Varners Law Firm

Forums For Adjudicating Employment Disputes
  • Settlement of Disputes by the Commissioner
  • The Industrial Disputes Act, No. 43 of 1950 (as amended) (“Industrial Disputes Act”) empower the Commissioner General of Labour (“Commissioner”) to act where he or she is satisfied that an industrial dispute exists in any industry or apprehends an industrial dispute in any industry, whether by means referred to in the Industrial Disputes Act or otherwise.

    The Industrial Disputes Act was enacted to provide for the prevention, investigation and settlement of industrial disputes, and establishes a system of dispute resolution methods. In Sri Lanka, industrial dispute is a generic term covering employment / labour related disputes in any industry or sector.

    The powers of the Commissioner under the Industrial Disputes Act are very expansive, covers industrial disputes in any industry or sector, and the Commissioner may settle industrial disputes in one of the following ways:

      1. cause the industrial dispute in a particular industry to be referred for settlement by means of any arrangements made by the organisations representing the employers and employees that industry;
      2. endeavour to directly settle the industrial dispute by conciliation;
      3. refer the industrial dispute to an authorised officer for settlement by conciliation; or
      4. with the consent of the parties to the industrial dispute, refer the industrial dispute for settlement by arbitration to an arbitrator nominated jointly by parties to the dispute, or in the absence of such nomination, to an arbitrator or body of arbitrators appointed by the Commissioner or to a Labour Tribunal.
  • Settlement of Disputes by the Labour Minister
  • Where the Commissioner is unable to settle an industrial dispute as provided above:

      1. the Minister may, where he or she is of the opinion that it is a minor dispute, refer the industrial dispute for settlement by arbitration to an arbitrator appointed by the Minister or to a Labour Tribunal, notwithstanding that the parties to such dispute do not consent to such reference; or
      2. (b) refer any industrial dispute to an industrial court for settlement.
  • Settlement of Disputes by the Labour Tribunals
  • The Industrial Disputes Act also establishes a system of Labour Tribunals to inquire into situations involving termination of employment and other matters. Any employee or trade union of that employee may make an application in writing to a Labour Tribunal for relief or redress in respect of any of the following matters:

      1. the termination of employment by the employer;
      2. the question whether any gratuity or other benefits are due to an employee from the employer upon termination of services and the amount of such gratuity and the nature and extent of such benefits;
      3. the question whether the forfeiture of a gratuity in terms of the Payment of Gratuity Act, 1983 has been correctly made; and
      4. such other matters relating to the terms of employment, or the conditions of labour, of an employee as may be prescribed.

    The right of an employee or his trade union to make such application for relief or redress to a Labour Tribunal is in addition to and not in substitution of an employee’s rights for claiming relief under other provisions of the Industrial Disputes Act and / or the Termination of Employment of Workmen (Special Provisions) Act No. 45 of 1971 (as amended) (“Termination of Employment Act”);

  • Settlement of Disputes under the Termination of Employment Act
  • The Termination of Employment Act empowers the Commissioner to order an employer, upon termination of employment, to continue to employ the terminated employee in the same capacity as before the termination, and to pay wages and all other benefits which the employee would have received if not for the termination.

    Where employment is terminated in consequence of the closure by the employer of any trade industry or business, the Commissioner may order such employer to pay to the affected employees a sum of money as compensation as an alternative to the reinstatement of such employees and any gratuity or any other benefit payable to them by such employer.

The Main Sources Of Employment Law

The following are the primary sources of the Employment Law of Sri Lanka:

  • The principles of the common law of Sri Lanka (Roman-Dutch Law);
  • The various statutes enacted by Parliament;
  • Awards, Orders and Judgements of Labour Tribunals and other superior Courts; and
  • The Collective Agreements between trade unions representing employers and employees.

National Law And Employees Working For Foreign Companies

National Laws apply to employees working for Foreign Companies in Sri Lanka regardless of whether they are Sri Lankan Nationals or expatriates and irrespective any contractual terms in their contracts of employment.

Further, certain National Laws (i.e. Employee's Provident Fund Act) also cover employment outside Sri Lanka which is in connection with or for the purposes of the trade or business of any employer if such employment would be a covered employment if it were in Sri Lanka.

