001-SLLR-SLLR-2010-V-2-COATS-THREAD-LANKA-PVT.-LIMITED-v.-SAMARASUNDARA.pdf
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Coats Thread Lanka (pvt.) Limited v. Samarasundara
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COATS THREAD LANKA (PVT.) LIMITED V.SAMARASUNDARASUPREME COURTJ. A. N. DE SILVA, C.J.,RATNAYAKE, J. ANDEKANAYAKE, J.
S.C. APPEAL NO. 18/2009S. C. (SPL.) L. A. NO. 57/2008PHP (KALU) NO. LT/04/2005KALUTARA LT NO. 18./KT/3107/03NOVEMBER 1 1th, 2009FEBRUARY 17™, 2010MARCH 11™, 2010
Industrial Disputes Aet – Section 31B (If – Application to aLabour Tribunal by a workman for relief in respect of termination ofservices – award of gratuity – such other matters relating to theterms of employment or condition of labour of a workman.
The Respondent was employed by the Appellant-Company at the timeof the alleged termination. Allegations of corruption were levelledagainst the Respondent and after conducting an investigation into theallegations, the Appellant suspended the Respondent without pay andproceeded to conduct a full inquiry into the allegations made againstthe Respondent. During the course of the inquiry, the Respondentinformed of his difficulty in attending the inquiry on Saturdays as hehad secured employment elsewhere. Upon this revelation, the Appellant-Company considered the Respondent as having repudiated his con-tract of employment of his own accord and volition. The Appellant laterinformed the Respondent by a subsequent letter that his services wouldhave been terminated in any event on the strength of the findings of theinquiry.
Held:
In ascertaining the reasonableness of any covenant alleged to bein restraint of trade, the extent of the prohibition and the timeperiod within which the prohibition is operative are important
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considerations. Covenants of this nature are upheld where theyoperate to protect the legitimate interests of the employer, forinstance where there is a risk of trade secrets being divulged byan employee.
Per J. A. N. De Silva, C. J. –
"… A person is entitled to seek employment with multipleemployers so as to maximise his monthly income. Where suchemployment impacts adversely on the quality of his work, appro-priate action may be taken at that stage. Therefore I am of theview that such concerns of the employer cannot restrict a person’sreasonable right to seek employment at multiple establishments.
. . . Hence I hold that the second limb of Clause 16(c) prohibitingemployment elsewhere as being void. This position is furtherjustified as the Appellant in this case was employed as a merework study assistant as opposed to a manager or a similar highposition in the organizational hierarchy.”
In can now be considered as trite law that for the abandonment ofthe contract of employment to be proved, there must be proof ofphysical absence as well as the mental element of intent.
Per J. A. N. De Silva, C.J. –
“I am of the opinion that “absence” here is a reference to thelack of presence when such presence is deemed necessary in theordinary course of employment. In other words, where theRespondent is required to be present at the work place. . . heabsents himself and such absence continues it can be safelyassumed that the first ingredient had been met.”
The mental element or what is referred to as animus nonrevertendi is the intention to abandon the contract permanently. Ifthe subsequent employment was of a permanent nature, it wouldbe compelling evidence of animus non revertendi.
Employers should be granted the opportunity of suspending theemployee pending disciplinary inquiry. This is for the purpose ofascertaining whether the worker is guilty of any misconduct inorder to decide whether the contract of employment should beterminated.
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Per J. A. N. De Silva, C. J., –
"… I am satisfied that the said proceedings were conducted uponthe worker been sufficiently informed of the charges against himand that he was provided an adequate opportunity to explain andestablish his innocence. Therefore I see no reason to disturb thefindings of the inquiring officer. Therefore under the circumstances
find that the dismissal of the Respondent worker as beingjustified.”
Wages are a natural right of the worker that flows from the contractof employment. Even in a situation where the worker is prohibitedfrom entering the workplace pending a disciplinary inquiry, theemployer’s duty to pay wages remains.
Cases referred to:
Maxim Nordenfelt Gun Co. v. Nordenfelt- (1894) AC 335
Ceylon Bank Employees’ Union v. The Bank of Ceylon – (1979) 1N.L.R. 133
Nova Plastics Ltd. v. Frogatt- (1982) IRLR 146
Hall Fire Protection Ltd. v. Buckley – (1995) UKEAT 5-94-0606
Lanka Estate Workers’ Union v. Superintendent, Hewagam Estate- S. C. Minutes 9/69, 2-2-1970
Nelson de Silva v. Sri Lanka State Engineering Corporation – (1996)
Sri L.R. 342
Management of Hotel Imperial, New Delhi and Ors. v. HotelWorkers’ Union- (1959) AIR SC 1342
Hanley v. Pease – (1915) (1) KB 698
APPEAL from order of the High Court of the Western Province.
Sanjeewa Jayawardana with SandamaU Chandrasekem for theRespondent – Respondent – Petitioner.
A.P. Niles with Irosha Silva for the Applicant – Appellant – Respondent.
Cur. adv. vult.
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July 02nd 2010
J. A. N. DE SILVA CJ.
This is an appeal against an order of the High Courtof the western province directing the reinstatement of theRespondent or in the alternative, payment of three years’salary as compensation. Leave was granted on the followingquestions set out in paragraph 10(a) to (e) and prayers (a), (b)and (c) of the petition.
Did the High Court fall into error by failing to appreciatethat the Respondent, by entering into a contract ofemployment with another organization (within 14 daysof the suspension of services of the Appellant), had act-ed in breach of the aforesaid clause 16(c) of the contractof employment, going to the very foundation of the saidcontract and thereby, attracting a terminal situation?
