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1. Employment and its Termination

1.1 Letters of Appointment.

Letters of appointment are not required by low, except under the shop & office Employees ‘Act’,

which requires that, the basic terms of employment should be given in writing to an employee.

However, it is now becoming a standard practice to issue a letter of appointment to employees

setting out the terms of employee. If the letter is in English, a translation should be, ideally,

provided. It is of great evidentiary value in proving what the specific contractual obligations

were or what financial benefits were agreed to.

A Labour Tribunal, Arbitrator or the Commissioner of Labour could by assessing the facts

decide whether in a particular situation there is a contract of employment, despite the fact that

there is a written document which says that a particular person was a mere agent. Courts have,

however, cautioned that equity must apply to both the employee as well as the employer.

● Who supervises the Person

● Who has the right to hire and fire

● The integrator test, what is the integral or core business and is the person a

vital part of that process.

● The ‘Economic reality test’ – is the person in business on his own account,

are applied to decide the legal question of whether a contract of employment

exists.

b). Types of Employment

b). 1. Monthly Contract of Employment

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A monthly contract of employment is one, which automatically renews every month, unless and

until either party terminates it. A Monthly Contract of, Employment therefore, gives an

employee the right to remain in employment until he/she reaches the retirement age unless the

employer terminates it prior to that. It is therefore often referred to by employers and workman

as ‘permanent employment’ and may be regarded as the normal type of contract for employment

which is regular.

b). 2. Probation

A probationer is generally appointed for a job of a permanent nature and is selected with

reference to his general ability for the job for which is intended. Probation has been defined in

judicial decision as a ‘fixed and limited period of time for which an organization employs a new

employee in order to assess his/her job’. The employee has a trial period to prove

himself/herself. A Court would interfere with the dismissal of a probationer only if the employer

has acted mala fide and would not interfere with the employer’s rights to assess the probationer’s

competence or conduct.

b) 3. Fixed Term Contract of Employment

A Fixed Term contract of Employment is one, which is entered in to for fixed term without any

guarantee that the contract would be renewed on the expiry of the period stipulated. At the end of

the period stipulated, the contract automatically comes to an end. Renewal is at the discretion of

the employer.

Where an employer has, as a matter of practice, renewed fixed term contracts, it may be argued

that there is an implied understanding that the employer would renew the contract in the absence

of bad conduct, redundancy, inefficiency, medical or physical incapacity or irrelevancy of skills.

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b) 4. Casual

Casual employee should be any person who has no right to expect daily or regular employment

and conversely the employer will have no right to expect him/her to report for work. In other

words, a casual employee may report for work as and when he/she likes and he/she can be

employed as and when the employer pleases. The practice of having casual employees to be

substituted for absence of permanent employee is very common. However, it must be born in

mind that the Termination of Employment (Special Provisions) Act gives coverage to an

employee who has worked 180 days in a period of 12 Months immediately proceeding

termination.

b) 5. Temporary

A temporary employee is one who is employed to perform a particular job; based on a temporary

need eg; when a permanent employee has gone on long leave.

It is preferable where possible, to employ a temporary worker on a contract of employment

which defines the time period to which the contract is limited. If the nature of the job is such that

it is not possible to stipulate the period of the temporary employment by reference to the date on

which it will cease, the contract should state that it will automatically terminate on completion of

the particular job, If the need continues beyond the defined period it is advisable to issue a new

Temporary Contract of Employment on similar terms.

b) 6. Seasonal

Employees engaged in employments, which are seasonal, are termed ‘Seasonal Workers’ Eg; in

a residential hotel during the tourist seasons in the staff to meet the increased demand which is

not necessarily consistent throughout the year.

