CONTRACT OF EMPLOYMENT AND UNFAIR DISMISSALS
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Contract of employment assumed that in the absence of physical restraint or other direct compulsion, parties were free not only to contract on whatever terms they wished, provided they were legal, but also assumed quite erroneously, that they contracted on equal terms
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BY
Uditha Egalahewa *
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The traditional theory of employment rested on the right to hire and fire. This theory looked at employment, as a mere contractual relation between Master and Servant which either party could terminate at will, subject to the condition of notice, in certain cases.
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So it became necessary to recognize the ever-widening gap between the formal freedom of contract and the factual inequality of the parties in many instances, thereby undermining the traditional assumption of contract. The expansion of welfare and social functions of the State have led to statutory provisions modifying or adding to contracts thereby restricting the traditional freedom of contract. New conceptions of law developed and created social and public concern in the protection from exploitation of the economically weaker members of society, the regulation of terms and conditions of contract of employment etc.
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Today the contract of employment occupies a far more unimportant place to industrial relations than it did. This is due primarily to State intervention through statutes and Labour Courts and the Collective Bargaining Agreements.
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The Common Law still completely governs the question whether a relationship of employer and employee exit between two persons1. In Wijenaike v. Air Lanka2 Kulathunga J. held that vacation of post and the duty of the employer to grant a hearing in vacation of post cases are governed by Roman Dutch Law.
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Though statutory interventions to the Common Law are too great and the Labour Tribunals are entitled to grant relief notwithstanding anything to the contrary in any contract of service3 still Courts recourse to common law principles especially with regard to disciplinary terminations and vacation of post matters.
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* L.L.M.,(Col.) L.L.M. (IMLI). State Counsel (Revised Edition)
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1 S.R.De Silva, The Contract of Employment, Monograph, No.4- (Revised Edition); 1998 page 23
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[1990] 1 Sri Lanka Law report 293
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Are Written Contracts Necessary?
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Generally a contract can be formed either in writing or verbally and the terms can be either implied or expressed. There is no general requirement of law that a contract of employment must be reduced to writing. It is obvious, however, that a written contract of employment enjoys the advantage of easier ascertainment of the terms and conditions of employment. Where there is no written contract of employment, the terms and conditions of employment would need to be spelt out, where applicable, from: -
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(a) Statutory provisions;
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(a) Collective agreements of awards of labour courts;
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(a) Customs or usage and practice in the work place.
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However, the exception is provided under the Shop and Office Employees Act, Section 17 of which requires an employer to furnish an employee on the date of his employment with such particulars relating to the conditions of his employment as may be prescribed. The prescribed information is given in the Regulations of 1954.
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Effects of Collective Agreements, Court Orders, Industrial Awards and Statutes on Contracts.
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Whatever may the terms and conditions of employment agreed upon between parties and incorporated in the contract of employment, they are all subject where applicable, to the provisions of collective agreements, awards of labour courts as well as statutory provisions.
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The terms and conditions in a collective agreement between the employer and the workman's Trade Union, will become the implied terms of employment of the members of such Trade Union. Similarly any award by an Industrial Court or any other Tribunal will become terms and conditions of employment of workmen who are parties to the dispute on which the award was made. The provisions in Statutes will supersede the terms and conditions in any contract of employment.
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No employer could impose any condition contravening a statutory provision, even if the workman agrees to such an inclusion. The minimum standards laid down by law cannot be ignored by any employer. Therefore, very little that a contract of employment entered into between a workman and an employer could decide on their own.
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3 Industrial Dispute Act - Section 31 B (4)
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A termination may take the form of a discharge or dismissal. A discharge is a termination in terms of the contract of service. Discharge may take several forms.
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(i) Termination with notice or with payment in lieu of notice.
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(ii) Termination in accordance with the probation clause.
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Termination with notice or with payment in lieu of notice.
