A familiar scenario
Consider a business owner two years into running a company. One employee has started arriving late and repeating the same errors. After one conversation too many, the owner tells them not to come back tomorrow, and assumes the matter is closed.
Three weeks later, a notice arrives from the Labour Protection and Welfare Office. The amount claimed exceeds $3,000.
We see versions of this case regularly. In most of them, the problem did not start on the day of the dismissal. It started on the day of hiring, with a contract, a probation process or a payroll practice that did not meet the requirements of Thai law.
This article sets out the misconceptions we encounter most often, the two avenues available to a dismissed employee, the payments an employer may be ordered to make, and the practical steps that keep that exposure low.
Five common misconceptions
- “Probation means I can dismiss without paying.” Thai law looks at actual length of service, not the label given to it. An employee with 120 days or more of service is entitled to severance on dismissal. Below 120 days, the employer must still give advance notice or pay in lieu of notice.
- “A one-year contract simply expires.” Allowing a fixed-term contract to lapse is treated as termination. The exception is narrow: project-based work with defined start and end dates, lasting no more than two years.
- “Social security registration can wait.” Employees must be registered within 30 days of starting work. Late registration means back contributions and surcharges, and if the employee is sick or injured in the meantime, the employer may bear those costs directly.
- “Our contracts say overtime is included.” Overtime must be paid at no less than the statutory rate: 1.5 times the hourly wage for overtime on a working day and 3 times for overtime on a holiday. Any shortfall can be claimed back.
- “Taking a deposit from every employee is the safe option.” Security deposits are permitted only for certain positions, typically those involving the company’s money or property, and must be returned within 7 days after employment ends.
What a dismissed employee can do
An employee does not need a lawyer to bring a claim, and neither route costs them anything. Both are worth understanding before any dismissal decision is made.
Option 1: A complaint to a labor inspector
The employee files Form Kor Ror 7 at the local Labour Protection and Welfare Office. This route is used for amounts fixed by statute, such as severance, unpaid wages, overtime and security deposits.
- The inspector hears from both parties and must issue an order within 60 days. This can be extended by a further 30 days.
- An employer that disagrees with a payment order has 30 days to challenge it in the Labour Court, and must deposit the ordered amount with the court before doing so.
- If the employer neither challenges nor pays, the order becomes final and criminal proceedings may follow.
Option 2: A claim filed directly in the Labour Court
Filing is straightforward. The employee can give their account orally and court staff will record it. There are no court fees. The court will first attempt mediation, and the case proceeds to evidence and judgment only if the parties cannot settle.
Why this matters for employers: Compensation for unfair dismissal can only be awarded by the Labour Court. A labor inspector cannot order it, yet it is frequently the largest amount in the claim.
Four separate payments an employee may claim
Paying severance does not necessarily close the matter. Each payment below arises under a different provision and can be claimed independently.
Payment 1: Severance pay based on length of service (Labour Protection Act, Section 118)
Severance is calculated on the employee’s most recent wage rate and increases with length of service:
- Less than 120 days: no severance entitlement
- 120 days to under 1 year: 30 days’ wages
- 1 year to under 3 years: 90 days’ wages
- 3 years to under 6 years: 180 days’ wages
- 6 years to under 10 years: 240 days’ wages
- 10 years to under 20 years: 300 days’ wages
- 20 years or more: 400 days’ wages
Severance is not payable where the dismissal is for serious misconduct under Section 119, for example dishonesty, intentional damage to the employer, absence for 3 consecutive working days without reasonable cause, or a repeat offense after a written warning. The employer bears the burden of proof.
Payment 2: Pay in lieu of notice (Section 17)
An employee dismissed without at least one pay period’s notice is entitled to the wages they would have earned during that notice period. This applies equally to employees on probation.
Payment 3: Unused annual leave and other outstanding amounts (Section 67)
This also extends to outstanding wages, unpaid overtime and any security deposit not yet returned.
Payment 4: Compensation for unfair dismissal (Act on the Establishment of and Procedure for Labour Court, Section 49)
Where the court finds that the dismissal was not based on sufficient grounds, it may award compensation in addition to severance. Full payment of severance does not prevent this award.
Interest and surcharges. Unpaid wages and severance accrue interest at 15% per year. Where payment is withheld deliberately and without reasonable cause, an additional surcharge of 15% applies every 7 days.
How the Labour Court assesses compensation
Severance, notice pay and leave pay are calculated by formula, so they are relatively easy to predict. Section 49 compensation is different. There is no fixed ceiling, and the court sets the amount at its discretion after considering:
- The employee’s age, since older employees generally find it harder to secure new work
- Length of service
- The hardship caused by the dismissal
- Whether the employer’s stated reason holds up
- Any severance already paid
Where the court considers that the working relationship can continue, it may order reinstatement at the previous wage instead of compensation.
Illustrative calculation
An employee earning $781 per month, with 2 years and 6 months of service, is dismissed with immediate effect and without a clear reason. Four days of annual leave remain unused.
- Severance pay (Section 118): 90 days × approx. $26 per day = $2,344
- Pay in lieu of notice (Section 17): at least one month’s salary = $781
- Unused annual leave (Section 67): 4 days × approx. $26 = approx. $104
Total required by law: approx. $3,229
If the dismissal is found to be unfair: the court may also award Section 49 compensation, assumed here at 3 months’ salary, or $2,344*
Grand total: approx. $5,573
* The Section 49 figure is an assumption for illustration. Actual awards vary considerably with the facts of each case, and interest on late payment is not included. Amounts are converted at 32 Thai baht to 1 US dollar.
In this example, a single unplanned conversation results in a liability of roughly $5,600.
Can an employer succeed?
It can, provided the evidence is in order. In Supreme Court Judgment No. 4630/2565 (2022), an accounting manager continued to make the same errors after a written warning. The court held that the employer had reasonable grounds for dismissal and that no Section 49 compensation was payable. The decisive factors were a documented warning and a real opportunity to improve.
Eight practical safeguards
Most of these disputes can be avoided through measures that cost very little to put in place.
- Put clear contracts and work rules in place. Define duties, working hours and the standards used to assess performance.
- Complete probation reviews before day 120. Give notice in line with the pay cycle.
- Register new employees for social security within 30 days. The period runs from the employee’s first day of work.
- Pay overtime as it is worked. Keep accurate time records rather than relying on an “overtime included” clause.
- Put every warning in writing. Record the problem and the improvement required, and ask the employee to sign an acknowledgment.
- Set out all grounds in the termination letter. An employer cannot rely in court on reasons the letter did not mention.
- Pay all amounts in full and on time. This removes any exposure to interest and surcharges.
- Document any settlement properly. Use a carefully drafted agreement and give the employee time to review it before signing.
Prevention costs less than litigation
The cost of a properly drafted employment contract is small compared with a Labour Court award. Good documentation also supports a more stable working relationship with your staff.
Our firm advises employers at each stage: preparing employment contracts and work rules, designing warning and dismissal procedures, reviewing termination letters before they are issued, and representing clients before labor inspectors and the Labour Court.
Planning a dismissal, or responding to a notice from a labor inspector? Speak with us before you act. Our contact details are below.
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