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There is no obligation on an employer to renew the contract in the succeeding year. A letter of

appointment is advisable. Seasonal employment is permitted in agriculture, tourism,

confectionary, and soft drinks industry &, in the case of other special cases, the Commissioner of

Labor should be asked for his approval.

b)7. Apprenticeship or Training

A contract of Apprenticeship is one where the employer agrees to teach the apprentice his trade

so that the apprentice learns and acquires the necessary skill to perform the job for which he will

be trained. The apprentice in turn agrees to learn the particular trade of the employer and serve

the employer during the period of training. During the pendency of the contract, the employer is

obliged to pay an allowance and not a wage to the apprentice as an apprentice enters in to a

Contract of Apprenticeship not necessarily to earn money by such contract, but with the intention

of being and thus acquires skills which would be of value to him in securing employment.

c) Independent Contractor/Contract Labour

Contract labor is labor supplied by an independent contactor, i.e. a person who business on

his/she own account. Applying the ‘economic reality’ test designed by the courts, it could be said

that the contractor is one who performs the service for profit and is not an employee of the

principal.

D) Cessation of Employment

d). 1. Termination of employment on disciplinary grounds and constructive dismissal.

d). 1. (a). Disciplinary Grounds

The contract of employment may terminate in a variety of ways. The Employer for disciplinary

reasons could terminate a contract. Statute I does not define the degree of misconduct or the type
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of misconduct, which should result in the termination of a contract of employment. These factors

are to be found in the common law as developed or modified by our labor courts and Appellate

Courts. Broadly speaking it is the nature of the particular business and the position held by the

employee in that business which determines the gravity of the misconduct. Misconduct broadly

is conduct explicitly or implicitly in violation of contractual obligations. It is important to bear in

mind that the test whether an obligation is fair would be an objective one of whether a reasonable

employer would or could expect compliance. An obligation, which is illegal, cannot be enforced.

d).1. (b) Constructive Termination

The termination of Contract of Employment could also in consequence of a breach of the

contract by the employer, For instance; In a situation where the employer, without any

justification, refuses to pay an employee’s salary, the employee can treat the employer’s refusal

as a ‘Constructive Termination’ of his contract of Employment, and he will have the right to

have recourse to a Labour Tribunal on the termination of his employment. A common situation

in where a demotion is unilaterally imposed. This is not acceptable.

d). 2. Termination of employment on Non – Disciplinary Grounds.

Where an employee is in a Scheduled Employment as defined in the Termination of Employment

(Special Provision) act and has worked for more than 180 years in period of 12 months, the

employer has to comply with the provision of the Act (Please see section on the Termination Act

for further discussion).

If the employer argues that a termination was for disciplinary reasons, then he should have,

within 48 hours of the dismissal, issued a letter of termination specifying the grounds for

dismissal.
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d). 3. Frustration of Contract and impossibility of Performance

A contract is deemed by low to have automatically come to an end in situation were performance

of the contractual obligations becomes impossible. In other words, a contract could come to an

end in circumstances where without the default of either party, the contract becomes inoperative

due to factors beyond the control of the parties to the contract. ‘frustration’, means that there has

been such a change in the circumstances, that the performance of the contractual obligations has

become unlawful or that the circumstances have made it physically impossible for the contract to

be performed. For instance, a situation where the business is destroyed by file, the contracts

deemed to be terminated as the contractual obligation between the employer and the employee

becomes impossible to perform. Frustration cannot be caused by the party pleading it.

d).4. Resignation

‘Resignation’ more or less means a termination of the contract by the Employee. It is

fundamental to a Contract of Employment that an employee cannot be compelled to perform his

contract if he wishes to terminate it. Therefore, where an employee leaves his job without notice

in breach of contract and the employment, the employer’s only remedy is on of damages for

breach of contract and the employee cannot be compelled to perform his contract. His refusal to

accept the resignation only means that the employee then has an open-ended right to return to

employment. It is advisable to accept a resignation in writing.

d).5. Retirment

The low does not specify a retirement age and therefore, reference is effected in terms of the

contract of employment or a Collective agreement as the case may be. Many employers retire

employees at the age of 55 years. An employee if he is to continue beyond this age is put on a

fixed term contract. Executives usually are retired at the age of 60 years. The termination Act
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requires the consent of the employee, or a clause for retirement in a letter of appointment or an

age of retirement in a collective agreement to create the possibility of retirement without the

need for permission by the commissioner of Labour. It is therefore important to include the age

of retirement in all permanent letters of appointment.

d).6. Vacation of Employment

In a situation where an employee is absent from work without leave/authority or intimation for a

long period of time, the employer is entitled to act on the basis that the employee has abandoned

employment and treat the contract of employment as having been terminated by the employee.