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The right to terminate the contract by either party with notice or with payment in lieu of notice is a condition that can be found in almost every contract of employment. The right of the employer to terminate in terms of conditions of the contract has been interfered with by statues. Services of an employee cannot be terminated except for disciplinary grounds without attracting the provisions of Termination of Employment (Special Provision) Act No.45 of 1971 as amended. The employer is required to obtain permission from the Commissioner of Labour in the case of non-disciplinary terminations. It should be noted that the provisions of the above Act are not applicable to employees of corporations and statutory bodies. However, employees of corporations and Statutory Bodies are entitled to seek redress from the Labour Tribunal in terms of Section 31B, as the Labour Tribunal is entitled to grant relief upon applications made on termination of employment by the employer, notwithstanding anything to the contrary in any contract of service. Thus, unilaterally the employer is not entitled to terminate even in terms of the contract of employment.
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The right of the employee to terminate the contract with notice or with payment in lieu of notice, however remains unaffected. Generally, the termination of this nature is known as resignation. On the question whether the resignation should be accepted has caused much confusion in the minds of many. The reason for this confusion is the difference between the terms of employment of Public Servants and the employees of the private sector including corporation employees. The contract of employment requires only notice to terminate the contract and there is no requirement that either party should accept the notice in order to terminate the contract. In Decro - Well International S.A. v. Practitioners in Marketing Ltd. 4
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" A repudiation and a notice of determination are clearly different things. A repudiation may be withdrawn at any time before acceptance, a notice of determination validly given cannot thereafter be withdrawn without agreement".
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4 [1971], WLR 361 (CA) Buckley L.J,
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In Lever Brothers (Ceylon) Ltd. v. Tissa Devendra5. Ananda Coomaraswamy J. following Decro - Wall International case rejected the contention that notice of termination should be accepted. It was held:
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" If the employer's contention is that the notice of termination had not been accepted by the applicant, any employee can continue to be in service indefinitely by refusing to accept the notice."
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It is fundamental to a contract of employment that an employee cannot be compelled to specifically perform his contract of employment if he wishes to terminate the same. This question often arises when the employer is about to terminate the employment on disciplinary grounds and the employee tenders notice of termination.
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The correct position would be that if notice of termination tendered validly before the dismissal, the employer cannot thereafter proceed to dismiss the employee.
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The rights of a Public Servant are quite different from those of an employer in the private sectors. In terms of Article 55 of the Constitution, "all public officers shall hold office at pleasure". The Establishment Code, which has been formulated in terms of the powers vested in the Cabinet of Ministers (Article 55(4)), requires that the resignation need to be accepted. The legal position of a Public Officer has been analyzed in Abeywickrama v. Pathirana.6 Unfortunately this is often cited as an authority even with regard to the issue relating to private sector employees.
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In Wijenaike v. Air Lanka and others7 Kulathunga J. held -
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" In India and Sri Lanka public officers enjoy a status and the rights and liabilities of their employment arise from constitutional or statutory provisions. Their relationship with the State goes beyond contract."
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It is very common for employers to include a 'probationary clause' in all contracts of employment or letters of appointment they issue to their employees. A "probationer" is a person who is on trial; one who is qualifying or giving proof of qualification for some position or office, a candidate, novice.
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Venkata Ramaiya J. has identified the following characteristics of a probationer in employment in the Indian Case of Venkatachariya v. Mysoor Sugar Company .
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5 CA 1192/88 CAM 14th June, 1989
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7[19901 1 Sri Lanka Law Report 293
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"Obviously a probationer is not in the same position as others in service. He is in a state of suspense attended with uncertainty of an inchoate arrangement. Prima facie his rights and claims against the employer are less than those of others..."
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In Ceylon Trading Co. Ltd. v. the United Tea, Rubber and Local Produce Workers Union9 Siva Selliah J. while quoting the above definition in Venkatachariya Case, makes the following observations:
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" Probation is a period of testing and it is of the essence of the probate that the employer must be satisfied with the probationer during such period of testing not merely regarding competence, but character, co-operation, usefulness in the set up of the employer".