National Law And Employees Of National Companies Working In Another Jurisdiction

The National Laws and contractual terms and conditions will apply to employees of National companies working in another jurisdiction.

Data privacy

Sri Lanka does not have a comprehensive legislative framework on data protection; accordingly, the following should be considered:

    1. the storage / protection / processing of personal information will depend upon the specifics of private contracts and / or agreements;
    2. under the common law of Sri Lanka (Roman-Dutch Law) a party may have the right to institute action for loss of reputation and dignity due to the intentionally wrongful action of the other; and
    3. certain statutes, which contain specific provisions in relation to handling of information, applicable only in so far as those specific statutes are concerned (i. e. banking / telecommunications / etc.).

In the circumstances, data protection will depend on provisions contained in any private contracts / agreements, which will lay the groundwork for the management and protection of personal data. In recent judgments, the Supreme Court of Sri Lanka has also recognised the importance of an individual’s right to privacy; however, this will not apply to private transactions or individuals.

Legal Requirements As To The Form Of Agreement

A contract of employment can be formed in writing or orally. The terms of the contract can be expressed or implied.

Under the Shop and Office Employees (Regulation of Employment & Remuneration) Act, No. 19 of 1954, (as amended) (“Shop and Office Employees Act”), it is a legal requirement that an employer furnishes an employee with certain prescribed particulars relating to the conditions of the employee’s employment; these include, appointment date, remuneration, allowances, hours of work, conditions of employment, etc.

Mandatory Requirements
  • Trial Period
  • It is a common practice to recruit new employees on a trial or probationary period of 3 to 6 months; however, this is not a legal requirement.

    Further, if employees covered under the Shop and Office Employees Act are to be placed on a period of probation such requirement shall be expressly stated in the letter of appointment / contract of employment setting out the period of probation and conditions governing such probation.

    The employer is free to terminate the services of the probationary employee during the probationary period or at the end of the probationary period should their performance prove unsatisfactory.

  • Hours Of Work
  • The workday and working hours differs from industry to industry subject to the following:

    • Under the Shop and Office Employees Act, the number of working hours constituting a normal working week should not exceed 45 hours and a normal working day shall not exceed 8 hours, exclusive of an interval for a meal or rest.
    • Trades covered under the Wages Board Ordinance, No. 27 of 1941, as amended (“Wages Board Ordinance”) number of working hours constituting a normal working week shall not exceed 48 hours. Further, the Wages Boards constituted for each trade under the Wages Board Ordinance have the power to determine number of working hours and a normal working day.
    • The Factories Ordinance, No. 45 of 1942, as amended (“the Factories Ordinance”), includes general conditions as to hours of employment of women and young persons, but no specific provisions regarding other workers. In addition to factories, the Factories Ordinance also covers and applies to tenement factories, electrical stations, charitable or reformatory institutions, technical or vocational training institutions, docks, wharves, quays, warehouses and ships, building and other construction works, etc.

    The Factories Ordinance defines “young person” to means a person who has attained the age of sixteen years but is under the age of eighteen years. The total hours worked, exclusive of intervals for meals and rest, for women and young persons should not exceed 9 hours in any day or exceed 48 hours in any week. Both women and young persons’ cannot be employed continuously for a spell of more than four and a half hours without an interval of at least half an hour.

    Further, the period of employment for young persons should not exceed 12 hours in any day, their work should not commence before 6 a.m. or not continue after 8 p.m., and on one day of the week the period of employment should end by 1 p.m.

    The Shop and Office Employees Act, the Wages Board Ordinance, and the Factories Ordinance all contain provisions relating to overtime. Under Sri Lankan law, overtime is applicable for employees at all levels, including those at managerial or executive level.

  • Special Rules For Part-time Work
  • There are no specific rules for part-time employees; the general rules covering employment will be applicable to part-time employees as well. A part-time employee will be remunerated wholly or partly for the number of hours worked.

