Employee transitions: Legal compliance in Thai mergers and amalgamations

This provision mandates that all existing rights and obligations between employees and the previous employer remain in full force and be transferred to the new or surviving employer, unless the employee refuses to give consent. In practice, the various forms of corporate consolidation have direct and significant implications for employment contracts and employee entitlements. As such, careful planning is required to ensure compliance with Thai labour laws, avoid legal disputes, and safeguard the fair treatment of employees during the transition. 

1. Merger and amalgamation under the Thai Civil and Commercial Code (the “CCC”) 

According to Section 1238 of the CCC, two or more companies may consolidate in one of the following manners: 

• Amalgamation: By forming a new company, in which case all merging companies shall cease to be juristic persons. (A+B=C) 
• Merger: By one of the merging companies remaining as a juristic person, and the other merging companies ceasing to exist as juristic persons. (A+B=B) 

This legal framework distinguishes between an “Amalgamation” (resulting in a new legal entity) and a “Merger” (where one company absorbs the others and continues to exist). 

2. Objective of Section 13 of the LPA 

Section 13 of the LPA aims to protect employees from unfair dismissal or loss of employment benefits due to a business transfer or merger (including amalgamation). A change in employer resulting from a merger or amalgamation is therefore subject to the employee’s prior consent, and the new employer shall assume all the rights and responsibilities owed to the transferred employee by the previous employer. 

3. Differentiating “change of employer” under Section 13 of the LPA and “Transfer of employer’s rights” under Section 577 of the CCC 

While Section 13 of the LPA provides specific protections for employees in cases of a change in employer, Section 577 of the CCC also contains similar provisions that may appear to overlap. This similarity can lead to confusion in practice. However, upon closer examination, the two provisions differ in some respects. A comparison of the key similarities and distinctions is provided below.  

Similarities: 

• New employer relationship: Both scenarios ultimately result in the employee working under a new employer. 
• Mandatory employee consent: In both cases, the employee’s consent is a is a mandatory requirement. Without such consent, the change is considered unlawful. 
• Continuity of service: Where the change of employer occurs with the employee’s consent, the employee’s length of service is legally deemed continuous from the previous employer to the new one. 

Differences: 

4. Observations on the change of employer 

• Invalidity of employer-imposed conditions requiring employees to declare intent to work for a new employer following a change of employer: The previous employer’s announcement of conditions requiring employees who wish to work with the new employer to express their intent to accept employment with the new employer within a specified period, failing which their employment would be terminated, constitutes a condition that contradicts the aforementioned legal provisions, which are laws relating to public order, and is therefore unenforceable. 
• Continuous service period post-merger / amalgamation: Upon a merger or amalgamation, the period of service with the original companies prior to the consolidation must be continuously counted. This continuity is essential for the protection of employees’ rights, such as making contributions to the Workmen’s Compensation Fund. 
• Unconsented employer change deemed termination: A change of employer requires the employee’s consent. If an employee does not provide consent to the change, it shall be deemed that the previous employer permanently ceased to allow the employee to work and failed to pay the employee’s wages. This situation constitutes a termination of employment by the previous employer. Consequently, the previous employer is obliged to pay severance pay to the employee in accordance with Section 118 of the LPA. 
• Sale of a specific business unit does not constitute a “change of employer”: Under Section 13 of the LPA, a change of employer is in the case where the employer is a juristic person and has registered, changed, transferred or merged with any juristic person. However, the sale of only a specific business unit and the transfer of employees to work for the acquiring company does not constitute a change in juristic person, nor does it result in a transfer or amalgamation of juristic persons with the said company. Therefore, this is not deemed a “change of employer” under the LPA, instead, it is more appropriately categorized as a transfer of the status of employer under Section 577, paragraph one, of the CCC.