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The view expressed in Venkatachariya Case has been repeatedly quoted and followed by our Courts in the past in some of the leading Judgements discussing the question of probation. The position of the probationer was discussed fully in Richard Peiris v. Jayatunga10 by the Court of Appeal for the first time. In this case the Court discussed the two Indian cases, Venkatachariya v. Mysoor Sugar Co. and Caltex Indian Ltd. v. Second Industrial Tribunal11.
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The next case that came up for review is Moosaji Ltd. v. Rasaiah12 decided in 1985. In this case the previous case of Richard Peiris was cited with approval and added the following new principles: -
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(i) Probationer has no right to be confirmed
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(ii) Employer is not bound to give reasons
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(iii) Probationer must serve to the satisfaction of the employer
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(iv) Employer is the sole judge on the question whether the service is satisfactory or not
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(v) Tribunal cannot sit in judgement over the decision of the employer
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(vi) Tribunal can inquire into the question of termination only for the purpose of ascertaining whether employer acted mala-fide or with ulterior motives or victimization.
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Following are some of the important cases decided after the Richard Peiris and the Moosaji cases without deviating much from the aforementioned principles: -
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11HC Calcutta 1963 1 LLJ 156.
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(i) Ceylon Ceramics Corp. v. Premadasa
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(ii) Sri Lanka Cement Corp. v. Fernando
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In this case Section 31B(4) of the Industrial Disputes Act which provides for the L.T. to make a just and equitable order not with standing anything contrary in any contract of service, was considered
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(iii) Shafeeudeen v, Sri Lanka State Plantation Corp.15 In this case the Supreme Court emphasized the need for the LT to inquire whether the termination has been effected in the bona fide exercise of its powers under the contract, whether the termination is male fide, capricious, or unreasonable, whether it is with ulterior motives. The decision must be just and equitable but at the same time employer's contractual right should also be recognized. In this case Section 31B(4) and definition of the term "workman" in the Industrial Disputes Act was considered.
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(iv) S.W.R.D.Bandaranaike Memorial Foundation v. Perera. 16
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• (v) Sri Lanka Cashew Corp. v. Thigarajah.17
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(vi) United Tea Rubber & Local Produce Workers Union v. Ceylon Trading Co.18
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(vii) Swarnalatha Ginige v. University of Sri Lanka
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(viii) Parakrama v. Bank of Ceylon
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(ix) Liyanage v. R.C.D.C.2l
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(x) C.M.U. v. Ceylon Cold Stores Ltd22. - Probationers can join Trade Unions and have the right even to strike.
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Sometimes the employers place, confirmed workman again on a further probationary period when promoting or appointing the workman for another higher post. The imposition of second probationary period was considered by the Court of Appeal in Haleys Ltd. v. United Tea Rubber Labour Association23 and it was held that the applicant
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17 CA 450/84 and 459/84 decided on 18-5-1994.
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18 CA 253/82 decided on 9-6-1986
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19 [1994] BASL Journal Vol. V Part II Page 5
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20SC [1995] l Sri.L.R. 115
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had been in service for a period of 13 years prior to the General Strike. He had already served satisfactorily and there was no complaint by his employer as regards his efficiency and therefore it was improper to have placed him on probation again. However the Supreme Court in Liyanage's case held that when the workman accepted the new probationary employment by signing the appointment letter containing the probation clause, when absorbed to the service of the employer, he should be considered a probationer.
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All authorities are agreed that a probationer has no right to automatic confirmation. Our courts have consistently accepted a probationer's disability to get automatic confirmation. The only exception would be when there is a stipulation to the contrary in the contract of employment. In Hettiarachchi v. Vidyalankara University24 it was held that the probationer cannot claim automatic confirmation on the expiry of the period of probation, unless the letter of appointment provides for such automatic confirmation.