  • Earnings
  • The National Minimum Wage of Workers Act, No. 3 of 2016 (“Minimum Wage Act”), provides for a national minimum monthly wage of Sri Lankan Rupees 10,000/- and the national minimum daily wage of Sri Lankan Rupees 400/-. The national minimum wage is applicable to all employees in any industry or service, and shall be applicable notwithstanding the provisions of any other written law.

    Subject to the Minimum Wage Act, earnings are determined by private contracts, decision of employers, collective agreements, decisions of Wages Boards (established under the Wages Boards Ordinance), compulsory determination by Remuneration Tribunals (established under the Shop and Office Employees Act), awards of Industrial Courts or arbitrators, or by Acts of Parliament.

    The Wages Boards constituted for each trade under the Wages Board Ordinance have the power to determine the minimum wage of employees working in the respective trades, subject to the national minimum wage prescribed by the Minimum Wage Act. Wage revisions are effected by the respective Wages Boards from time to time.

  • Holidays/Rest Periods
  • The Shop and Office Employees Act provides for the following types of holidays:

    • Weekly Holidays
    • The Shop and Office Employees Act provides that 1 ½ days paid holiday must be allowed to the employees who have worked for not less than 28 hrs in any week

    • Statutory Holidays
    • An employee is entitled to a holiday with full remuneration on each of such days, being public holidays, as declared by the Minister. However that number of days so declared by the Minister shall not exceed 9. At present there are 8 statutory holidays declared by the Minister.

    • Annual Leave
    • An employee is entitled to take 14 days (of which 7 days may be taken consecutively) leave with pay in a year from their second year of employment.

    • Casual Leave
    • An employee is entitled to take not more than 7 days leave for private business, ill health or other reasonable cause. This is normally taken at the rate of 1 or 2 days at a time.

    For trades covered under the Wages Board Ordinance, the Wages Boards constituted for the respective trade have the power to determine the types of holidays and quantum thereof, including weekly holidays, statutory holidays, annual leave, casual leave, etc.

    Regardless of industry, full moon (Poya) days are non-working days.

  • Minimum/Maximum Age
  • The Employment of Women, Young Persons and Children Act, No. 47 of 1956, and the Employment of Children Regulations, 1957, (“Employment of Women, Young Persons and Children Act”) provides that no child under the under the age of sixteen shall be employed in any occupation.

    Further, a person under the age of eighteen years should not be employed at any time during the night in a public or private industrial undertaking or in a branch thereof. However, a person who has attained the age of sixteen years but is under the age of eighteen years can be employed during the night for purposes of apprenticeship or vocational training. In such circumstances, the employer should grant such a person a rest period of at least thirteen consecutive hours between two working periods.

    No maximum age limit is fixed.

  • Illness/Disability
  • There are no statutory provisions regulating sick leave.

    The Factories Ordinance and The Workmen's Compensation Ordinance, No. 19 of 1934, as amended (“Workmen’s Compensation Ordinance”), are the main statutes which regulate occupational health and safety generally. The Workmen's Compensation Ordinance provides for the payment of compensation to employees who suffer personal injury (including occupational diseases and disability) caused by accidents arising out of and in the course of employment.

    In addition, the Shop and Office Employees Act and the Wages Board Ordinance also contain provisions relating to the health, hygiene, safety and welfare of employees, and the Mines and Minerals Act, No. 33 of 1992, as amended, provides for the health, safety and welfare of workers employed in mines, etc.

  • Location Of Work/Mobility
  • Location of work is usually stated in the contract of employment.

    In the event the work has to be carried out outside the reputed premises of the organisation, a mobility clause is included in the contract to facilitate moving employees to different locations.

  • Pension Plans
  • State funded pensions are available for Public (State) sector employees.

    The Employee's Provident Fund Act, No. 15 of 1958, as amended (“EPF Act”), and the Employees’ Trust Fund Act, No. 46 of 1980, as amended (“ETF Act”), provide for contributory provident fund and a non-contributory trust fund covering all private sector employees.

    The Payment of Gratuity Act, No. 12 of 1983, as amended (“Payment of Gratuity Act”), provides for the payment of gratuity to employees, who have served for more than 5 years with an employer, upon their termination or retirement.

  • Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)
  • Under the Shop and Office Employees Act, 84 working days of maternity leave is permitted. The nursing mother of a child under 1 year of age should be allowed two nursing intervals at such times as the mother may require in a 9-hour period workday.

    Women workers who are not covered under the Shop and Office Employees Act and who are not in casual or seasonal work are entitled to similar benefits under the Maternity Benefits Ordinance, No. 32 of 1939, (as amended) (“Maternity Benefits Ordinance”).

    There is no Paternity leave.

  • Compulsory Terms
  • The following are compulsory terms for employment covered under the Shop and Office Employees Act:

    • the name of employee;
    • designation and the nature of the appointment;
    • the date on which the appointment takes effect;
    • the grade to which the person is appointed;
    • basic remuneration & scale of remuneration;
    • whether remuneration is paid weekly fortnightly or monthly;
    • cost of living or other allowances if any;
    • the length of probation or trial period, if any, and the conditions governing such probation or trial period, circumstances under which the appointment may be terminated during such probation or trial period;
    • normal hours of work;
    • number of weekly holidays, annual holidays and casual and privilege leave, if any;
    • overtime rate payable;
    • provision of medical aid, if any;
    • conditions governing provident, pension scheme or gratuity scheme applicable to the employment; and
    • prospects of promotion.

    In addition, the following can be considered compulsory terms in a contract of employment in any industry:

    • restrictions imposed by law on termination of employees;
    • restrictions on statutory holidays;
    • maximum deductions from salary;
    • unilateral changes by an employer in the status of an employee;
    • restraint of trade, etc. against the employee.
    • it is implied term in any contract that an employer and an employee cannot contract out of benefits due an employee under the EPF Act, ETF Act, and / or the Payment of Gratuity Act.
  • Non-Compulsory Terms
  • The parties are free to agree to have other terms which are not in conflict with the statutory requirements and / or public policy.

Types Of Agreement

The making of an employment contract is the result of an agreement between the employer and employee. The contract envisages reciprocal obligations between the parties. The contract could be oral or in writing and the terms are express or implied. The terms of the contracts vary depending on the type of employment. The types of employment are permanent, temporary, casual, probationary, seasonal, fixed term, and apprentices / trainees.


It is an implied condition of service that the employee shall be faithful in dealing with the employer’s property and in exercising the trust which the employer has placed in him. This duty / obligation is usually expressly provided in the contract. The nature of trade and commercial information that are required to be protected are obvious and usually made known to the employee. The requirement subsists through the period of employment. It is an implied duty to protect trade secrets after leaving one’s employment.

To provide protection to sensitive and information of highly confidential nature after an employee exits his / her employment, restrictive covenants are usually incorporated in contracts.

Ownership of Inventions/Other Intellectual Property (IP) Rights

Unless the contract provides otherwise, the ownership of IP Rights created either under a contract of employment or a contract for services, which IP Right is created in the performance of that contract, is deemed to belong to the employer or the person who commissioned the services.

Where the IP Right is an industrial design that acquires a much greater value than the parties could have reasonably foreseen either at the time the contract was created, or the time the IP Right was created, the creator of that industrial design will be entitled to equitable remuneration for that industrial design, which can either be agreed between the parties or fixed by the court in the absence of agreement between the parties.

Pre-Employment Considerations

There are no specific pre-employment considerations mentioned under statutory laws. However, employers are free to impose their own pre-employment considerations.

Hiring Non-Nationals

All non-nationals employed in Sri Lanka must have a residency VISA with a work permit from the Department of Immigration and Emigration. It is the obligation employers of non-nationals to obtain the relevant work permits for all non-nationals employed by them. This will in the first instance require a written recommendation from the prospective employer and the statutory authority responsible for the overview / regulation of the relevant industry of the employer.

Hiring Specified Categories Of Individuals

The Factories Ordinance, the Employment of Women, Young Persons and Children Act, the Mines and Minerals Act, the Employment of Trainees (Private Sector) Act, No. 8 of 1978, and the Maternity Benefits Ordinance all provide for restrictions on the employability of certain categories of persons and the minimum conditions of their employment.

