EMPLOYERS have been using fixed period employment contracts to avoid having to pay severance and having to give employees notice of termination.
With the commencement and termination dates clearly specified in the written contract, there is no need for the employer to pay severance and provide prior notice of employment termination.
Under Section 118 of the Labour Protection Act, payment of severance pay is not applicable to employees who have a fixed term of employment and whose employment
is terminated in accordance at the end of the specified term.
This means that employees with contracts that specify the starting and ending dates of employment, will have their contract lapse on the end date.
Given that the contract is ended and not terminated, there is no need for the employer to pay severance money or provide notice of termination to the employee.
However, an employer needs to know that Section 118 of the Act and certain Supreme Court decisions have narrowed down the meaning of a fixed period employment contract.
According to Paragraph 4 of Section 118, some kinds of employment are automatically considered fixed period employment contracts.
These include people who are employed to work on a specific project that is ‘not normal for the business or trade of the employer,’ people who are employed to work in positions of a temporary nature, or people employed to do ‘seasonal work.’
Such employment must not last longer than two years and the employment contract must be made in writing at the commencement of employment.
Recent Supreme Court decisions also provide further guidance on the meaning of a fixed period employment contract.
The Supreme Court has ruled that employment contracts should have a clause giving both parties the right to terminate the contract before its ending date, although in the event of termination by the employer, the rate of severance pay
is reduced.
Employers also need to ensure that fixed period employment contracts fall within its legal meaning, or the contract could be considered an ongoing contract meaning he could be liable to pay severance money and provide prior notice of employment termination to the employee.
*David Tan is a Lecturer of Business Law at Asian University and author of the book A Primer of Thai Business Law, which is available online at www.chulabook.com.
In Bangkok, the book is available at all Kinokuniya and Asiabooks bookstores. To contact David Tan, email him at blas.inter@yahoo.com