The common consensus among employers is that there are certain advantages associated with fixed-term employment contracts as opposed to indefinite-term contracts due to the complications of employee termination under Thai law.

This conviction is not entirely true, however, as there are various restrictions to fixed-term employment contracts that result in significant difficulties regarding the legal aspects of employment. Below are some of the major issues associated with fixed-term employment contracts to aid managers in understanding Thai law. 

Overview of Fixed-Term Employment Contracts

The primary statute governing fixed-term contracts is The Labor Protection Act (LPA). This Act dictates that fixed-term contracts have to be drafted in written form by the time the employment period commences. 
Such a written contract must clearly state that the employment is “fixed” by designating a predetermined employment period. In essence, a fixed-term contract must state when the employment period starts and ends. 
Termination of employment is another significant feature of a fixed-term employment contract. Moreover, it must be clearly indicated that the employment contract will be terminated when the employment period comes to an end. 
A clause stipulating that the employment period may be extended by either the employer or the employee is prohibited under Thai law. If such a clause is included, the employment contract is no longer considered “fixed,” as per the Thai Supreme Court. 

The Use of a Fixed-Term Employment Contract

A fixed-term employment contract may only be used in particular lines of work, including:

• Work done on a temporary basis that has a predetermined start and end date.
• Special projects that don’t fall under the employer’s scope of trade or business.
• Work of a seasonal nature where employment is only needed for a certain period of time.

Additionally, work done under a fixed-term contract must be of a nature that allows completion within two years in order to align with the maximum duration of a fixed-term employment contract. Employers must terminate a fixed-term contract before a predetermined date, and extensions will deem a contract to no longer be considered a fixed-term contract.

Fixed-Term Contract Severance Pay

Severance payments are not required of managers who employ individuals under fixed-term contracts. This exception only applies if the employment contract is clearly designated as a fixed-term contract. 

If the employment contract does not meet the criteria of a fixed-term employment contract, according to the Labor Court, severance pay will be required. Therefore, employers must draft fixed-term employment contracts with great care to ensure it meets the requirements of a fixed-term contract to avoid remuneration and severance pay liabilities. 

Precedents of the Supreme Court

Evaluating the Supreme Court precedent cases is helpful in determining the qualifications for a fixed-term employment contract. The following are examples of cases where the Supreme Court has ruled that employers are required to pay severance pay to their employees:

• An employment contract contains a clause stating that the employer can terminate the fixed-term contract before the designated end date when the employer doesn’t have any work to assign to the employee. In this case, the contract was ruled not to be a fixed-term employment contract by The Supreme Court. 
• An employment contract signified a period of longer than two years of work. The contract was ruled not to be a fixed-term employment contract by The Supreme Court. 
• A supposed fixed-term employment contract contained a clause stating that both parties could terminate the contract prematurely. The contract was ruled not to be a fixed-term employment contract by The Supreme Court. 
• An employer hires an employee to work as a construction worker in their construction business. As the employer was hired to execute work that falls within the employer’s regular scope of work, the employment contract was ruled not to be a fixed-term employment contract by The Supreme Court. 
• An employment contract indicates a probation period of three months, after which the employer is obligated to employ the employee on a permanent basis if the employee passes probation. The clause also grants the employer the right to extend or terminate the probation period at their own will. This employment contract was ruled not to be a fixed-term contract by The Supreme Court. 

Although the precedents of The Supreme Court are not binding under Thai law, they do have significant influence in lower court cases. Lower courts are not legally obligated to follow such precedents, but they will most likely do so. 

Therefore, employers are advised to evaluate their employment objectives very carefully when implementing fixed-term contracts. Any oversight on their part could result in significant payouts and litigation.

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