  • Employment of a person under sixteen and the employment of young persons under the age of 18 years in hazardous occupations / activities are prohibited. The types of hazardous occupations / activities where employment of young persons is prohibited have been listed under the law.
  • The employment of pregnant women is prohibited in any work that is injurious to the expected child during a period prior to and after her confinement.

In addition, the Government of Sri Lanka has mandated that three per centum (3%) of vacancies in the Public Service and Public Corporations should be filled by disabled persons possessing the requisite qualifications and whose disability would not be a hindrance to the performance of their duties.

Outsourcing And/Or Sub-Contracting/Temporary Agency Work

There is no specific legislation regulating outsourcing/sub-contracting. Independent contractors are not subject to the employment laws.

Changes To The Contract

Any changes to the contract require agreement of both parties. The contractual terms incorporated can be changed to the extent that the changes would not be in conflict with the provisions of the statues and with consent of the other party.

Change In Ownership Of The Business

The employees continue to serve the business under the new ownership if the corporate entity remains the same despite the change of ownership. In the case of a sole proprietorship, the change will result in a new owner who could decide to retain the employees under the same or better terms with the consent of the employees, or if the employees do not accept the change, the previous owner is required to comply with the law if they have to terminate the employees and pay compensation as per law.

Social Security Contributions

The employer and the employee are required to contribute to the Employees Provident Fund which is a contributory fund established under the EPF Act. The employer contributes 12% calculated on the total earnings of the employee, and an employee contribution of 8% is deducted from the total earnings of the employee.

In addition, the employer contributes 3% calculated on the total earnings of the employee to the Employees Trust Fund established under the ETF Act.

Accidents At Work

There is a general duty of care for the safety and welfare of the employees under the common law. As noted above, important provisions under different legislation have imposed obligations on the employer to address employee health, hygiene, welfare & safety issues.

The Factories Ordinance provides for the compulsory notification of accidents or industrial diseases to authorities and also requires the investigation of deaths by accidents or industrial diseases.

Discipline And Grievance

None of the legislation has laid down any disciplinary procedure or punishment to be imposed on breach of discipline. For the category of employees who are bound by the terms of Collective agreements, the agreement will usually set out a detailed disciplinary procedure and punishment for breach of discipline.

Employers are free to adopt their own disciplinary policies and grievance handling methods, provided that such policies and methods are not too rigid or conflict with the rights of employees. Also in the adoption of such policies and methods, consideration should be given to any collective agreements relating to the employer and the employee, the rules of natural justice, decisions of courts and tribunals and discipline management practices.

Usually, the first step in a disciplinary procedure is the issue of a “show cause notice”, followed by a disciplinary inquiry. The inquiring officer is obliged to follow rules of natural justice, and depending on the outcome of the inquiry, the employee may be subjected to disciplinary measures including and leading to termination.

Harassment/Discrimination/Equal pay

Article 12 of the Constitution of the Republic of Sri Lanka stipulates that all persons are equal before the law and entitled to equal protections of the law. The Article also prohibits discrimination on the grounds of race, religion, language, caste, sex, political opinion, place of birth or any one of such grounds.

Sri Lanka has also ratified the International Labour Organisation convention pertaining to discrimination. However, there is no special provision in the constitution or labour laws to prevent discrimination in employment related matters. Further, no law has been so far enacted requiring equal pay for work of equal value.

  • The Penal Code of Sri Lanka has provisions relating to harassment in a work place. The perpetrator of harassment may be punished either with imprisonment up to a term of five years, or a fine, or both. He/she may also be ordered by the court to pay an amount, as determined by the court, to the victim of harassment for injuries.
  • Employees may also apply to the Labour Tribunal for relief in cases of unjustifiable termination of services arising out of sexual harassment.
  • The Trade Union Ordinance and the Industrial Disputes Act prohibit discrimination against workers involved in union activities.
  • The Protection of the Rights of Persons with Disabilities Act, No. 28 of 1996, (as amended) provides that no person with a disability shall be discriminated against on the ground of such disability in recruitment for any employment or office.

Compulsory Training Obligations

There are no compulsory training obligations for employees generally, but obviously trades / professions will impose their own standards / expectations.

