A Critique of the Industrial Law of Sri Lanka in the Context of Foreign Investment.

A Critique of the Industrial Law of Sri Lanka in the Context of Foreign Investment.

Article of Industrial Law of Sri Lanka in the Context of Foreign Investment

Arulanantham Sarveswaran

LL.B (Hons), Attorney-at-Law Lecturer in Law, University of Colombo

This article is awarded the Gold Medal in the category of Industrial Law in the Millennium Legal Writing Competition for Juniors conducted by the Bar Association law Journal with the assistance of the Legal and Judicial Reforms Project of the Ministry of Justice.

A departure in the investment pattern of Sri Lanka A came in the post 1977 period with the enactment of Greater Colombo Economic Commission Law.1 This Law was enacted to establish and manage Export Processing Zones known as Free Trade Zones within the Republic of Sri Lanka. By this Law, the Greater Colombo Economic Commission was established with the object of inter alia promoting foreign investment within the Republic.2 Later, by amending the Greater Colombo Economic Commission Law,3 the Greater Colombo Economic Commission was named as ‘Board of Investment of Sri Lanka.’

The primary objective of establishing EPZs4 in Sri Lanka is to generate employment for the increasing workforce.5 Therefore, the successive governments are concerned in creating investment climate that is more attractive for foreign investment.6

Foreign investment is described as an investment of foreign capital by foreign individuals or foreign companies. Sornarajah stated that “Foreign investment involves the transfer of tangible or intangible assets from one country into another for the purpose of use in that country to generate wealth under the total or partial control of the owner of the assets.”7 In the globalisation process, the foreign investment is interwoven with the national economy of most of the developing countries including Sri Lanka.8 The industrial law of a country is also a factor which is considered by the investors, specially the foreign investors.

The Sri Lankan industrial law consists of inter alia about forty labour statutes, regulations gazetted under the labour statutes, decisions made by the Labour Courts9 and the Appellate Courts, collective agreements, and the writings of recognised authors in industrial law.

Therefore, the industrial law of Sri Lanka is a complicated web to those who are in the managerial positions unless they have special knowledge in industrial law. Since managing the labour force is also an integral part of foreign investment, labour laws, amendments and the regulations that are scattered and which deal with various aspects of employment should be codified an consolidated to provide easy access to the managers.10

The labour legislation of this country is equally applied to the industries that come under the BOI” and no power has been granted to the Board to enter into an agreement to exempt or modify or vary the provisions of labour legislation.12 But it is interesting to note that even though the post 1977 policy of the successive governments has been attracting more foreign investment, the labour legislation of the country has been applied without any change in the context of foreign investment.13

In Sri Lanka, the State intervention to protect the interests of the workers who do not have equal bargaining power with the employers has resulted in the enactment of large number of labour statutes. The question does arise whether the labour legislation is over protective of employees and weigh heavily in favour of them. If so, it will have an adverse impact on creating a conducive environment for foreign investment in Sri Lanka. Hence, the objective of this paper is, to analyse the industrial law of Sri Lanka in the context of foreign investment from employees perspective and investors perspective.

Although, there are a number of labour statutes to protect the interests of the workers, still, some of them require amendments in the context of foreign investment. The Workmen Compensation Ordinance’4 provides for the payment of compensation to workmen for personal injury caused by accident arising out of and in the course of employment15 or for occupational diseases mentioned in Schedule lll16 or for the disease which is reasonably attributable to the nature of the workman’s employment.17 In discussing the diseases attributable to the nature of the workman’s employment, H.J.F.Silva observed that “…it refers to the nature of employment and not occupation. As term ’employment’ is wider in scope than the term ‘occupation’, workmen will now be able to claim compensation in respect of diseases arising out of their work environment.”18 He further stated that “In the United States and Western Countries attempts are made to give a wide interpretation to the word ‘disease’ to include even cases such as repetitive stress injuries,19 caused by repetitive body motions or workplace furniture poorly designed without regard to ergonomics.”20 Hence, it is emphasised that since with the inflow of foreign investment, modern technology as well as various types of chemicals pervades into the industrial sector, the clause ‘diseases attributable to the nature of the workman’s employment’ should be interpreted liberally by the judiciary to compensate the workmen.21

As to payment of compensation under the Workmen’s Compensation Ordinance, it is also suggested that the schedule22 which deals with the amount of compensation payable in certain cases should also be amended from time to time.