However the circumstances should reveal an intention not to return to work. If the employee has

indicated that he is ill, the presumption of vacation cannot be drawn.

2. Remuneration and Benefits

a. Remuneration

Generally in Sri Lanka, permanent employees are paid salaries on a monthly basis and casual

employees on a daily rate payable daily, but for purposes of convenience, computed weekly.

Remuneration could consist of time rated pay, piece rates, incentives, commissions, and other

allowances such as for attendance. Service charges paid by hotels are not regarded as part of

remuneration although it is a substantial monetary benefit to employees in this sector.

A cost of living payment, if paid on a monthly basis, could be regarded as part of remuneration

although an annual lump sum to compensate for increases in inflation on any basis would not be

treated as such.
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If they are due daily as in the case of casuals, the payment should be made at the end of the day.

Weekly wages are due within three days of the end of the period, fortnightly wages within seven

days and monthly wages within 10 days.

Many employers who pay monthly salaries, pay the previous month’s salary on 10 th of the

following month, which is the last date allowed for such payments. However, in shops and

offices the norm would be to make payment by the 25th of the same month in which the salary is

earned. Other payment, such as overtime and incentives, are paid between wage payments to

ensure the employees receive some payment twice in the month.

Where a wages Board exists for a trade, the rate prescribed is the minimum. Employees or their

unions may negotiate higher salaries. Most wage Boards rates are time rated and presence at

qualifies an employee to payment.

Benefits.

Other benefits on which a monetary value could be placed are;

i) Medical Benefits – Usually given only to the employees. Insurance schemes

are available for this purpose.

ii) Meals or meals allowance.

iii) Uniforms

iv) Incentives – These must be distinguished from place rates, the letter being a

systems of computing wages.

v) Transport allowances – This is not common

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● Bonus

Bonuses are not mandatory unless specifically agreed to in letters of appointment or Collective

agreements. Bonuses, if paid, are in many forms.

● Customary Bonuses

These are payments made annually to coincide with festivals such as Christmas or the

Sinhala/Tamil New Year.

The quantum could be a flat rate to all employees or paid on the basis of a number of months

salary, which then gives different amounts to different employees.

These payments are not tied to profits to losses and would be looked at for accounting purposes

as fixed cost.

● Profit / Performance Bonuses

Many companies pay a bonus only if profits are made if they exceed a certain amount. The

payment is determined by the Management. Some companies however have a negotiated

formula.

Bonus formula may take in to account factors such as attendance and performance of individual

employees.

● Production Bonuses / Incentive Bonuses

These are paid monthly, quarterly and seldom on an annual basis. The concept is to give a lump

sum, free of provident and trust fund payments, to supplement wages and as a reward for

performance, individually or collectively.

● Attendance Bonuses
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Since attendance at work is a major problem, these payments are quite popular. They are paid

usually on a monthly or quarterly basis. Those who have been on no pay for unauthorized

absence are not paid any part of the bonuses. The scheme usually permits a day or two of

authorized leave and thereafter the payment gets reduced for more leave taken. After a fixed

point, even authorized leave will disentitle the employee to any payment at all.

It must be noted that the non – payment of an annual bonus becomes an industrial dispute and

has been the cause of many strikes. Once payments have been made, the employees tend to view

the payment as a right and bonus payment must be looked at as a mater requiring professional

industrial relations advice and guidance.

General aspects of State Intervention

a) The Labour Commissioner and his officers could inspect any work place and examine

records in order to satisfy themselves that laws are being compiled with.

b) ‘The Industrial’ Dispute Act gives the Commissioner the right to intervene in disputes

and attempt to conciliate.

c) An unresolved dispute could be referred to compulsory arbitration.

d) For a violation of the law, prosecutions are launched by the Commissioner.

e) The Commissioner intervenes in the event of a non-disciplinary termination in violation

of the Termination of Employment Act.

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f) A Labour tribunal may order reinstatement or compensation to a dismissed employee.

3. Relevant Labour Legislation

There are several laws in respect of different categories of employees. However, the principle

enactments are as follows.

