Fixed Period Employment Contract For A Wise Employer

Employers have been using fixed period employment contracts on employees to avoid having to pay severance and provide prior notice of employment termination to employees. With the commencing date and ending date of the employment contract clearly specified in the written contract, the employee's employment will just end on the ending date of the employment contract. There is no need for the employer to pay severance and provide prior notice of employment termination.

In fact Paragraph 3 of Section 118 of the Labor Protection Act B.E. 2541 (1998) provides: '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 for employees with employment contracts that specify clearly the starting date and ending date of employment, the employment contract will lapse at the ending date of employment. Given that the employment contract had ended and not terminated, there is no need for the employer to pay severance and provide prior notice of employment termination to the employee.

However, to be wise, the employer needs to be aware that Section 118 itself and Supreme Court decisions have narrowed down the meaning of a fixed period employment contract.
According to Paragraph 4 of Section 118, the following kinds of employment are considered fixed period employment contracts:

(1) Employed to work in a specific project that is 'not normal for the business or trade of the employer, and where the schedule for commencing and ending of work is fixed'; or

(2) Employed to work in work that is of a 'temporary nature that has a fixed schedule for its ending or successful completion of work'; or

(3) Employed to work in 'seasonal work for which employment is engaged during such season'.

Also, the employment under (1), (2) or (3) above must not be longer than two years and the employment contract must be made in writing at the commencement of employment.

Supreme Court decisions had also provided further guidance on the meaning of a fixed period employment contract. In Supreme Court precedent Nos. 5180/2542 and 10432/2546, the employment contracts in both cases have a clause which provides for either contractual party to have the right to terminate the contract prior to its ending date. In both cases, the Supreme Court ruled that the employment contract is not a fixed period employment contract.

As a result of the above, the number of cases whereby the employer does not have to pay severance and provide prior notice of employment termination to the employee is reduced.

Tip

Employers need to ensure that their fixed period employment contracts entered into with employees do fall within its legal meaning. Otherwise, the employment contract may be considered as an ongoing contract and the employer is subjected, upon termination of contract by the employer (not due to employee's serious misconduct), to pay severance and provide prior notice of employment termination to the employee.

Written by David Tan. David is a Lecturer of Business Law at Asian University and author of the book "A Primer of Thai Business Law", available online at www.chulabook.com. In Bangkok the book is available at all Kinokuniya and Asiabooks bookstores. Any questions or comments to David should be sent to blas.inter at yahoo.com

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