As to payment of gratuity, the Payment of Gratuity Act23 is applicable to the employer who employs fifteen or more workmen24 and in respect of the employer who employs less than fifteen workmen, the workmen has to make an application to the Labour Tribunal25 for gratuity. It is suggested that the Payment of Gratuity Act should be amended to make it applicable even to the employer who employs only one workman. As to the contribution of the employer to the employees’ provident fund, the employers should be induced to enhance their contribution.

The Factories Ordinance26 shall also be amended from time to time in accordance with the changes in the technology and the substances used in the factory to ensure the safety, health and welfare of the workers. In Consumer Education and Research Centre v Union of India27 Ramaswamy.J stated that “The right to health to a worker is an integral facet of meaningful right to life to have not only a meaningful existence but also robust health and vigour without which worker would lead a life of misery.”28 The evolution of the right to health of the workman as a part of his human right and the pervasion of modern technology and the various types of chemical substances with the foreign investment require the intervention of the State to ensure the safety, health and welfare of workers.

The brochure on Labour Standards and Relations issued by the BOI, prescribes the conditions subject to which the female workers could be employed on night shift.29 If these conditions are strictly adhered to, the employment of female workers on night shift will not have deleterious effects. The absolute prohibition of night work for the female workers may be a discrimination against them and may affect their chances of employment by discouraging the foreign investors. Therefore, in the context of foreign investment what is required is regularised night work for the female workers.

Even though, the Sri Lankan legal system is enriched with labour legislation to protect the interests of the employees, there is hardly any legislation to protect the interests of the employers who are the investors. Hence, the existing labour statutes have to be amended to protect the interests of the investors, specially the foreign investors. If not, they will not have a conducive environment for investment.

The settlement of industrial disputes is essential for the maintenance of harmonious industrial relations which is sine qua non to attract the investors specially the foreign investors. The mechanism provided by the Industrial Disputes Act30 for the settlement of industrial disputes consists of collective agreement, conciliation, arbitration and settlement by Industrial Court and Labour Tribunal.

Settlement of industrial disputes by collective bargaining or conciliation is more appreciable than other methods of settlement since these methods are inexpensive, not time consuming and the terms are decided not by a third party but by the parties of an industrial dispute. To achieve this objective, the BOI has set up an Industrial Relations Department.31

In settlement by an Arbitrator or an Industrial Court or a Labour Tribunal, after conducting inquiries and hearing evidence, just and equitable award32 or just and equitable order33 is made. When the Labour Courts make just and equitable decisions they cannot treat the employees from a position of advantage.34 In Hatton National Bank v Perera, G.P.S.De Silva, Cj stated that the just and equitable order made by the Labour Tribunal must be fair and just by both parties.’5 Hence, when the Labour Courts make just and equitable decisions they have to consider the interests of the investors as well. The brochure36 requires the investors to provide a written contract of employment embodying the terms and conditions of employment.37 However, the Labour Courts are not fettered by the terms of the contract of employment in making just and equitable decisions.38

Since delay defeats equity, the unreasonable delay in the final disposal of a case may render the ‘just and equitable’ settlement as an ‘unjust and inequitable’ settlement to the parties.34 The Industrial Disputes Act

amended by the Industrial Disputes Amendment Act No 32 of 1990 provides time limits for the final disposal of cases by a Labour Tribunal,40 High Court,41 Court of Appeal,42 and the Supreme Court.43 However, these time constraints are considered as directory but not mandatory.44 Hence, appropriate measures including increasing the number of Labour Tribunals and the support staff shall be considered for the speedy disposal of labour cases, specially the cases for the termination of services. The establishment of Industrial Appellate Courts to hear the appeals from the Labour Courts also may contribute for the speedy disposal of labour cases. The introduction of mandatory disciplinary inquiry for disciplinary termination of employment also may contribute for the decrease of labour cases or the speedy disposal of labour cases.

