Asia-Pacific employment law bulletin 2024

Thailand

2024 marks the 25th anniversary of the Labour Protection Act, B.E. 2541 (1998) (as amended) (the Labour Protection Act), which is the first comprehensive labour legislation in Thailand. Over 25 years, there have been six major amendments to the Labour Protection Act, which have each expanded employee protection and, in some cases, increased the penalty for employers in case of non-compliance. 

The issue of what rights apply to outsourced workers has been a recurring topic of debate in Thailand. In particular, when a company contemplates selling its business, the costs associated with any outsourcing services received must be fully analysed as any potential buyer would be required to assume all of the rights and obligations of the seller (and be responsible for any accrued benefits) under the relevant outsourcing contracts and under the Labour Protection Act. 

As an employer is required under the Labour Protection Act to provide fair and non-discriminatory benefits and welfare to outsourced workers who work in the manufacturing process and in the employer’s business operations (plus an additional service fee to the third-party staff outsourcing company), this could defeat any cost saving from outsourcing and may make outsourcing commercially unviable for many businesses.

Regardless of the outsourcing arrangement agreed between the outsourcing company and the hiring organisation, to ensure that the outsourced workers are not deprived of their legal entitlements and fair benefits, Section 11/1 of the Labour Protection Act deems that the hiring organisation is the outsourced workers’ employer (and not the outsourcing company who hired them). This remains the case if the outsourced workers are recruited through another company (i.e. the outsourcing company), which supplies such workers not as a recruitment service (but as a staff outsourcing service), and such workers perform work in any part of the manufacturing process or business operation under the hiring organisation’s supervision. In such circumstances, the hiring organisation is required to provide, either directly or through the outsourcing service company, fair benefits and welfare to the outsourced workers without discrimination. Failure to comply with Section 11/1 of the Labour Protection Act is punishable by a fine not exceeding THB 100,000 (approximately USD 2,900). In addition, outsourced workers have the right to claim any unpaid amounts from the hiring organisation as the deemed employer plus interest (if any) in the Labour Court.

Typically, a hiring organisation would enter into an outsourcing service contract with a staff outsourcing service company whereby the terms of the provision of staff outsourcing services, including the conditions of employment of the outsourced workers and their benefits (if any), are agreed. The outsourced workers, once recruited by the outsourcing service company, would enter into an employment contract with such outsourcing service company as employer (with no contract with the hiring organisation). In order to facilitate cost-saving for the hiring organisation, it is not uncommon for such outsourcing service contract to state that the outsourcing service company is responsible for all of the outsourced workers’ pay, legal entitlements, benefits and incentives, and the hiring organisation is responsible to pay the outsourcing company the agreed service fees (which would typically exceed the outsourcing company’s costs and expenses payable to the outsourced workers, as its employees). Whether and to what extent the outsourcing company will be reimbursed by the hiring organisation for the payments made to outsourced workers is subject to the two parties’ agreement. 

Notwithstanding certain Supreme Court decisions, it is still not entirely clear what constitutes fair and non-discriminatory benefits and welfare under Section 11/1 of the Labour Protection Act and, in particular, whether it includes any and all benefits and welfare that the hiring organisation provides to its own directly hired employees who perform work of similar nature as the outsourced workers. Under Supreme Court decision no. 22326 – 22404/2555 (issued in 2012), fair and non-discriminatory benefits and welfare include bonuses and, where the outsourcing company and hiring organisation fails to provide equivalent bonuses, the hiring organisation must pay the outsourced workers those amounts due as bonuses plus interest calculated from the date of non-compliance. It is still unclear, however, whether pensions (i.e. provident funds) are also required to be provided to outsourced workers if pensions are provided to directly hired employees.

Following such Supreme Court decision, the Department of Labour Protection and Welfare has issued guidance which states that benefits and welfare means both monetary and non-monetary compensation or rewards provided by an employer to its employee, to boost morale and motivation of its employees and to facilitate work performance and create security in its employees’ lives. Examples of such benefits and welfare include diligence pay, shift allowance, food, cost of living, accommodation, annual leave which increases based on the period of service, transportation provided by an employer and uniforms. Fair and non-discriminatory benefits and welfare means that the same benefits and welfare must be provided to the outsourced workers who perform the same work and who have the same skills, qualifications, experience and responsibilities as the directly-hired employees.

In addition, as Section 11/1 of the Labour Protection Act deems the hiring organisation to be the employer of the outsourced workers, the hiring organisation may also be responsible for statutory severance and any other accrued but unpaid benefits and compensation of such outsourced workers (and have the same liabilities) on the same basis as such benefits and compensation are paid (or incurred or owed) to its directly hired employees upon termination.

Despite the potentially onerous obligations on employers, staff outsourcing remains a critical part of many businesses. For efficiency, cost-saving and legal compliance, an organisation must carefully plan and review its staff outsourcing strategy and assess the legal risks involved. While the penalty imposed by the Labour Protection Act may be minimal (and there is no proposal to revise such penalty currently), the costs of litigation and the obligation on the hiring organisation, as the deemed employer, to pay unpaid benefits and welfare plus interest for the period of non-compliance to outsourced workers, could be very expensive for entities which outsource significant parts of their operations.

Hunton Andrews Kurth: Stephen John Bennett and Wipanan Prasompluem