Thailand: Temporary Business Shutdowns and Wage Obligations During Severe Flooding

Severe flooding in Thailand has disrupted business operations, leaving employers facing difficult decisions about temporary closures, payroll costs and workforce retention. For businesses unable to operate normally, an important question arises: can employers temporarily suspend operations and reduce employees’ wages without terminating their employment?

Section 75 of Thailand’s Labor Protection Act provides a legal framework for temporary business suspensions in certain circumstances. However, employers must satisfy specific requirements, including demonstrating a genuine business necessity, providing advance written notice and maintaining minimum wage payments.

Failure to comply can result in claims for unpaid wages, interest and financial penalties.

When Can Employers Reduce Wages Under Section 75?

Section 75 allows employers to suspend all or part of their business temporarily where a serious cause, other than force majeure, prevents normal operations.

During a qualifying suspension, employers must pay affected employees at least 75% of their usual working-day wages for the period they are not required to work.

Employers must also notify both affected employees and the relevant labor inspector in writing at least three working days before the suspension begins.

Depending on the circumstances, three different wage obligations may arise:

• 100% of normal wages: Where there is no genuine business necessity justifying a suspension under Section 75.

• At least 75% of normal wages: Where a serious business necessity exists, the circumstances do not constitute force majeure, and the employer complies with Section 75.

• Potentially no wages: Where a genuine force majeure event makes performance impossible, subject to the applicable legal requirements.

The distinction is particularly important during natural disasters, as flooding does not automatically qualify as force majeure.

Does Flooding Constitute Force Majeure?

Employers may assume that a natural disaster automatically relieves them of their obligation to pay wages. However, Thai courts have adopted a more restrictive interpretation.

Force majeure generally requires an event whose occurrence or harmful consequences could not have been prevented despite the exercise of reasonable care.

Thai Supreme Court decisions have found that incidents such as factory flooding, fires, recurring seasonal storms and wildfires do not necessarily amount to force majeure.

The courts consider the particular circumstances, including whether the employer could reasonably have anticipated the event or taken preventive measures.

Consequently, employers affected by flooding should not automatically assume that they can suspend wage payments entirely.

Where flooding seriously disrupts operations but does not meet the legal threshold for force majeure, Section 75 may provide an appropriate alternative, allowing temporary suspension while maintaining at least 75% of employees’ wages.

Supplier Disruption May Justify a Temporary Shutdown

Importantly, an employer does not necessarily need to experience flooding at its own premises to rely on Section 75.

In a case arising from Thailand’s 2011 floods, a company temporarily suspended production in its car audio department after flooding forced a key supplier to close its factory.

Unable to obtain essential components, the company suspended affected operations and paid employees 75% of their wages.

Although a labor inspector initially ordered payment of the remaining 25%, the Supreme Court subsequently revoked that order.

The judgment established two important principles.

First, disruption affecting a critical supplier can constitute a sufficiently serious business necessity.

Second, Section 75 does not require a business to become completely incapable of operating. It is sufficient that the circumstances seriously affect its ability to operate normally.

The company also extended its suspension twice, notifying the labor inspector on each occasion.

For businesses dependent on international supply chains, this distinction is particularly relevant. Flood-related disruption to suppliers, transport networks or essential materials may justify a temporary suspension even where the employer’s own facilities remain undamaged.

How Thai Courts Assess Temporary Shutdowns

Thai Supreme Court decisions demonstrate that employers must establish genuine grounds for invoking Section 75.

Courts examine the underlying circumstances rather than simply accepting an employer’s description of a temporary closure.

Several factors are particularly important.

Genuine business necessity

The disruption must arise from a serious cause rather than circumstances created by the employer’s own inadequate planning or management.

For example, the courts have rejected reliance on Section 75 where operational difficulties resulted from uncertain customer orders combined with a failure to maintain sufficient raw materials.

Clearly defined suspension periods

Employers should establish identifiable and continuous suspension periods.

Sending employees home on isolated days with inadequate notice, particularly without notifying the labor inspector, may not satisfy the statutory requirements.

Fair selection of affected employees

Decisions about which employees are temporarily suspended should be based on genuine operational requirements.

Employers may rotate groups of employees where appropriate, provided the arrangements are objectively justified and implemented fairly.

A genuine intention to continue operating

Section 75 is intended to address temporary business difficulties, not provide an alternative to permanent closure or workforce termination.

In one case, an employer that had leased out its entire factory was not permitted to rely on Section 75.

Practical Steps for Employers Affected by Flooding

Employers considering a temporary suspension should carefully assess their circumstances before implementing reduced wage arrangements.

1. Assess the operational impact

Identify which facilities, departments or production lines cannot operate normally because of flooding, damaged infrastructure, transport disruption, power failures or interruptions to essential supplies.

2. Document the business necessity

Maintain evidence demonstrating the impact on operations, including photographs, government disaster announcements, supplier communications and internal operational reports.

3. Define the scope and duration

Determine whether a complete or partial suspension is necessary, identify affected employees using objective criteria and establish clear suspension periods or rotation arrangements.

4. Review collective agreements

Check whether applicable collective bargaining agreements or employment arrangements impose additional consultation, notification or payment obligations.

5. Provide the required written notice

Notify affected employees and the relevant labor inspector at least three working days before the suspension begins. Retain evidence that the notices were properly delivered.

6. Maintain statutory wage payments

Pay affected employees at least 75% of their usual working-day wages throughout the qualifying suspension, in accordance with the applicable payment requirements.

7. Monitor developments and communicate extensions

Review operational conditions regularly. Where an extension becomes necessary, provide appropriate fresh written notice and maintain clear communication with employees.

8. Plan for resumption or restructuring

Resume normal operations as soon as reasonably possible. If the disruption ultimately results in permanent closure or redundancies, employers must address the separate legal requirements governing termination and severance.

Financial and Legal Consequences of Non-Compliance

Employers that incorrectly apply Section 75 may face substantial financial exposure.

Where the statutory conditions have not been satisfied, employees may be entitled to recover unpaid wages, potentially including the difference between reduced payments and their full contractual wages.

Claims may be enforced through a labor inspector’s order or proceedings before the Labor Court.

Additional consequences may include:

• Interest on unpaid wages at 15% annually.

• Additional statutory surcharges where wages have been wilfully withheld.

• Fines of up to THB 20,000 for certain payment-related violations.

• Fines of up to THB 10,000 for failing to comply with statutory notification requirements.

For employers with substantial workforces, the cumulative cost of wage arrears, interest and penalties can be significant.

Conclusion

Severe flooding presents considerable operational and financial challenges for businesses in Thailand. However, natural disasters do not automatically release employers from their wage obligations.

Section 75 of the Labor Protection Act offers a mechanism for temporarily suspending operations while retaining employees and reducing payroll costs, provided the statutory conditions are satisfied.

Employers should establish and document a genuine business necessity, assess whether force majeure genuinely applies, provide the required written notices and maintain appropriate wage payments.

Seeking local legal advice before implementing a temporary shutdown can help businesses manage immediate disruption while reducing the risk of costly employment disputes.

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

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

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 84 Brook Street, London W1K 5EH, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.