Updated: May 10
By Tyronne Weerackody Attorney at Law, Solicitor (Eng. & Wales)
As a result of the present pandemic having a global effect, many companies globally have taken drastic measures including layoffs and pay cuts.
In Sri Lanka too, companies are contemplating such action in order to keep the business afloat.
There are numerous Acts, Gazettes, legislation that affects the current situation; following are some main Acts that will directly have impact in the current situation.
1. Termination of Employment of Workers (Special Provisions) Act No: 45 of 1971 as amended.
An employer should follow the provisions of this act when terminating the services of an employee for non-disciplinary reasons.
As per the said act;
No employer shall terminate the scheduled employment of any workman Without-
the prior consent in writing of the workman; or
the prior written approval of the Commissioner
For the purposes of this Act, the scheduled employment of any workman shall be deemed to be terminated by his employer if for any reason whatsoever, otherwise than by reason of a punishment imposed by way of disciplinary action, the services of such workman in such employment are -terminated by his employer, and such termination shall be deemed to include
non-employment of the workman in such employment by his employer, whether temporarily or permanently, or
non-employment of the workman in such employment in consequence of the closure by his employer of any trade, industry or business.
However, this Act does not apply to;
to an employer by whom less than fifteen workmen on an average have been employed during the period of six months preceding the month in which the employer seeks to terminate the employment of a workman; or
to the termination of employment of any workman who has been employed by an employer a period of less than one hundred and eighty days
2. Shop and Office employees’ (Regulation of Employment and Remuneration) Act.
In Part II of the said Act, under Payment of Remuneration, it is specifically mentioned that all remuneration should be paid without any deductions other than an “authorized deduction” made with the consent of the employee.
However, the aggregate of the deductions made at any one time shall not exceed sixty per centum of the remuneration due.
The permitted “authorized deductions” are defined in the Act. This does not include deductions of salary as a Pay-Cut in the current circumstances.
3. Employees Provident Fund (Special Provisions) Act.
An employee’s remuneration or the salary has been defined in Sec. 47 of this Act as “earnings”.
wages, salary or fees;
cost of living allowance, special living allowance and other similar allowances ;
payment in respect of holidays ;
the cash value of any cooked or uncooked food provided by the employer to employees in prescribed employments and any such commodity used in the preparation or composition of any food as is so provided, such value being assessed by the employer subject to an appeal to the Commissioner whose decision on such appeal shall be final;
meal allowance ; and
such other forms of remuneration as may be prescribed
3. Industrial Disputes Act.
When a termination of services of a workman occurs, a workman or a trade union on behalf of a workman who is a member of that union, may make an application in writing to labor for relief or redress in respect of the said termination of his services by his employer.
Available options to the Employer
Under the present context, some companies could see the following as options available to them;
Termination of employment
Pay cuts, salary deductions
Termination of employment
When reading some contracts of employment, we see there are clauses to the effect that either party could give the other notice of termination or in the alternative make payment in lieu of such notice and terminate the contract of employment.
Some employers might see this as a way out for the present crisis and try to implement the said clause and bring an end to the contract of employment.
But such clauses have no legal effect in Sri Lanka as individuals cannot enter into agreements that will nullify the general laws of the country.
As stated above, the only way a contract of employment could be terminated for reasons other than disciplinary action is as stipulated in Termination of Employment of Workers (Special Provisions) Act No: 45 of 1971.
Pay cuts, salary deductions
As per the provisions of the above mentioned Shop and Office employees’ (Regulation of Employment and Remuneration) Act, the employer is not permitted to make any unilateral salary deductions and/or do any pay cuts considering the present global crisis.
The only deductions that are permitted are the authorized deductions made with the consent of the employee.
In the event an employer makes any such deduction from the salary outside the authorized deductions, the Commissioner of Labor is empowered to intervene under the provisions of the Shop and Office Act and recover the said unpaid or deducted salary.
Possible temporary remedies that could be considered by Employers
Pay cuts, salary deductions
Even though the employer is permitted to do only authorized deductions, if the employer could convince the employee to accept a reduced salary considering the present crisis, the said reduced salary or the pay cut would be considered just, even though it falls outside the definition of the “authorized deductions”.
When making such suggestions to the employees, the employer could also express his intention to pay the deducted amounts at a later stage when the company is stable.
When arriving at such consensus, it is always advisable to consider the individual monthly remuneration and propose higher percentage to be deducted from high earners and a lower percentage to be deducted from low income earners.
In a situation where the employees agree for a pay reduction, EPF & ETF should be paid on the said reduced salary.
However, the employer should ensure that the minimum wage plus the two Budgetary Relief Allowances (Rs. 14,500/-) is paid to the Employees and if not he will be exposed to unnecessary legal implications.
In such situation it is advisable to propose a specific period for such deductions and also to obtain the written consent from each employee accepting the said deductions.
Non-payment of Allowances or other similar payments
The employer also could consider non-payment of allowances and other such payments that do not fall within the definition of “earnings” for a specific period of time. In particular, the employer is entitled to discontinue any “incentive” scheme (i.e., attendance incentive, production incentive, etc.).
Non-payment of bonus
As the payment of bonus is at the discretion of the employer, the employer could stop making such payment until such time the company becomes stable.
Temporary non-employment of workers
Depending on individual circumstances, an employer could obtain a direction from the Commissioner of Labor for a temporary non-employment of workers.
When such an application is made by an employer, the Commissioner of Labor will consider all aspects including the effect of the present crisis to the employer, type of industry involved, number of employees involved etc.
In the event the Commissioner is of the view that the said application for temporary non-employment of workers if reasonable, he could permit the employer to refrain from employing the workers for a specific period of time.
However, when granting such permission, the Commissioner could;
Direct the employer to pay a percentage of salary to the employees for the said period non-employment;
Specify the number of employees that should not be employed;
Specify the period of non-employment; and
Specify such other terms and conditions that the Commissioner may think fit.
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