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The Supreme Court in the State Distilleries Corp. v. Jackson Rupasinghe25 while confirming the several principles laid down in the previous cases interpreted these principles giving a shadow of hope to the probationer. In this case workman had been on 3 years probation and was neither confirmed nor extended thereafter. He was terminated about 1 1/2 years after the expiration of the 3 years probation period. It was argued that despite the original probationary period having lapsed long before, the applicant was still on probation and that he could be terminated. The Court considered the principle of implied extension and several other principles laid down in the cases coming down from Richard Peiris's case and the following clarifications were made: -
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(i) The rule in Hettiarachchi's case with regard to implied extension was not an inflexible rule and would not necessarily apply when there is a long lapse or when it is inconsistent with the terms of the contract.
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(ii) If the employer is bona fide not satisfied with the work and conduct of the probationer (or perhaps even if he entertains a genuine doubt or suspicion) he can dismiss the probationer or extend the probation period.
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(iii) If the employer is in fact satisfied with the work and conduct of the probationer (or if his opinion to the contrary is vitiated by mala fides in the wide sense) he cannot dismiss the probationer.
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(iv) In the two cases, Richard Peiris and Moosaji the view was taken that there is no requirement under the law that an employee should be forewarned orally or in writing so that he may adjust himself to the requirements of his service. This was no more than obiter. This view is inconsistent with the concept of probation as being a period of trial, at the end of which the employer must judge the performance of the probationer, there can be no proper 'trial' of a probationer
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unless the employer has given him (except in regard to obvious matters) adequate information and instructions both as to what is expected of him, and as to his shortcomings and how to overcome them. It would hardly be just and equitable for an employer to say that an employee has not proved himself, by relying on his failure to fulfill undisclosed expectations or to remedy uncommunicated deficiencies.
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(v) The decision in Hettiarachchi's case that there was an automatic renewal (or to say that there was no automatic confirmation) of probation is inconsistent with the concept of probation which implies that - at least in inquiry - a probationer would have a legitimate expectation of confirmation if his work and conduct was to the satisfaction of the employer. If at the end of the probationary period, he has proved himself satisfactorily in his performance the employee should be confirmed as otherwise it would be contrary to all notions of justice, equity and fairness between employer and employee. Of course, the position may be different if there are other extraneous circumstances, such as financial incapacity. If an employee has manifestly proved himself during his probationary period having regard to the purpose of probation, dismissal in the absence of exceptional circumstances would be mala fide, likewise in such a situation an express extension of probation (in lieu of dismissal) would be neither just nor equitable, for if the employee has already proved himself, an extension would not be proper and therefore it must follow that an extension cannot be implied.
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(vi) The purpose of an extension will not be achieved if the employee has not been made aware of what is expected of him and of his deficiencies, where the employer has not expressly alleged, and the circumstances do not suggest, a need for further 'testing', a presumption of renewals is not justified.
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(vii) If the employee had been made aware of his deficiencies and faults but without avail, the circumstances would justify an inference that the employer was not satisfied, and it would be just and equitable to infer a renewal - but not for a indefinitely long period.
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Either party could retract the right by agreement. (Therefore, the wording of the probationary clause is very important as a contract may confer on the employee a right to be confirmed after the stipulated probationary period).
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Elsteel Ltd. v. V.W.Jayasena26 gives an example of a badly worded probationary clause. In this case the probationary clause was silent on the question whether the period could be extended after the initial period. Therefore, Court held the employee stand confirmed, if not terminated after the stipulated period. It was also held that when reasons were assigned for termination even for a probationer, the employer was bound to prove them and probationary clause was of no use.
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26S.C.Appeal No.20/88 decided on 6.4.1990
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In Independent Industrial and Commercial Employees Union v. Board of Directors of CWE27 it was held that retirement is a termination by the employer and thus a workman is entitled to make an application in terms of Section 31B of the Industrial Dispute Act complaining of unjust retirement. The question that often arise is whether a workman has the right to continue till 60 years or should he be retired at the age of 55 years.
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In Sri Lanka, there is no law governing the age of retirement. In the absence of a statutory provision, the courts first recourse to the letter of appointment and if the letter of appointment is silent, the only other option would be the evidence of past practice. In the Government sector, including Corporations and statutory bodies, retirement age is governed by various circulars issued by the Cabinet of Ministers from time to time.
