Navigating Through Crisis- from a Sri Lankan Employment Law Perspective
The significance of the current standing and adequacy of the Sri Lankan employment law regime came under the microscope more particularly in relation to its role and framework in navigating through crisis periods.
More recent crisis situations faced by the island nation include:
a. The April 2019 terror attacks which dealt a heavy blow to the economy, particularly the tourism industry;
b.?This was followed by the catastrophic effects of the Covid 19 waves and consequent lockdown measures and restrictions on movement from March 2020; and more recently
c.?The economic crisis and social unrest from May 2022, with its force and effects still very much prevalent.
The plus side in not being confined by the rigidity of express statutory/regulatory provisions is the flexibility to adopt mechanisms within such wide and sometimes seamless frameworks, especially in a “backs against the wall” situation where Sri Lanka found itself, more pertinently when Covid 19 hit the nation in March 2020. Its break out in several waves and consequent lockdown measures and restrictions on movement were circumstances never experienced before.
From an employment perspective, such measures brought about the following challenges and counter mechanisms:
There was no legislative or regulatory regime or mechanism in Sri Lanka which conclusively provided for either of these circumstances. As far as legislative or regulatory framework is concerned, there still isn’t.
?Let us now consider the concept of wage reductions which were commonly applied across the mercantile sector during the height of the Covid 19 break out and associated lockdown measures. Whilst Sri Lankan law does provide for and recognize the concept of “deduction” of remuneration, it does not provide for or recognize the concept of “reduction” of remuneration. These are 2 entirely different concepts. However, reduction of wages were largely inevitable and necessary measures to ensure that businesses did not collapse and pull through during such trying times. These wage reduction measures were implemented by employers almost across the board with much success mainly on the foundation of the adoption of equitable wage reduction formulas where the reductions were computed and linked to the quantum of remuneration earned with an exempted category for lower income earners largely on the premise of implied consent of employees (i.e. with wages forming part of the terms of engagement of an employee, its variation to terms less favourable necessarily requiring employee consent).
?This was probably the first time the Sri Lankan legal regime took cognizance of the concept of “furloughing” which is in essence the placement of employees on “no-pay leave” for specified durations or until further notice. Similar spin-off concepts such as “benching” also came to the forefront especially in the context of pro-ration of work, where possible.
?During such period, a landmark Agreement was entered into between the Minister of Skills Development, Employment and Labour Relations, the Employers’ Federation of Ceylon (EFC) and several Trade Unions in terms of which an agreement was reached on the payment of wages to employees who were unable to report to work due to restrictions imposed by employers and/or authorities, such as curfew, health guidelines, restriction on using public transport, etc. The Agreement contemplated the payment of wages on a pro-rated basis. It recognized the drawing of a distinction between employees who reported to work and those that were unable to report to work due to prevalent restrictions. The Agreement also sought to encourage employers to rotate employees wherever possible giving as much opportunity as possible to its workforce to supplement their livelihood.?
?A spin off from such Agreement is the now incorporation of “Force Majeure/Frustration of Contract” provisions in Employment Contracts entitling employers to furlough employees and/or treat the employment agreement as frustrated in the face of supervening events not within the control or contemplation of the parties at the time of engagement. The actual enforceability of such provisions still remain largely untested, more particularly its viewing by Labour Tribunals in unjust termination cases where the equitable powers of the Tribunal are vested with far reaching powers to grant employees relief notwithstanding any provision to the contrary contained in any contract of service between the parties [vide Section 31B(4) of the Industrial Disputes Act No.43 of 1950, as amended.
Apart from this Tri-Partite Agreement, the other salient more recent introductions/amendments to the law are:
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The glaring reality was that despite the growing and sometimes crippling challenges faced by businesses during such crisis periods, there were no amendments or statutory or regulatory introductions aimed at easing the burden of employers. If at all, these new salient amendments and introduction only piled on the pain.
Amendments to the TEWA mandates the depositing of awarded sums by the Commissioner of Labour (“COL”) as a pre-requisite to an employer challenging Orders of the COL by way of Writ Applications to the Court of Appeal. No such pre-requisites are imposed on an employee seeking to challenge an adverse Order. Previously, the concept of retirement for private sector employees was exclusively governed by contract where the employer had the discretion whether or not to contractually provide for such retirement and if so, what the retirement age would be. As a matter of practice, the retirement age generally stood at 55 years. The law deemed it necessary to impose itself on such arrangement with the introduction of the MRAWA which made the minimum age of retirement 60 years. Prior to this, retired employees still resourceful to their employer were re-hired on fixed term contracts or consultancy arrangements post-retirement. Therefore, was it necessary to compel employers to hold onto all staff up to 60 years? What was the prudence of this Act especially in the backdrop of the prevailing financial challenges for employers as the time? Another significant drawback of the MRAWA is the blurring of the distinction between “retirement” and “termination” which are and should remain 2 separate and distinct concepts.