Shop and Office’ Employees Act

The Shop & Office employees’ Act Provides for the regulation of hours of employment in shops

and Offices, regulation of remuneration, fixing of wage periods and also provides for authorized

deductions from wages, and for matters connected there with. The Act also deals with health and

comfort of employees. Maternity benefits, weekly, annual holidays, statutory holidays as well as

leave.

Application of the Act

Broadly speaking, the Shop & Office Employees’ Act is applicable to Shops and Office in Sri

Lanka and to all those who are employed in and about the business of a shop or office in Sri

Lanka. The Act however, has exempted certain categories of employees and premises from the

operation of the Act in whole or part. For instance: persons employed in the capacity of a

Watcher or caretaker, are exempted from the operation of the Act and persons employed as sales

representative or in similar or comparable filed activities are exempted from the provision in the

Act regarding hours of employment (other provisions are applicable to them.)

Hours of Employment

The normal period during which any person may be employed in a shop or office should not

exceed eight (8) hours on any one day and should not exceed forty five (45) hours in any one
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week. In effect a person may be employed for eight hours during the five week days and five

hours on the Saturday or Sunday (if these are the weekly holidays observed).

Overtime

Any work performed beyond the normal hours of work should be remunerated at the rate of 1 ½

times the normal hourly rate and a proportionate amount for less than an hour. In other words,

any person employed beyond eight hours on any full working day in a week should be paid

overtime for working in excess of eight hours on that day. Similarly if any person works in

excess of forty five hours in any one week overtime should be paid notwithstanding that he/she

may not have exceeded eight hours on any week day in that week, However, an employee cannot

be employed on overtime for more than twelve (12) hours in any one week.

Weekly

Employees who work for not less than twenty-eight (28) hours (excluding overtime and meal

intervals) in any one week must be allowed 1 ½ days paid holidays. Most establishment observe

the weekly holidays should be given. If a weekly holiday is not given in any one week an

alternative holiday must be allowed in the following week.

Statutory
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The Act entitles the minister to declare in each year a total of nine statutory holidays. Statutory

holidays must be allowed on full pay. Employment on statutory holidays is not permitted unless

with the prior permission of the Commissioner of Labour. If an employee is required to work on

a statutory holiday, an alternative holiday must be allowed before the calendar year or the

employee should be remunerated at twice the daily rate. In the case of a monthly paid employee,

the extra payment is one additional day’s pay.

Statutory Holidays Coinciding with A Weekly Holiday

Where a statutory holiday falls on what is customarily a weekly holiday or half holiday, an

alternative holiday or half holiday must be allowed as the weekly holiday or half holiday as the

case may be.

Annual Leave

In the first calendar year of employment, an employee is not entitled to utilize annual leave if

the employee is in continuous employment until the end of the first calendar year; he earns a

certain quota of leave, which can be taken in the succeeding calendar year. The quota of leave

depends on the length of service in the first calendar year, on this basis the following

proportionate leave is given to employee in the second calendar year of employment.

14 days - If employment commenced on or after 1st January and before 1st April

10 days - If employment commenced on or after 1st April and before 1st July

7 days - If employment commenced on or after 1st July and before 1st October

4 days - If employment commenced on or after 1st October

Poya Holidays
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Every employee in a shop or office should be granted a holiday on a full moon poya day. An

employee may be employed on a full moon poya day. An employee may be employed on a Full

Moon Poya Day subject however, that the period of employment does not exceed the normal

working hours and is remunerated at not less than 1 ½ times the extra payment is only additional

half days remuneration, but most employees pay the same rate as for a statutory holiday.

Where a full moon poya day falls a statutory or weekly holiday, no additional holiday need be

given to employee in lieu of the Poya Holiday.

Restriction of employment of Persons Under 18 Years of Age

The Act totally prohibits the employment of any persons who is under fourteen (14) Years of

age. Persons under 18 years of age shall not be employed in or about the business of a shop or

office before 6.00 a.m. or after 6 p.m. on any day, provided that. Any male who has attained the

age of sixteen (16) years can be employed in or about the business of a hotel, restaurant or

entertainment between 6.00 p.m. and 10.00 p.m.