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In Gomes v. Sri Lanka State Trading Corporation and another28 the applicant was employed as an English Stenographer in the Cooperative Wholesale Establishment from 03-03-1952. The Textile Department of CWE was converted into Lanka Salusala Ltd. in 1967 and the applicant was offered employment on the same terms and conditions and without a break in service. Thereafter, through State Trading Corporations Act No.33 of 1970, Lanka Salusala Ltd. was converted into the Respondent Corporation. Since 1970, the Government policy had been to retire all employees at the age of 55 years. However, it was contended on behalf of the applicant that she had a reasonable expectation of working until she completed 60 years, as the retiring age at CWE was 60 years. Whilst accepting the principle of reasonable expectation, Wimalaratne J. distinguished Kulatunga v. The Board of Directors of the CWE29 and held that the letter of appointment did not stipulate the retiring age and the applicant had failed to prove when the practice of retirement at the age of 60 years was introduced to CWE. Thus the principle that whether the workman had a reasonable expectation to continue till 60 years was upheld.30
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Today, there is a tendency for the employees of Corporations and statutory bodies to invoke the fundamental rights jurisdiction of the Supreme Court in cases of dismissals and retirements. It should be noted that the criteria adopted in the Supreme Court cannot be applied to applications made to the Labour Tribunals. However, certain principles evolving out of fundamental rights decisions specially with regard to mala fides and inequality in treatment may be relevant. In the recent case of Suranganie Marapona v. Bank of Ceylon31 the Court held that the Board failed to show the Court that valid reasons did exist for the refusal to grant the extension and the refusal to grant the extension of services was arbitrary, capricious, unreasonable and unfair.
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It should be noted that the Courts now look for the reasons for refusal in extension cases and have held that discretion has to be exercised fairly and reasonably.
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29 S.C. 7/81 SCM 3.10.1981
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30 See RVDB v.All Ceylon RVDB and State Corporation General Employees Union SC Appeal 39/83 SCM 30.51984
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31 [1997] 3 Sri L.R. 156.
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Disciplinary Terminations
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The concept of misconduct on the part of the employee arises out of the terms and conditions of the contract of employment and is intimately connected with the nature of relationship of master and servant. Sleeping whilst on duty by a clerk may not be serious as the same act done by a security guard. Therefore, the relationship and the nature of the employment plays a vital role and the gravity of misconduct has to be viewed only according to the particular circumstances. The dismissal is the capital punishment in Labour Law and for all misconduct the punishment should not be the dismissal.
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The Misconduct has been defined as -
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"An act which is inconsistent with the fulfillment of express or implied conditions of service or which has a material bearing on the smooth and efficient working of the concern."32
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The Court of Appeal in Engineering Employees Union v. State Engineering Corporation33 enumerated the following guidelines to ascertain whether any act or omission by an employee is reprehensible and subversive of discipline
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(i) It must be inconsistent with the fulfillment of an express or implied condition of service
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(ii) It must be directly linked with the general relationship of employee and employer
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(iii) It must have a direct connection with the contentment and comfort of the men and work
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(iv) It must have a material bearing on the smooth and efficient working of the concern.
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There are numerous decisions of Appellate Courts as to what is misconduct and what is not misconduct. A discussion on the variety of misconduct itself is a study of its own and at this stage what is important is to understand the basic principles as to what constitute misconduct. However, there are instances where the refusal by workmen to carry out orders of the employer have been held to be not insubordination and thus not a misconduct. In Winter Quilts (Pvt.) Ltd. v. D.J.Wansapura and others,34 fifteen sewing girls of a garment factory refused to work after reporting for duty because the management had not paid overtime to one of their colleagues who could not meet the production target. This was not Trade Union action and neither amounted to a "strike" within the statutory definition. The Court held that every protest against working conditions and/or insufficiency of wages or remuneration and in particular about overtime payment cannot be treated as acts of insubordination. The Court further held
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32 All Ceylon Oil Companies Workers Union v. Standard Vacuum Oil CI.ID 237 CGG 12034 8.1.60
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34 CA 653 185, CAM 10.3.87
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"In the light of general employer-employee relationship and trends in industrial disputes resolution it may not be possible to append to the acts by these workers the appellations insubordination ".