Given the economic turbulence of recent years, Sri Lanka now finds itself at the cross road of opportunity. Opportunity primarily founded on Sri Lanka’s conversion to a more investor driven economy. The Sri Lankan employment law regime, in its current form, more particularly the area of termination, redundancy and financial exposures on termination, is a stumbling block to the nation reaching its full potential in this regard.
From such viewpoint and context, the following are some of the key areas which warrant deep review and reform:
(a)? The role of the TEWA in redundancy situations particularly in “downsizing” or closure of businesses. The application of the TEWA is subject to the pre-requisite that the employer has had 15 or more employees on average during the 6 months preceding the making of any Application to the COL seeking approval for termination. This puts such redress mechanism under the TEWA out of the reach of smaller businesses with lesser workforce. Such entities are then compelled to either reach mutual severance with such employees who would have a stronger bargaining platform in such instances or as a last resort, take up the position of “frustration of contract” and then face exposure to claims before the Labour Tribunal [a creature of equity and natural friend to an applicant employee]. Why should such numerical qualification pre-requisite remain? What and who does it serve in having such requirement except from putting such redress mechanism out of the reach of desperate businesses?
(b)? Even in instances where the TEWA Application process is an available option, any challenges to Orders of the COL is now subject to the employer depositing the awarded sum as a pre-requisite. No such obligation is imposed on the employee. This is largely viewed as an extension of the “David Vs Goliath” notion entertained by labour forums in viewing the bargaining powers between employer and employee on negotiating terms of engagement and thereafter circumstances surrounding termination. Whilst inequality in bargaining powers may be prevalent in certain instances, this cannot or should not be adopted as a blanket norm, especially in disputes involving senior managerial staff. Surely a Managing Director or CEO would have equal bargaining power to that to the employer they managed?
In such context, perhaps the discretionary powers of Labour Tribunals to award compensation it deems just and equitable also warrant review where its unfettered powers to award compensation on just and equitable considerations is replaced by a formula-based mechanism for computation of maximum compensation, as in the case of the TEWA. If the legislature thought it fit to blur the distinction between “retirement” and “termination” [ as done in the MRAWA], why not go the whole hog in such uniformity process? Some food for thought to consider;
(c)?? Enactment of laws or regulations for “reduction” of remuneration, “furloughing”, “pro-ration of works and remuneration” in prescribed circumstances. The current laws, as it stands today, does not conclusively provide for a situation where work is not allocated to an employee at the instance of the employer and the employee is consequently deprived of wages in such circumstances as there is no construction of “earned wages” in such instance;
(d)? Regulations specific to “Work from Home”/ “WFH” arrangements.? This is particularly relevant when it comes to computation of work hours, leave and holidays. Feedback on these aspects reveal work fatigue by employees by virtue of unaccounted and continuous work hours in view of such Work from Home/WFH arrangements;
Better clarity on the law. For example, Sri Lankan employment laws do not bare distinction on categorization of employment. This would also apply in the context of applying the overtime provisions contained in the Shop and Office Employees (Regulation of Employment and Remuneration) Act No.19 of 1954, as amended and the Wages Boards set up for specified industries. However, in practice, overtime or “OT” as it is commonly referred to is not applied for executive cadre staff. If this is the case, should this not be provided for statutorily for the sake of clarity?
The workforce of Sri Lanka now faces new challenges. The prevailing economic crisis, reduction of job opportunities and hike in taxes has led to massive brain drain were qualified and capable men and women have migrated to greener pastures. Whilst this is somewhat unavoidable in the circumstances, this is now further compounded by the growing “virtual” migration of workforce more specifically for limitation of tax exposures brought about by the new tax reforms. Exemptions in the Inland Revenue Act make foreign currency paid into a bank account by an offshore entity for services rendered for the benefit derived outside Sri Lanka are tax exempt. MNC’s or business entities with offshore holding, subsidiary, associate or affiliate entities, particularly in the IT or back-office trade are moving for migration from employment in Sri Lanka to service provider/consultancy retainerships with off-shore entities. Understandably, the Sri Lankan workforce is naturally drawn to such arrangements with a view to maximize their take-home income. However, such large-scale complete migration model has the propensity to be a ticking bomb, especially in the context of grievance mechanisms where such persons would no longer have the protection conferred on “employees” by the law with nowhere to seek redress as there would be no employer within the territorial limits of Sri Lanka to proceed against.
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There are certainly more questions than answers. A new consolidated Employment Law has been mooted to address some of these more pressing concerns. Whether it provides the requisite redress or be yet another false dawn, only time will tell.