Thailand Update: How Employers Can Temporarily Shut Down Their Businesses to Weather the COVID-19 Situation

With the latest wave of COVID-19 continuing to have a serious impact on Thailand, many businesses have been looking for ways to survive. Some have temporarily reduced employees’ wages, while others have resorted to a complete or partial halt to operations. In these unprecedented circumstances, it is vital that business owners understand the legal criteria and steps for implementing a temporary cessation of operations in Thailand, as outlined in this article.

Any business can apply for a temporary cessation of operations under section 75 of the Labor Protection Act (LPA) if there is a necessity and a significant cause, such as the business being unable to operate as usual, and if the necessity is not considered force majeure under Thai law. (If it is deemed force majeure, an employer may be able to withhold all wages—more on this below.)

If these criteria are met, the employer can choose whether to seek temporary cessation of operations on a whole or partial basis, depending on the actual situation and necessity. The employer then has to inform a labor inspection officer and the employees at least three business days in advance of the intended cessation of operations. Once this is done, operations may be halted, but the employer must pay employees at least 75 percent of their wages, calculated based on the rate on their latest working day, and these payments must continue throughout the entire cessation period.

“Necessity” and force majeure

Though the LPA does not indicate what qualifies as a “necessity” allowing an employer to call for a temporary cessation, past rulings from the Supreme Court provide some guidance on this issue. For instance, reduced purchase orders from customers and financial difficulties faced by the employer can amount to a situation of “necessity.” Additionally, the situation has to be significant and must seriously impact the employer’s business, but the situation must not be a result of the employer’s own failure to conduct business efficiently.

As mentioned above, force majeure events that prevent business operations may enable an employer to withhold all wages from employees. Force majeure essentially refers to damage from an unpreventable devastating event. The exact definition of force majeure under Thai law is “any event, the happening or pernicious results of which could not be prevented even though a person against whom it happened or threatened to happen were to take such appropriate care as might be expected from him in his situation and in such condition.” Earthquakes and tsunamis are examples of force majeure events. So, for example, the collapse of a factory due to a tsunami would justify the withholding of wages to the workers in the destroyed factory.

The Thai Supreme Court has ruled that the following events do not qualify as force majeure:

• The flooding of a factory
• A factory fire
• A violent seasonal storm
• A seasonal wildfire for which the party takes no preventive action

However, if the above incidents result in the shutdown of business operations, the employer could still apply for a temporary cessation of operations under LPA section 75.

In 2020, a regulation was enacted under the Social Security Act which also related to the definition of force majeure under section 75 of the LPA. The regulation defines force majeure as “hazards from dangerous communicable diseases that affect the public under relevant law relating to communicable diseases, causing insured employees (who are qualified under the Social Security Act) to be unable to work, or an employer to be unable to operate their business normally.” This regulation allows the Social Security Office (SSO) to compensate employees forced to cease working temporarily without wages from their employer. In order to get compensation, the employees must be insured and eligible to receive unemployment benefits.

The SSO compensation applies only if the circumstances above result from either of the following force majeure events related to the COVID-19 pandemic that force employees to stop working:

• Quarantine or compliance with other COVID-19 preventive measures; or
• Official orders to close business premises temporarily as part of COVID-19 control efforts.

Insured employees who are forced to stop working by either of these scenarios and do not receive wages from their employers during this period can receive compensation at the rate stated in the SSA and SSO regulations, but not for more than 90 days.

Implementing a temporary shutdown

The employer can choose whether to seek temporary cessation of operations wholly or partially, and can also fix the cessation period. The employer can designate separate cessation periods based on necessity.

If the employer and employees are bound by a collective bargaining agreement regarding temporary cessation of operations, the employer must abide by the agreement, or else the employees can claim violation of the collective bargaining agreement. If the business has a labor union, it is likely that the union will challenge the temporary cessation measures taken by the employer. Therefore, employers should act cautiously when considering such measures.

Consequently, if any business would like to apply for a partial or full temporary cessation of operations in order to survive or prevent the spread of COVID-19, the business should be aware of the criteria discussed above and carefully issue appropriate measures that fit the individual situation.

By Chusert Supasitthumrong, Tilleke & Gibbins, a Transatlantic Law International Affiliated Firm. 

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

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