Offsetting Earnings

The provisions of the Shop and Office Act provide for permitted deductions from the remuneration of an employee. Any advance on remuneration paid to an employee, contributions to pension funds, private provident funds, insurance or saving schemes or recreation club maintained by the employer (the funds, scheme or club should be approved by the commissioner of labour), any amenities or services provided to the employee, any amount to be furnished as security by the employee, fines imposed by the employee, loans taken by the employee from any fund managed wholly or partly by the employer, price of goods or articles sold to the employee and any payment made out of the employee’s remuneration to any other person at the request of the employee are such authorized deductions. The aggregate of deductions however should not exceed 60% of the employee’s remuneration. The consent of the employee is required for deductions except with regard to statutory deductions and taxes which an employer is required by law to deduct.

Similar provisions apply to employees covered under the Wages Board Ordinance.

Payments For Maternity And Disability Leave

There are no special payments for maternity except the remuneration during the maternity leave period. No special leave for disability has been provided. However, the general requirement for the payment of remuneration will continue to apply under the Shop and Office Act and the Wages Board Ordinance.

Subject to statute, leave is granted by employers on a case-by-case basis.

Compulsory Insurance

There is no compulsion to have insurance to provide general cover for employees. Generally, employers do take precautions by obtaining insurance for employees who are engaged in occupations that could expose employees to unexpected situations while in employment.

The Workmen’s Compensation Ordinance provides that the employer should pay compensation to employees or their dependants in instances of injury or death of an employee that arises out of employment and arises in the course of their employment or where an employee contracts an occupational disease due to the nature of their employment.

Absence For Military Or Public Service Duties

Employees are at liberty to take leave.

Works Councils or Trade Unions

Trade Unions are common in Sri Lanka. Every Trade Union should be registered under the Trade Unions Ordinance, No. 14 of 1935, (as amended) (“Trade Unions Ordinance “) and shall apply for registration within three months of commencement. The participation of employees in trade union activity and obtaining membership has been protected by provisions in the Industrial Disputes Act. The freedom to form and join a trade union is guaranteed as an entitlement of a citizen by the Chapter on Fundamental Rights of the Constitution of Sri Lanka.

The Employees’ Councils Act has made provision for the setting up of employees councils in state undertakings.

Employees’ Right To Strike

Strikes are considered as a legitimate trade union action. Strike action is launched as the last resort, subject to certain requirements to be fulfilled under the Industrial Disputes Act and the Trade Unions Ordinance.

Employees On Strike

Strikes and lockout by employees in essential industries are subject to certain restrictions. It is offence to strike or incite to strike, (i) where an industrial dispute has been referred for settlement, or (ii) where being bound by a collective agreement, settlement, or arbitral award seeks to procure the alternation of such agreement, settlement, or award by striking.

Employers can take action against unlawful or unjustifiable strikes and strikers.

Employers’ Responsibility For Actions Of Their Employees

Employers are responsible for actions of employees only for those actions taken in the course of and within the scope of employment.

Procedures For Terminating the Agreement
  • Termination for Non-Disciplinary Reasons
  • The Termination of Employment Act regulates the termination of employment for non-disciplinary reasons in respect of employees as defined under the Factories Ordinance, the Shop and Office Act, and the Wages Board Ordinance. For all other private sector employees, relief for unjust termination of employment is covered under the Industrial Disputes Act.

    The provisions of the Termination of Employment Act will apply where the employee has worked under the employer for more than 180 days in a continuous period of 12 months and where the employer has employed 15 or more employees on average during the 6 months preceding the month the termination of service was sought.

    The Termination of Employment Act prohibits an employer from terminating the employment of any employee without obtaining either the prior written consent of the employee (which should not have been obtained by force or coercion), or the prior written approval of the Commissioner. Any termination effected in contravention is illegal, null and void, and is of no effect whatsoever.

    Subject to the above restrictions, the employment contract may provide for the modalities of termination, settlement, and post-employment conditions.

  • Termination for Disciplinary Reasons
  • In the event of a termination of an employee on disciplinary reasons, an inquiry into the alleged misconduct should be conducted as a preliminary step to justify such termination. See more information under Discipline and Grievance.

