710,
Email: ryan@dlo.co.th