Dealing with Violations under Thailand’s Factory Act

The Factory Act B.E. 2535 (1992) is one of the most important laws regulating manufacturing businesses in Thailand. It applies to businesses either with machinery of 50 horsepower or more in total, or with a minimum of 50 workers in a facility that conducts “factory work” as defined under related ministerial regulations.

The act was recently amended to extend the period of validity for factory licenses and to make other miscellaneous changes that facilitate business. However, the act’s criminal liabilities were left unchanged, and they remain a vital tool for the authorities to exert control over relevant standards and prosecute violations. Both fines and imprisonment are available as sanctions under the law.

Examples of common violations of the Factory Act and their potential penalties include:

• Setting up and operating a factory without acquiring a license: up to two years’ imprisonment, a fine of up to THB 200,000 (approx. USD 5,365), or both.
• Operating with noise level exceeding the standard set by the Ministry of Industry: a fine of up to THB 200,000.
• Not displaying a factory license in an open and easily visible location in the factory: a fine of up to THB 5,000 (approx. USD 134).
• Doing a test run of machinery prior to the start of the factory operations without notifying the authorities: a fine of up to THB 20,000.

As factory activities are regulated in considerable detail, overlooking a minor change could potentially put the company at risk. The risk of violating the Factory Act increases when compliance is not a proactive policy—such as by instituting systems or safeguards to ensure adherence to the rules.

Criminal Liability

Violation of the Factory Act is especially a concern because criminal liability under the act is not limited to juristic persons (i.e., companies) but also applies to the director, manager, and any other person responsible for the offense. These parties are also subject to penalties unless they can prove that the offense was committed without their consent or connivance. Even if a director’s or manager’s day-to-day work may not be directly connected to regulated activities, management is still generally considered responsible for having the factory in compliance—which exposes management to criminal liability risks.

Moreover, when a factory operator commits an offense under the Factory Act, any relevant architects or engineers are also deemed to be responsible for their involvement unless they can prove that they were not involved in the activities in question.

The penalties for violations can be multiplied by the number of counts. For example, a single instance of testing machinery prior to the start of factory operations without notifying the authorities can be penalized with a fine of THB 20,000, as noted above. If a total of 20 tests were carried out, this penalty can be multiplied by 20, with a maximum fine as high as THB 400,000.

Repeat offenses also receive harsher penalties, which can be increased by one-third or one-half if the violator has previously been prosecuted and punished for a similar offense under the Factory Act.

In summary, criminal liability can be substantial and can affect more than just the company by ensnaring a factory’s director, architect, or engineer. Compliance and prevention mechanisms are essential tools for mitigating these risks to companies as well as individuals in charge of factory operations. Furthermore, these processes of due diligence can provide good bases for defense against accusations of violating provisions of the Factory Act.

Reporting and Inspection

The Factory Act includes a number of sections on licensing, reporting, and inspection. The act and its regulations cover not only the licensing process for factories but also requirements for factories’ day-to-day operations, on matters such as data collection and reporting systems for manufactured chemicals, possession and usage of chemicals, transportation of chemicals or hazardous waste outside the factory, machinery specifications, environmental instrument inspections, chemical output, noise, waste disposal, and so on. Most of these activities are regulated under subordinate legislation such as ministerial regulations and Department of Industry announcements issued under the Factory Act.

The information provided through reporting and inspection reflects whether a factory has in fact complied with these various subordinate regulations. The steps a factory takes to ascertain compliance with the act’s requirements are thus very important, and the information submitted to the authorities should be reviewed carefully to ensure accuracy and conformity with the rules.

Such safety checks and reviews are the best way to be certain that activities are fully compliant with the rules, thus avoiding potential litigious disputes. However, there is another way to prevent accusations of violating the law from going to court under the Factory Act. Though less commonly known, it is possible to reach a settlement with the relevant authorities, thereby ending the matter without going to court.

Proceedings and Settlement of Issues

Steps by local authorities to prosecute violations of the Factory Act usually start with inspections and inquiries into a certain activity in order to determine whether the company complied with the related regulations. Although there is a requirement to comply with officials’ requests under the act (e.g., to submit to inspection, testify, hand over documents, etc.), this requirement does not include the duty to confess to accusations. Nevertheless, any information provided to the authorities can be used against the company in the event of subsequent prosecution. Therefore, it is best to have legal counsel review such documents before submitting them to the authorities.

Once criminal proceedings are taken up, they can end in many different ways. The fastest way is usually to settle the case by paying the fine laid down by the Settlement Committee under the Factory Act, which would cause the criminal case to cease and not proceed to court. However, settling the case with the committee is not the same as having the case canceled or dismissed. This is because for the committee to specify the fine, the accused must accept that there was a violation of the laws and must have agreed to submit the matter for the committee’s consideration. In addition, the committee would have to determine that the accused should not face a suit or a penalty of imprisonment. The case would only end when the fine is paid in full within 30 days of the committee rendering its decision.

Specifically, a company in this scenario would have to make a confession and issue a statement accepting the settlement of the case by the committee. Again, there is no duty to confess or to have the case considered by the Settlement Committee. Nevertheless, doing so could be a wise option, depending on the evidence, the circumstances, and the potential of ensuing litigation to be costly and troublesome (e.g., involving bail requests, etc.).

In deciding whether to sign such important documentation and thus settle the case, it is important to review the accusation and facts on which the authorities based their allegations. The actual fine amount per count is usually determined by the severity of the crime, and any facts and figures that might portray the actions of the accused in a positive light should also be highlighted. It can be helpful to involve specialized legal counsel at this stage because an experienced litigator (i.e., a criminal lawyer with court experience) could estimate the chances of successfully defending the case in court.

There are only two alleged violations under the Factory Act that cannot be settled by the Settlement Committee: (1) operating or setting up without a license a factory that is deemed a “category 3” factory under the Factory Act, subject to certain restrictions issued under section 32(1) of the act, and (2) expanding such a factory without a license. In either case, the offender can be punished with imprisonment for up to four years, a fine of up to THB 400,000 (approx. USD 10,500), or both.

One potential source of difficulty for factory operators is that the terminology used by authorities in the course of investigation can sometimes cause confusion. Common words such as “factory” have a very specific definition under the Factory Act (as alluded to in the opening paragraph). This problem could potentially be worsened when communications have to be translated to another language—especially if the translator has no legal background.

A company may assign an employee to provide the authorities with the necessary information; however, the employee may also be lacking full understanding of the applicable laws, and language can again be an issue. Keeping a full log of documents is key to monitoring the information discussed with authorities—and can be a valuable aid in any related future litigation.

Conclusion

The Factory Act is one of many laws that regulate businesses with factories. Other relevant legislation, such as the Hazardous Substance Act and the Customs Act, could also affect factory operations—especially those related to transporting, importing, or exporting hazardous substances.

Companies need to ensure compliance with all related laws to avoid having to deal with any allegations of violations. If such an allegation does surface, enlisting the help of legal counsel can help to sort through the risks and determine the best course of action. Even if an operator decides that settling is the best way forward, it is still helpful to have an attorney review and revise the documentation to help secure the best possible outcome and mitigate the risk of additional complications.

By Tilleke & Gibbins, Thailand, a Transatlantic Law International affiliated firm. 

For further information or for any assistance please contact thailand@transatlanticlaw.com

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