An employer who appeals to the High Court against an order of a Labour Tribunal or makes an application for revision against any such order45 or makes an application for the issue of a writ against the President of a Labour Tribunal in respect of an order made by such President46 has to furnish to such Labour Tribunal, security in cash calculated in accordance with the provisions of the Act.47 This mandatory requirement imposes an unreasonable burden on the employer who wishes to question the legality of the just and equitable order made by the Labour Tribunal on appeal in the Appellate Court. When the Appellate Court decides in favour of the employer, the employer will receive the deposited money with mere bank interest. Since the time constraints for the final disposal of a case is not mandatory, when a case is decided after a long period of time, it becomes a monetary loss to the employer, even though he is successful in his appeal. An employer who terminates hundreds of employees and questions the order of the Tribunal may find it difficult to carry on his business after depositing the security in millions of rupees with the Tribunal. Hence, this requirement imposes an unreasonable burden on the employers who invest their capital and generate employment. It affects the local investors and the foreign investors as well.

Payment of compensation for termination of employment of workmen is one of the important matters that require the attention of the policy makers. The Industrial Disputes Act48 and the Termination of Employment of Workmen (Special Provisions) Act49 which deal with awarding compensation for termination of employment do not prescribe any guide lines as to the calculation of compensation or the maximum limit of compensation that may be awarded. As to the calculation of compensation or the factors that have to be taken into consideration, in assessing the amount of compensation, the principles evolved from judicial decisions provide satisfactory guide lines.50 But it is submitted that when the compensation payable is assessed according to the principles evolved from

judicial decisions, sometimes, the compensation payable may exceed even the wages of ten years. The payment of compensation calculated in accordance with the excessive number of years of service may be unjust and inequitable to the employer. Hence, it is desirable, if the legislature intervenes to prescribe the maximum limit of compensation that may be awarded for termination of employment.51 In Sri Lanka Cement Corporation v Rajes Pereira52 S.N.Silva.J observed that “it would be most useful to Labour Tribunals and the Appellate Courts if the maximum that may be awarded as compensation is laid down by statute in relation to easily discernible criteria such as years of service and monthly salary.”53

The Industrial Disputes Act provides guidelines as to payment of compensation as an alternative to reinstatement54 or in lieu of compensation.55 Even though the workman has an option for compensation in lieu of reinstatement56 an employer does not have any such option57 and he has to depend on the discretion of the Labour Courts to pay compensation as an alternative to reinstatement. If the Act is amended and the option is provided to the employer too, he can get rid of the employees on whom the employer has lost confidence by paying compensation in lieu of reinstatement.

The method of calculation of wages to the workmen is based on time-rate which does not encourage the workmen for optimum out put.58 The wage system which is devised to encourage the workmen for their optimum output will attract the foreign investors. Therefore, it is suggested that the method of calculation of wages shall be the combination of time-rated minimum fixed wages and the merit-rated wages based on the output.

The employees are entitled for holidays apart from weekly holidays, casual leave, annual leave, maternity leave for female employees and some times sick leave in some industries. In comparison with other countries that compete with our country in attracting foreign investment, in our country the number of holidays are very high. Hence, the number of holidays in Sri Lanka is another factor that requires the re-consideration of it in respect of removal of some holidays and the rationalisation of holidays in the context of present trend in attracting foreign investment.

It is widely believed that the employees in the EPZs are discouraged from forming trade unions. The law relating to the formation of a trade union and the trade union activities are applicable in the EPZs, as much as they are applicable in the rest of the country. After the recent amendment to the Industrial Disputes Act,59 imposing prohibition on the enjoyment of trade union rights by employees is an unfair labour practice and an offence for an employer.60

While emphasising the trade union rights of the employees of the EPZs, the corresponding obligations of the employees when agitating for their rights, whether they are unionised as a trade union or not, is also emphasised. The methods adopted by the trade unions and the employees to demand for their just rights shall also be in disciplined manner. The criminal acts or unfair labour practices in the guise of trade union activities will drive away the present and future investors. The employees should be mindful that the disciplined labour force is also an important factor to attract foreign investment that generate employment.

In Sri Lanka, there is no statute that requires prior notice to embark upon strike action.61 Therefore, it is suggested that it should be provided in the relevant statute that 21 days prior notice shall be mandatory for strike action in any industry. This will prevent wild cat strikes and provide a minimum of 21 days to the authorities to intervene to settle the industrial disputes through the mechanism provided by the Industrial Disputes Act.

