Business Closure Does Not Automatically Constitute Fair Dismissal
Supreme Court Judgment No. 5771–6074/2568
In this case, the employer claimed that it was facing economic difficulties and rising operating costs, and therefore decided to shut down its business and terminate the employment of more than 304 employees.
However, the facts revealed a very different picture.
- Continued to generate profits for several consecutive years;
- Paid dividends to shareholders amounting to tens and even hundreds of millions of baht;
- Never reduced its production capacity;
- Never informed employees of any alleged financial difficulties or sought their cooperation in addressing business challenges;
- Sold certain assets and transferred business operations to an affiliated company before the closure; and
- Most importantly, ceased operations while a labour union’s demands were pending and collective bargaining negotiations were ongoing.
The Supreme Court held that the closure was not an ordinary business shutdown carried out in the normal course of business. Instead, the dismissals were implemented in a rushed manner, and the employer’s claim of financial hardship was inconsistent with the company’s actual financial position.
The fact that the employer paid statutory severance pay and payment in lieu of notice did not automatically render the dismissals fair.
The Supreme Court therefore ruled that the termination of all 304 employees constituted an unfair dismissal under Section 49 of the Labour Court Establishment and Labour Procedure Act, and ordered the employer to pay compensation to the employees.
Key Takeaway
Closing a business is not always a shield against liability.
When assessing whether a dismissal is fair, Thai courts will look beyond the employer’s stated reasons and examine the overall business reality, including the company’s financial condition, operational decisions, and surrounding circumstances.
A business closure that is used as a mechanism to avoid legal obligations may still give rise to liability for unfair dismissal.
For employers, this case serves as an important reminder that courts will examine the substance of a business decision rather than merely its form. Even where a company formally ceases operations and complies with statutory termination payments, the dismissal may still be considered unfair if the surrounding circumstances indicate that the closure was not genuinely necessary or was implemented for an improper purpose.
This judgment reinforces the principle that fairness in dismissal cases is determined not only by compliance with statutory payment obligations, but also by the genuine business necessity and good faith underlying the employer’s decision.