Introduction
Many businesses face circumstances that require adjustments to improve operational efficiency or effectiveness in order to sustain growth or remain competitive. In some cases, such measures involve company restructuring, which may include changes to employees’ roles and responsibilities, or even termination of employment.
Since the Labour Protection Act B.E. 2541 (1998) came into force, employers undertaking restructuring have frequently encountered challenges relating to unfair termination claims. In practice, differing perspectives often arise: employers may view restructuring as necessitating workforce adjustments, while employees may regard such actions as unjustified or unfair.
This Update examines evolving trends in the Supreme Court’s approach to assessing unfair termination in the context of company restructuring. It also highlights key factors that employers should consider and, where appropriate, measures they may implement to mitigate the risk of unfair termination claims.
Initial Trends in Supreme Court Judgments
Historically, the Supreme Court primarily focused on limited factors, particularly the employer’s financial condition, specifically, whether the company had been consistently operating at a loss, for example, over a period exceeding five years, such that there was a genuine risk of bankruptcy or business closure.
For instance, in one case, although the company had incurred losses and had yet to return to full profitability (partly due to reliance on loans), it was nonetheless able to expand its business operations, including by acquiring land. The Court held that such expansion indicated that the termination of employees was merely a cost-reduction measure, rather than a necessity arising from genuine financial distress. Accordingly, the termination was considered unfair (Supreme Court Judgment No. 3933/2546).
Current Trends in Supreme Court Judgments
Since around 2012, the Supreme Court has adopted a more nuanced approach by introducing broader criteria to assess whether a termination arising from restructuring is unfair. Key considerations include the following:
- Financial status of the company
While earlier decisions placed significant weight on sustained financial losses, recent jurisprudence reflects a more flexible approach. The Court recognises that financial statements may not fully reflect a company’s actual financial condition, as apparent profitability may derive from external sources such as loans or capital injections.
Accordingly, it is no longer necessary for a company to demonstrate sustained or long-term losses to justify restructuring. Instead, the company may satisfy the Court by showing that the restructuring is aimed at improving its financial position and enhancing its competitiveness in the market, for example, by dissolving certain departments and outsourcing those functions where appropriate (Supreme Court Judgment No. 1396 – 1481/2568).
In this respect, even companies with fluctuating financial performance may be justified in restructuring without such actions being regarded as unfair termination.
- Clear and objective criteria for termination or adjustment
Employers should establish clear, objective, and consistently applied criteria for selecting employees for termination or role adjustment. Such criteria may include workload, work experience, and remuneration.
Importantly, these criteria must be applied uniformly to employees in comparable positions (e.g. within the same department) to avoid allegations of arbitrary or discriminatory treatment, which may result in the Court determining that the termination is unfair (Supreme Court Judgment No. 2124/2555).
- Proper notice of termination
Termination must comply with the notice requirements under the Labour Protection Act B.E. 2541 (1998). In particular, advance written notice must be provided on or before the employee’s wage payment date, subject to a maximum period of three months.
Alternatively, the employer may make a payment in lieu of notice to effect immediate termination.
- Remedial measures for affected employees
The Court also considers whether the employer has made genuine efforts to mitigate the impact on employees. This includes offering alternative arrangements, such as reassignment, relocation, or redeployment, where feasible.
Such measures demonstrate the employer’s good faith in attempting to preserve employment, notwithstanding the need for restructuring.
- Statutory and additional compensation
Even where termination is not deemed unfair, employers remain obligated to make statutory payments, including severance pay, payment in lieu of notice, and compensation for accrued but unused annual leave (including any carried forward leave in accordance with company policy).
In addition, employers may strengthen their position by offering enhanced compensation or extending certain benefits (such as healthcare coverage) for a specified period following termination, as evidence of fair treatment and good faith (Supreme Court Judgment No. 1396 – 1481/2568).
Practical Challenges – External Factors
In addition to the criteria outlined above, employers should also take into account external factors that may necessitate restructuring, such as market conditions, global economic developments, and shifts in consumer behaviour.
In practice, reliance on such factors may present challenges. Employers may need to substantiate the extent to which these external influences have impacted their business and demonstrate a clear connection between such factors and the need for restructuring. This may involve evidencing the rationale, direction, and anticipated effectiveness of the restructuring plan, which can be complex in practice.
In light of the evolving judicial approach and the practical complexities involved, companies are encouraged to carefully assess and document their restructuring plans to ensure compliance with applicable legal requirements and alignment with the Supreme Court’s criteria. Given that each restructuring exercise involves fact-specific considerations, seeking advice from legal professionals at an early stage may help ensure that the proposed measures are both legally robust and practically effective in mitigating the risk of unfair termination claims.
If you have any queries on the above, please reach out to our Partner set out on this page.
For regional Employment matters, please see Rajah & Tann Asia’s Employment Practice for more information.
Contribution Note
This Legal Update is contributed by the listed Contact Partner, with the assistance of Associate Pavarut Siralert.
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