Unfair Dismissal due to Financial Difficulties

When it comes to the liability of an employer in the event of a termination of employment, the employer should give consideration not only to statutory payments the employee is entitled to under the Labour Protection Act BE 2541 (1998) (such as severance pay) but also the legal issue pertaining to “unfair dismissal” under the Establishment of and Procedure for Labour Court Act BE 2522 (1979) (the “LCP”). This is because even if the employer pays all statutory payments to the employee, the employee is still able to pursue his/her case for unfair dismissal. 

According to Section 49 of the LCP, in the case where an employee has been dismissed by an employer, if the labour court is of the opinion that the dismissal is unfair, the court may:  

• issue an order commanding the employer to take the employee back to work at the wage level prevailing at the time of dismissal; or
• stipulate the amount of compensation to be paid by the employer to the employee, if it is considered that the employer and the employee would not be able to work together again.

In practice, the court would normally award the relevant amount of compensation in the event of unfair dismissal, rather than to issue an order commanding the employer to reinstate the employee.

As to whether or not the financial difficulties suffered by the employer is a justifiable enough reason to be considered as not unfair dismissal, the court will determine the grounds of termination on a case-by-case basis; because no statutory definition of “unfair dismissal” is defined. Based on several Supreme Court’s decisions, a termination would be regarded as unfair if an employee was terminated without justifiable reason or with a view to harass the employee. On the other hand, termination of employment on the grounds of financial difficulty may not be considered as unfair if the employer is able to prove that it was truly necessary to terminate certain or all employees and had no other alternative available except to do so.

In such regard, following are two recent court decisions as examples thereof:   

Decision of the Specialised Court of Appeal No. 1499-1509/2563

Considering financial statements of the Defendant (an employer) during 2014 - 2018, the Defendant’s profits had been consistently declining. It appeared that the Defendant was suffering from financial problems, a decreasing volume of orders and lack of financial liquidity. In addition, before termination of employment and closure of the Defendant’s business, the Defendant leased its factory to another company and transferred the factory licence to such company; therefore, it was believed that the Defendant dissolved its business due to the economic downturn. The Defendant terminated all employees without any indication of harassment or discrimination and, before terminating the employees, the Defendant announced the timeline for the employees and paid severance pay to them. It was therefore considered by the court that the termination of employment was out of necessity and with justifiable reason - and thus not unfair dismissal.  

Decision of the Specialised Court of Appeal No. 988-993/2561

The Defendant (an employer) claimed that the termination of the Plaintiffs (employees)’ employment was necessary for restructuring because regional profits had been decreasing and the Defendant had been suffering financial losses. However, the Defendant did not dissolve the unit working in other provinces; rather, it hired another company to replace the services in the nature of a hire of work contract. The Defendant explained that it gained overall profits because its main services/customers were from the central unit. However, this termination of employment also covered employees working at the central unit. As it did not appear that the Defendant had set any criteria in selecting the employees to be terminated in a reasonable and justified manner without discrimination, and that the Defendant had not taken any other measures prior to the termination; consequently, the termination of employment was considered unfair by the court. 

This is intended merely to provide a regulatory overview and is not intended to be comprehensive; it is NOT a provision of legal advice. Should you have any questions on this or on any other areas of law, please do not hesitate to contact the following:

Chanakarn Boonyasith
Partner

Pitchabsorn Whangruammit
Attorney-at-Law