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Thus, non-compliance with an order is not always insubordination and dismissal on such ground may be held unjustifiable. For instance, an employee need not comply with an unjust and malicious transfer.35
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In Nandasena v. Uva Regional Transport Board where an employee upon being found guilty of certain charges was imposed the punishment of deprivation of half-pay for the period of interdiction and the transfer to another station, Fernando J. held;
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"Even if the Appellant was guilty of failing to reveal the correct facts in relation to the incident in connection with which he was facing charges, I am inclined to the view that the two punishments imposed were unreasonable and disproportionate to the offence ... That part, the* deprivation of nine months salary as well as a punishment transfer is patently excessive".
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In this case too, the Supreme Court held that an employee has every right to protest and not comply with an unjust transfer.
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The contract of employment between an employer and an employee comes to an end where the services of the employee is terminated. Such a termination can take place either directly or indirectly. Indirect termination of employment is known as constructive termination. Whether there is a constructive termination or not depends on the conduct of the employer as well as the facts and circumstances of each case. Some times long periods of interdiction without an inquiry have been held to be constructive termination.37 If the employer brings about a situation where it becomes embarrassing or humiliating for the employee to work any longer, that too has been held to be constructive termination. 38 In Pfizer Ltd. v. Rasonayagam38 it was held that the order of the employer to the workman to report to a junior officer is tantamount to a demotion in the absence of a lawful explanation for such order, and that there had been a constructive termination.
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"Demotion or Reduction in Rank" is sometimes held to be constructive termination of employment. Unless expressly provided for in a contract of employment or other agreement the employer has no right to demote an employee, as a punishment or otherwise.39 The constructive termination becomes evident when the demotion is
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35 Ceylon Estates Staffs' Union v. The Superintendent, Meddecombra Estate 73 NLR 278 at 287
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36 SC Appeal 59/92 SCM 29th January, 1993
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37 Thaksala Weavers v. Perera SC SP LA 90/93 - SCM 14.7.93
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39 SR.de Silva, Law of Dismissal, monograph 8 para 215
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combined With reduction of salary. The principle is that employer is not entitled to vary the terms of contract of employment unilaterally.
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The conduct on the part of the employer, most of the time, provides evidence of constructive termination. For instance, repeated transfers of an employee from one geographical locality to another in circumstances which makes it impossible for the employee to comply would, even where an express right of transfer exists, amount to a mala fide exercise of that power, and thus to a constructive dismissal of the employee.40
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Vacation of Post Amounting to Unfair Dismissal
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It is common for the employers to treat the workmen who have been absent without leave or authority as having vacated their posts. This procedure is totally erroneous and contrary to law. In Nelson de Silva v. Sri Lanka State Engineering Corporation41 which referred to Re Durand - (No.20) Judgement No.392 of the Administrative Tribunal of International Labour Organization and held that the concept of vacation of post involves two aspects. One is the mental element, that is the intention to desert and abandon the employment. The second is the physical absence from the place of work.
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Justice Kulatunga in a Fundamental Right application before the Supreme Court Wijenayake v. -Air Lanka42 referred to the same principle and emphasized that physical absence alone is insufficient and that the party seeking to establish a vacation of post must prove that the physical absence co-existed with mental intent - "animus non revertendi".
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In Wijenayake's case, the court established another important principle. That is the recognition of employees right to give his explanation for the absence before a final decision is taken. This right was traced back to Roman Dutch Law, which is now reflected even in the Establishment Code.
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40 S.R. de Silva, The Contract of Employment, Monograph No.4, Revised Ed: 1998 para 280
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