Instant Dismissal

In instances of gross misconduct, the employers have the option of instant dismissal without notice. Usually this is subject to the outcome of an inquiry into the alleged gross misconduct, and it is expected that the employee be given the opportunity to explain why such action should not be taken against him or her.

Employee's Resignation

It is usual for employment contracts to contain clauses providing for the employee to resign from his/her employment by giving one month's prior notice to the employer. Nevertheless, if an employee fails to give notice, the employer cannot coerce the employee to work or withhold payment of salary, benefits, or other terminal payments.

Termination On Notice

An employee can terminate the contract on notice.

For an employer to terminate the contract of a permanent employee, it is necessary to have the written consent of the employee or the written approval of the Commissioner.

If an employee’s services are terminated on disciplinary grounds, the reasons for termination shall be communicated to the employee by the employer in writing before the expiry of the second day from the date of termination.

Termination By Reason Of The Employee's Age

There is no statutory age limit for retirement / termination of employment in the non-government sector. The contract of employment and the collective agreements provide for the retirement age, and generally, employees retire at ages ranging from 55 years to 65 years.

Automatic Termination In Cases Of Force Majeure

The law does not provide for automatic termination, and as explained above termination shall be subject to the provisions of the Termination of Employment Act and / or the Industrial Disputes Act.

Collective Dismissals

There are no separate provisions for Collective Dismissal. The procedural requirements for dismissal and compensation pay under Termination of Employment of Workmen’s Act will similarly apply to the collective dismissal of a number of employees.

Termination By Parties’ Agreement

The parties can agree freely to terminate the contract.

Directors Or Other Senior Officers

In the case of directors, termination should be in compliance with the provisions of the Companies Act, No. 07 of 2007 and the Articles of Association of the Company.

The termination of employment of working directors and / or senior officers can take effect by resignation or by removal in accordance with the laws.

Special Rules For Categories Of Employee

No special rules apply to any category of employees. As explained above non-disciplinary termination cannot be done by an employer without the prior written consent of the employee or the prior written approval of the Commissioner of Labour. In addition, the services of a female employee cannot be terminated due to the reason of pregnancy or of any illness consequent on her pregnancy or confinement.

Specific Rules For Companies in Financial Difficulties

There are no specific rules for companies in financial difficulties. It is common for the intervention of the Commissioner in such situations.

In the event of a winding up of the company, the following will be treated as preferential claims to be settled by the liquidator in an order of priority:

    1. all provident fund dues, employees trust fund dues, and gratuity payments due to any employee;
    2. industrial court awards and other statutory dues payable to any employee;
    3. all wages or salary of any employee whether or not earned wholly or in part by way of commission, and whether payable for time or for piece work, in respect of services rendered to the company during the four months preceding the commencement of the liquidation up to a maximum of Sri Lankan Rupees 12,000/-;
    4. holiday pay becoming payable to an employee on the termination of the employment before or by reason of the commencement of the liquidation;
    5. compensation under Workmen’s Compensation Ordinance accrued before the commencement of the liquidation; and
    6. amounts deducted by the company from the wages or salary of an employee in order to satisfy obligations of the employee.

Restricting Future Activities

Restricting future activities of an employee will be seen to be in conflict with the fundamental right of a citizen to freely engage in any lawful occupation, profession, trade, business or enterprise.

While, it is common to find contractual clauses aimed at restricting employees, the Sri Lankan courts have held that all provisions of restraint of trade in contract are prima facie void. Each case must be examined taking into account any special circumstances to ascertain whether or not the restraint is justified. A particular circumstance may be justified is if it is designed to protect a legitimate business interest, and if it is reasonable as between the parties, as well as in the wider public interest. But if the purpose of such clause is to restrain the employee from engaging in employment, utilising his skills and expertise and prevent legitimate occupation, then the clause in question may not be upheld in a court of law.

For protection of proprietary rights of the employer such as trade secrets, trade connections and confidentiality, the enabling clauses in the contracts may be provided. Further protection may be available under the unfair competition regime in Sri Lanka under the Intellectual Property Act, No. 36 of 2003. Any person aggrieved by unfair competition can institute proceedings in court to prohibit the continuance of such act or practice by way of injunctive relief and obtain damages for losses suffered as a result of such act or practice.