The Termination of Employment of Workmen (Special Provisions) Act62 is a piece of legislation which has been subject to vehement opposition of the investors. The Termination Act63 provides that “no employer shall terminate the scheduled employment of any workman without the prior consent in writing of the workman

Since stringent conditions are imposed for termination of employment and uncertainties exist as to the approval of the Commissioner and the amount of compensation to be awarded under the Act, it discourages investment as well as employing more workers in industries. Hence,

it is suggested that the Termination Act shall be repealed and the disputes arising from all types of termination be heard by the Labour Courts which have power to award just and equitable reliefs.

While the enforcement of labour laws is emphasised, it is also emphasised that antagonising the investors also should be avoided. In this regard, inter alia the provisions of the labour legislation in respect of personal liability of the directors also should be suitably amended to prevent treating them like common criminals.70

In concluding this paper, it is appropriate to state that in employer-employee relationship the survival of one party depends on the survival of other. Therefore, the objective of the industrial law shall be balancing the interests of the parties.71 Hence, the industrial law cannot be static and it has to change with the march of time. If not, the industrial law will not achieve its objective. In Sri Lanka, in the present trend of industrial policy, the protection of the interests of the foreign investors draws special attention for the benefit of the present and future workforce of the country. To achieve this objective the industrial law of Sri Lanka requires the attention of the policy makers as discussed in this paper.

FOOTNOTES I No 4 of 1978. 2 Sec 3. 3 By Greater Colombo Economic Commission (Amendment) Act. No.49 of 1992. 4 Export Processing Zones. 5 See Saman Kclegama and Nirgunan Tiruchelvam, “Structural Adjustment and Employment Creation in Sri Lanka”, Sri Lanka Labour Gazette, Vol 46, January-March 1995, at p. 01. 6 See Upali S.Athukorala, “Industrial Relations in Less Developed Countries”, Sri Lanka Labour Gazette, Vol 39, No 1. March 1988, p.17 at p. 21. 7 Sornarajah, The International Law on Foreign Investment, Cambridge University Press, 1994, at p. 4. 8 See Art 157 of the Constitution of the Democratic Socialist Republic of Sri Lanka for the Constitutional guarantee for the protection of foreign investment. 9 In this paper ‘Labour Courts’ means Industrial Arbitrator, Industrial Court and Labour Tribunal. 10 See S.R.De Silva, “Some Aspects of Labour Administration and Development in Sri Lanka”, Forum- Journal of the Sri Lanka Foundation Institute, Vol.1, No.l, 1982 July-Dec, p.l at p. 8. 11 Board of Invest of Sri Lanka. 12 See R.Weerakoon, The Evolution of Labour Law in Sri Lanka – Tea Plantation to Free Trade Zone, at pp 45-46 for the discussion on the attempt made to exempt the application of certain labour statutes to the industries that come under the export processing zones and how this attempt was defeated. 13 In Blanka Diamonds (Pvt) Ltd v Henri Coeme (S.C No 52/95) the submission that EPF Regulations were promulgated in 1958 with a view to encouraging foreign investment and expatriate employment was not conceded. 14 No 19 of 1934.

15 Sec 3. See H.J.F.Silva, “Law on injuries to workmen”, BALJ, (1997) Vol. VII Parti, P. 13, at p. 16 for a discussion on accident arising out of and in the course of employment.

16 Sec 4(1).

17 Sec 5.See H.J.F.Silva, “Law on injuries to workmen”, op.cit, at p. 19 for a discussion on industrial diseases.

18 H.J.F.Silva, “Law on injuries to workmen”, op.cit, at p. 19.

19 Emphasis is not mine.

20 Ibid, at p. 20.

21 See ibid.

22 Schedule IV. Substituted by Workmen’s Compensation (Amendment) Act, No. 15 of 1990.

23 No 12 of 1983.

24 Sec 5(1).

25 Sec 31B(l)(b) of the Industrial Disputes Act.

26 No 45 of 1942.

27 A.I.R.I995 S/C 922.

28 Ibid at p. 940.

29 Para 2.2.

30 No 43 of 1950.

31 See Wansapura, “Industrial Relations in Export Processing Zones”, (Unpublished).

32 Ss 17(1) and 24(1).

33 Sec3lC(l).

34 See H.N.G.Fernando CJ in Municipal Council of Colombo v Munasinghe (1968) 71 NLR 223 at p. 225.

35 (1996) 2 Sri LR 231 at p. 236.

