The Employers' Federation of Ceylon

Saturday, 21 February 2009 00:00


As we are all aware, this statute was enacted in 1971 during a period of a closed economy totally different to the current economic environment. The Act has wide coverage in the private sector and applies to “non disciplinary” termination of employment. Though originally intended to cover all employee retrenchments or lay offs due to enterprise restructuring or closure, “non disciplinary” situations have now been interpreted to include employee absence on account of ill health and even employee incompetence at work. Employers are required to seek approval of the Commissioner of Labour in relation to a non disciplinary termination, in cases where the employee has not given written consent to the termination of his services. The Commissioner of Labour has the power to either grant or refuse permission to terminate services under this Act in “non disciplinary” situations. Once again, this opens out a possibility of imposing an employee on an unwilling employer. The compensation formula which is currently gazetted by the Commissioner of Labour which runs up to a maximum of 48 months salary (capped at  Rs 1.25 million) is reported to be the third highest retrenchment formula in the world! This clearly demonstrates the continuing mismatch of social/economic policies of our country. This shows the adoption of a poor country’s economic policy along with a developing country’s social policy.

Many employers, in situation of restructuring, closures, retrenchment or any other non-disciplinary terminations offer voluntary retirement compensation packages. Employers are often compelled to offer huge packages, especially in situations where restructuring has to be done quickly without having to go through a protracted inquiry before the Commissioner of Labour under the Termination Act. Such packages are often offered even to executives, including Chief Executives, as the provisions of the Act do not exclude them. There have been many instances of executives identified as being redundant or even inefficient, obtaining generous compensation packages. This has been due to our courts of law construing inefficiency and incompetence as “non disciplinary” situations. In other words, the system rewards the inefficient, and not the efficient and productive worker. Therefore, an unproductive employee who is no longer relevant to an employer is able to obtain an attractive package, in addition to his statutory terminal benefits, as opposed to his productive counterpart who continues to work having only his terminal benefits at the end of his career. Is this security of employment? Or does it directly stifle employment creation. Many trade unions argue as to why anyone should object to extra generous VRS payments given to employees by employers as it clearly demonstrates the capacity of such employers to make such payments. Unfortunately, what is often ignored is the underlying reality, that none of those employers would ever consider offering direct employment opportunities in excess of the absolute minimum number they require. They also often resort to work arrangements other than direct employment to satisfy their requirements.

On the other hand, it is relevant to compare the severance pay packages of our neighbouring countries which compete with us in the global market. Bangladesh pays 30 days wages for each year of completed service provided the employee has worked for more than 12 months. India, pays 15 days wages for each year of service. Pakistan pays 20 days wages for each completed year of service, and Indonesia, whilst paying one month’s wages for each year of service, limits severance pay to a maximum of 5 months.

It is also pertinent to mention that in the “Doing Business” report of the World Bank 2009, Sri Lanka is ranked as one of the top 5 highest paying countries in respect of retrenchment compensation.

The specific amendments supported by the EFC to the Act envisaged the following:

i.        Where an employer has employed a worker for a period of not less than twelve months continuously, and notwithstanding anything to the contrary in the Termination  of Employment of Workmen (Special Provisions) Act No.45 of 1971 as amended, he may terminate the employment of such worker for any reason, other than on disciplinary grounds, subject to his making the following payments:

a)      Gratuity payable under the Payment of Gratuity act No.12 of 1983; and

b)      One month’s wages/salary or written notice of one month; and 

c)      Two weeks wages/salary for each year of service; and 

d)     Two weeks wages/salary for ach year of service left up to the age of 55 years 

The maximum payment on account of (c) and (d) together shall not exceed twenty months wages/salary. 

ii.      Where an employer wishes to terminate a worker’s services and is unable for financial reasons to pay the aforesaid compensation as set out in (b), (c) and (d) of sub-section (i) above, he shall seek permission from the Commissioner under the Termination  of Employment (Special Provisions) Act if the same is applicable. 

iii.    Where the employer due to reasons of closure of the whole or part of his business has offered alternative employment elsewhere on terms not less favourable than the existing terms and conditions of employment, which offer has been rejected by the worker, the employer shall not be liable to pay any compensation to the worker concerned and may terminate the worker on giving one month’s notice in writing or payment in lieu, subject to the right of the worker to seek relief before a Labour Tribunal for compensation. The Labour Tribunal shall take into account the offer of employment made and decide on the quantum of compensation if any to be awarded, which shall not exceed the amounts payable under (i) above.


iv.    Where an application is made under the Termination of Employment (Special Provisions) Act No.45 of 1971 as amended, the Commissioner shall make inquiries based on affidavits tendered, and counter submissions in writing by parties, within one month of the written application. If no order is made within two months the Employer shall have the right to terminate the worker subject to the final determination of the Commissioner regarding the compensation payable. 

v.      Lay-off Procedure

Where an employer due to lack of raw materials, break down of machinery or factors beyond his control, is unable to provide employment for his workers or any part thereof, he shall, on proving such fact to the Commissioner, be granted permission to refrain from paying wages to the workers concerned. 

The employer shall make a written application specifying the period of lay-off which shall be supported by an affidavit and the Commissioner shall give such matter priority and give his ruling within seven days of receipt of the application. The Commissioner shall refuse an application only if for reasons given by him in writing, he is convinced that the application for non-payment of wages is inequitable in the circumstances of the case. Where the period has to be extended the same procedure would be followed by an employer and the Commissioner. 

It is also submitted that employees over 60 years of age, probationers, employees found incompetent and/or unable to discharge their duties due to ill health, be excluded from coverage under this Act. They will yet, under the Industrial Disputes Act, have recourse to the Labour Tribunal in a situation of dismissal.



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