Whistleblower Laws

There is no legislation in Sri Lanka to protect private sector whistle-blowers.

The Right to Information Act, No. 12 of 2016, offers some measure of protection to public sector whistle-blowers. The said Act provides that “notwithstanding any legal or other obligation to which a person may be subject to by virtue of being an officer or employee of any public authority, no officer or employee of a public authority shall be subjected to any punishment, disciplinary or otherwise, for releasing or disclosing any information which is permitted to be released or disclosed under this Act”.

Special Rules For Garden Leave

The Law does not provide special rules for Garden Leave.

Nevertheless, under the Shop and Office Act, where the employment of any person is terminated, such a person is required to take before the date of such termination the holiday with full remuneration, if any, to which he/she may be entitled in respect of the year of employment preceding that in which the termination occurs, and his or her leave allotment for the year of employment in which the termination occurs.

Severance Payments

Generally, severance payments are determined by negotiations carried out by the employer and employee subject to the minimums prescribed under the Termination of Employment Act. Accordingly, the computation of compensation / severance payment is on the basis of a predetermined formula taking into account the number of years in service and the number of months’ salary to be paid as compensation for each year of service. The highest amount of payment an employee may receive under the Termination of Employment Act is Rs. 2,500,000/-.

Employees who are not satisfied with their compensation may also apply to a Labour Tribunal for relief. There is no cap on the quantum of compensation that may be ordered by a Labour Tribunal.

The Payment of Gratuity Act provides for the payment of a further gratuitous sum on the termination of employment of employees who have completed five years' service (and who are not disqualified from receiving the payment on any ground contained in that Act). The gratuity is based on the earnings of the employee and is payable within 30 days of the date of termination. A surcharge is payable by the employer if payment is delayed beyond 30 days.

Special Tax Provisions And Severance Payments

In terms of the Inland Revenue Act, No. 24 of 2017, every employer is required to deduct Advance Personal Income Tax (“APIT”) from the gains and profits from employment of each employee who is liable to pay income tax with his consent, at the time of such remuneration is paid or credited as per the tax tables published by the Inland Revenue Department. Any resident individual who receives remuneration in excess of Sri Lankan Rupees 3,000,000/- per annum or Sri Lankan Rupees 250,000/- per month is liable to pay tax from his / her employment income.

Further, if the aggregate amount of the following payments exceeds Sri Lankan Rupees 5,000,000/-, the employer is required to retain 12% on the excessive amount, and pay the same to the Inland Revenue Department:

    1. amount payable in commutation of a pension;
    2. amount payable as a retiring gratuity;
    3. amount payable as compensation for loss of office or employment under a scheme, which is uniformly applicable to all employees as approved by the Commissioner General of Inland Revenue; and
    4. Any sum payable from the Employees Trust Fund (ETF).

Allowances Payable To Employees After Termination

No contributions to be made by employer to employees after termination.

Time Limits For Claims Following Termination

If an employer terminates an employee subject to the Termination of Employees Act and no compensation has been paid, the employee has the right to petition to the Commissioner of Labour before the expiry of 6 months of such termination.

The same limits are applicable for application to Labour Tribunals under the Industrial Dispute Act.

Specific Matters Which Are Important Or Unique To This Jurisdiction

It is pertinent to remember that Sri Lanka does not permit a “hire and fire policy” as in many foreign jurisdictions and termination is subject to the written consent of the employee or the written approval of the Commissioner. As detailed above, Sri Lankan labour law requires that various procedural requirements be satisfied whenever an employer embarks upon a plan to terminate the employment of its employees in an attempt to close down its operations.

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Contact a Contributing Author:
Krishanth Rajasooriyar
Varners Law Firm
Sri Lanka

Vinu H. Sudirikku
Varners Law Firm
Sri Lanka


© 2021, Varners Law Firm. All rights reserved by Varners Law Firm as author and the owner of the copyright in this chapter. Varners Law Firm has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the How to Hire and Fire Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: June 2021