36 The brochure on Labour Standards and Relations issued by the Board of Investment.

37 Para 1.4.

38 Sec 31B(4). See United Engineering Workers Union v Devanayagam, (1967) 69 NLR 289 at p. 311. Tambiah.J in State Bank of India v Edirisinghe (1991) 1 Sri LR 397 at p. 415. Sharvanandha.J in National Union of workers v Scottish Ceylon Tea Co Ltd, (1975) 78 NLR 133 at p. 172. Alles.J in Independent and Commercial Employees’ Union v Board of Directors, Co-operative Wholesale establishment, Colombo (1971) 74 NLR 344 at p. 346.

39 See Siva Selliah.J in Karthigesu v Sri Lanka Sugar Corporation C.A 312/79, Sriskantha’s Law Reports, Vol 3 p.42 at p.43. Tambiah. J in Sithamparanathan v People’s Bank (1989) 1 Sri LR 124 at p. 153. Kulatunga.J in Sri Lanka State Plantation Corporation v Lanka Podu Seva Sangamaya (1990) 1 Sri LR 84 at p. 91. Ranasinghe. J in Tilakaratne v Ceylon Development Engineering Co Ltd, Sriskantha’s Law Reports, Vol V Part 1 p.135 at p. 139. Venkataramiah.J in Gupta v Union of India (1988) 3 SCR 255 at p. 272.

40 Sec 31C(l).

41 Sec 31D(7).

42 Sec 31DDD(1).

43 Sec 31DD(3) and 31DDD(2).

44 See Nagalingam v Laksman De Mel (1975) 78 NLR 231 at p. 237. Jayanetti v The Land Reform Commissioner (1984) 2 Sri LR 172 at p. 192.

45 Sec 31D(4)(a).

46 Sec 3ID(4)(b).

47 Sec 31D(4)(I)(ii)(iii).

48 Op.cit.

49 No 45 of 1971.

50 See Vythialingam.J in Ceylon Transport Board v Wijeratne (1975) 77 NLR 481 at p. 498. Amerasinghe.J in Jayasuriya v Sri Lanka State Plantations Corporation (1995) 2 Sri LR 379 at pp409- 413.

51 In Ceylon Transport Board v Wijeratne, (op.cit) Vythialingam.J stated that the amount of compensation should seldom if not never exceed a maximum of three years salary, (at p. 499). But, later he departed from this ceiling in Henderson & Co v Wijetunge (SC 33/73 S.C.M. 21.3.75) by awarding five years salary as compensation. See Nigel Hatch, Commentary on the Industrial Disputes Act of Sri Lanka, Friedrich-Ebert-Stiftung, 1989, at pp 372-373.

52 C.A.No: 519/87.

53 See Chula De Silva, “Termination of Employment -Employer’s Perspectives”, (Unpublished), at p.4.

54 Ss 33(3) and 33(6).

55 Sec 33(5).

56 Sec 33 (5).

57 See E.F.G.Amerasinghe, “Industrial Relations in a Changing Economy”, LAWASIA’93, Sri Lanka, 12-

16 Sept 1993, Colombo, p.I2, at p. 15.

58 See Ibid, at p. 14.

59 Industrial Disputes (Amendment) Act, No 56 of 1999.

60 Part VA.

61 Sec 32(2) of the Industrial Disputes Act is not in operation since the essential industries have not been prescribed to date.

62 No 45 of 1971.

63 Ibid.

64 Sec 2(l)(a).

65 Sec 2(l)(b).

66 Sec 2(4).

67 (1978-79) 2 Sri LR 06.

68 Ibid, at p. 08.

69 See Franklyn Amerasinghe, “Termination of Employment Act”, Proceedings of the Labour Law Reform Conference, Colombo, March 28-29, 1994, at pp 13-14.

70 Chula De Silva, ‘Termination of Employment – Employer’s Perspectives”, op.cit, at pp. 6-7.

71 See S.R.De Silva, “Introduction to Labour Law”, Serial No 64 dated 12-08-2000, (Unpublished). See also S.R.De Silva, “The Law and State in Industrial Relations”, The Colombo Law Review, 1971, at p. 01.