24 November, 2015
Employers may sometimes try to avoid statutory obligations under Thai labour law by entering into contractor agreements instead of employment agreements. Unfortunately, a contractor agreement may still be considered an employment agreement and the employer can still be held liable for its employees' outstanding statutory entitlements under Thai labour law.
Employee vs Contractor
It is well acknowledged that under Thai labour law, employees are entitled to certain statutory entitlements. These include public holidays, annual leave, maternity leave and severance pay. Conversely, contractors are not entitled to these statutory entitlements.
There are a number of reasons that an employer may wish to hire a person as a contractor instead of an employee, however, the mere fact that a certain type of agreement has been entered into won't necessarily mean that the worker is a contractor and not an employee under Thai labour law.
Determining factors
Determining whether a worker is a contractor or an employee depends on the nature of the working arrangement and not the label given to the agreement. Irrespective of what the agreement is called, courts will look into the nature and substance of the arrangement on a case-by-case basis to determine whether an employment relationship has in fact been created. Generally, the courts will focus on two key issues: (1) the way in which wages or remuneration is paid and (2) the extent and nature of the employer's authority to supervise that contractor.
Remuneration
Where wages or remuneration are paid on a regular hourly, daily, weekly or monthly basis, regardless of whether the work has been finished or completed, the courts are likely to consider this to be indicative of an employment relationship. In contrast, if wages or remuneration are paid in a lump sum upon completion of a particular work task or project, a court is more likely to consider the arrangement as that of principal and contractor. However, the manner in which remuneration is paid is not in itself determinative of whether the worker is a contractor or an employee.
Authority to supervise
Courts will also consider the company's authority to supervise the worker. This authority refers to the extent to which the company commands or controls the contractor in carrying out the assigned work and the contractor's degree of independence and flexibility in matters such as work hours and work performance. The greater right the company has to exercise control and direction over the way in which work is performed and the hours worked, the more likely that the arrangement will be deemed by a court as an employment agreement.
For instance, the Supreme Court Judgment No. 7699/2551 ruled that "the Plaintiff has the Work Rules to which Mr J. must comply. The Work Rules set out working days, working time, holidays, performance of work and consequences of the failure to perform work. This is the exercise of authority to supervise performance of work. Mr J. did not work independently so as to complete work. The Plaintiff paid a monthly service fee to Mr J. in return for performance of work throughout the period when Mr J. worked with the Plaintiff. This is an employment contract and the Plaintiff is the employer."
Conclusion
The execution of a contractor agreement does not preclude a worker from being considered an "employee" under Thai labour law. The Thai Labour Court has a tendency to be lenient towards employees in order to protect their entitlements. If a worker is deemed an employee, the employer may be liable for payment of entitlements such as holiday pay, overtime and other statutory allowances. In determining how to engage a worker, companies should consider the totalityof the relationship with a particular focus on the proposed way in which remuneration is paid and the extent to which they will have authority to supervise and control the work of the worker.
For further information, please contact:
Vanina Sucharitkul, Herbert Smith Freehills
vanina.sucharitkul@hsf.com
