Labor: The Case of Continuous Employment After Retirement – A Landmark Ruling on Severance Pay Continuity

In Thailand, it is a common practice for employees to reach the mandatory retirement age stipulated in company regulations, receive severance compensation as required by law, and then be rehired by the same employer under a new employment contract. This approach treats the post-retirement period as entirely separate employment, effectively resetting the length of service for future severance calculations. However, a recent Supreme Court decision has clarified that this outcome is not automatic and depends on the specific circumstances, intentions, and conduct of the parties involved.

Background of the Case:

The dispute originated from an employee who began working in 2010 in the position of financial controller. According to the company’s employee handbook, the retirement age was set at 55 years, which the employee reached in 2017. Rather than terminating the employment and paying severance at that time, both the employer and the employee mutually agreed to continue the working relationship without any severance payment being made upon reaching retirement age. The employee continued performing the same duties and receiving regular wages as before.

This arrangement persisted until 2020, when the employer decided to terminate the employment, citing retirement age as the reason, and paid severance based on the continuous service period from 2010 to 2020. The employee contested this, arguing that the original contract had ended upon reaching age 55 in 2017, constituting a termination that should have triggered severance pay at that point. Consequently, the post-2017 employment should be regarded as a new contract, entitling the employee to a second severance payment (a “double” compensation claim) upon the 2020 termination.

The case progressed through the courts. The Appellate Court for Specialized Cases sided with the employee, viewing the continuation as a new contract and requiring additional severance for the post-retirement period. The employer appealed to the Supreme Court.

Applicable Law:

The primary legal framework is the Labor Protection Act B.E. 2541 (1998), as amended, particularly Section 118, which mandates severance pay upon termination by the employer (absent exceptions), with the amount scaled according to length of service (e.g., 30 days’ wages for 120 days to less than 1 year, up to 400 days for 20 years or more).

Section 118/1 specifically addresses retirement: Retirement at an age agreed upon by the parties or stipulated by the employer is deemed a termination under Section 118, paragraph 2, obligating severance payment unless otherwise provided. If no retirement age is set or it exceeds 60 years, employees aged 60 or older may elect to retire by notifying the employer, with 30 days’ notice, and receive severance.

The key interpretive issue concerns whether reaching the retirement age automatically terminates the contract or if continuation without severance payment indicates an extension of the original contract.

The Supreme Court’s Decision:

In Supreme Court Judgment No. 3114/2567, the Court overturned the Appellate Court’s ruling. It held that the employment contract did not terminate in 2017. The decisive factors included:

•  The employee handbook explicitly permitted the company to extend the retirement age on a case-by-case basis.

•  No severance was paid at age 55, and the employee continued working seamlessly with regular wages and duties.

•  The parties’ conduct demonstrated an intention to extend the existing contract rather than conclude the original one and commence a new one.

The court emphasized that termination due to retirement under Section 118/1 occurs only when the employer ceases to allow continued work and does not pay wages. Absent such actions—particularly where no severance is paid at the retirement point—the contractual relationship persists as a continuous extension.

Consequently, the length of service must be calculated as a single, unbroken period from the initial start date (2010) to the actual termination date (2020). The employer was not required to pay “double” severance; the single payment made in 2020, based on the full continuous service, satisfied the legal obligation.

Key Takeaways:

This ruling establishes an important precedent emphasizing the significance of parties’ intentions and actual conduct over formalistic interpretations:

•  For employers and HR professionals: Clearly stipulate provisions for extending retirement age in employee handbooks or regulations. To reset service length post-retirement, pay full severance at the retirement point and execute a distinct new contract with explicit terms indicating a fresh employment relationship.

•  For employees: Continuous service without severance at retirement can benefit long-term accumulation toward higher severance tiers (up to 400 days’ wages), though it defers immediate payout. Employees should review company policies and seek clarification on contract status upon reaching retirement age.

•  Overall: Judicial decisions in labor cases prioritize the substance of the relationship—evidenced by ongoing work, wages, and absence of severance—over mere labels, ensuring fairness while aligning with statutory protections.

This decision promotes clarity in employment practices and reduces disputes by underscoring the need for transparent agreements regarding retirement and continuation.

Author: Panisa Suwanmatajarn, Managing Partner.

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