In any event did the High Court err by failing toappreciate that there was no termination by the employeras contemplated by section 31B of the industrialdisputes act and that as such, no relief could be granted?
Did the High Court misdirect itself by failing to considerthat the Appellant, by entering into another organizationhad intentionally and willfully terminated his contract ofemployment of his own accord and volition?
Did the High Court misdirect itself by failing to appreciatethat a suspension of an employee did not amount to atermination of his contract of employment and thata suspension is only a temporary measure pendinginvestigations and further conclusive evidence?
Did the High Court misdirect itself by holding that thefailure of the petitioner to conduct the domestic inquiry
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within reasonable time amounted to “constructivetermination” despite the Respondent having repudiatedthe contract within 14 days of the suspension of hisservices?
Did the High Court misdirect itself by failing to considerthat the Respondent had, unjustly enriched himself byaccepting the payment of a half month's salary made bythe Appellant company while concealing the fact that theRespondent had entered into a contract of employmentwith another organization?
Did the High Court in any event, err in law by failing toconclusively determine the purported relief to which theworkman was entitled to, if at all?
Did the High Court fail to appreciate the fact that thereinstatement of the Respondent would be subversive ofdiscipline and undermine the authority of the managementand as such be prejudicial to the establishment?
The facts in so far as they are relevant are as follows:-
The Respondent was employed by the AppellantCompany as a work study assistant at the time of thealleged termination. The Respondent had also been electedto the post of treasurer of the staff welfare association of theAppellant Company. Due to discrepancies in the accounts ofthe welfare association and allegations of corruption leveledagainst the Respondent the Appellant Company conductedan investigation in to the said allegations. Thereafter theAppellant Company suspended the Respondent without payin order to conduct a full inquiry in to the allegations. Duringthe course of the inquiry the Respondent intimated hisdifficulty in attending the said inquiry on Saturdays as hehad obtained employment elsewhere. Upon this revelation
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the Appellant Company considered the Appellant as havingrepudiated his contract of employment of his own accord andvolition. However the Appellant also informed the Respondentby a subsequent letter that his services would have beenterminated in any event on the strength of the findings of theinquiry.
I first turn my attention to the question of repudiation ofthe contract of employment by the worker. The learned counselfor the Appellants directed our attention to clause 16 (c) ofthe contract of employment.
“You will not be able to enter into any activities similar tothat for which you are employed by this company or obtainemployment elsewhere while in service with us.
It was urged before us that the said breach was one thatcould be termed as a fundamental breach resulting in therepudiation of the contract by the employee.
At the outset it is necessary to note that the Respondenthad admitted to obtaining employment elsewhere, namelyVinter Fashions Ltd., whom the Appellant submits is a rivalbusiness entity. The Respondent denies the said contention.
It was strenuously argued by the Respondent before thelabour Tribunal that the said clause was in restraint of tradeand hence illegal and void. It is pertinent to note that theRespondent had not canvassed the same in his submissionsto this court. Nonetheless I would venture to weigh the meritsof this submission.
The test of validity of any covenant alleged to be inrestraint of trade is the test of reasonability as held in MaximNordenfelt Gun V. Nordenfelt'K
scCoats Thread Lanka (pvt) limited v. Samarasundara
(J. A. N. De Sdva CJ.)
The law on this matter was correctly stated by Lord MacNaghten in the Nordenfelt case. He said:
“Restraints of trade and interference with individualliberty of action may bejustified by the special circumstanc-es of a particular case. It is a sufficient justification, andindeed it is the only justification, if the restriction is rea-sonable, that is, in reference to the interests of the partiesconcerned and reasonable in reference to the interests ofthe public, so framed and so guarded as to afford adequateprotection to the party in whose favour it is imposed, whileat the same time it is in no way injurious to the public. ”
In ascertaining the reasonableness the extent of theprohibition and the time period within which the prohibitionis operative are important considerations. Covenants of thisnature are upheld where they operate to protect the legiti-mate interests of the employer, for instance where there is arisk of trade secrets being divulged by an employee.
Does clause 16(c) withstand the test of reasonability?Clause 16(c) envisages a blanket prohibition whilst theworker is in the service of the employer.
Our courts have dealt with a similar issue in theCeylon Bank Employees Union v. The Bank of CeylonPKIn the said case Sirimanne J in interpreting a clauseto the effect that “I will give my whole time and atten-tion to the discharge of duties* held the clause to meanthat the workman must not devote any part of his time toany other gainful employment, except with respect minordealings in his spare time.
In the said case the worker concerned was one holdinga responsible position and who was privy to confidentialinformation. In light of the above the said clause it may be
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justified in limiting his employment and his sources ofincome. However I do not think that Sirimanne J intended thisto be the general rule. A person is entitled to seek employmentwith multiple employers so as to maximize his monthlyincome. Where such employment impacts adversely on thequality of his work, appropriate action may be taken at thatstage. Therefore I am of the view that such concerns of theemployer cannot restrict a person’s reasonable right to seekemployment at multiple establishments.
Selwyn’s law of Employment (9th Ed page 381) offersassistance on the point of an employee taking additionalemployment. He too suggests that it may be a ground fordismissal if such employment has an adverse effect on theemployers business. The cases of Nova Plastics Ltd v. Frogatt3)and Hall Fire Protection Ltd v. Bucklex/4) are illustrative of thispoint.
Hence I hold that the second limb of clause 16(c)prohibiting employment elsewhere as being void. This positionis further justified as the Appellant in this case was employedas a mere work study assistant as opposed to a manager or asimilar high position in the organizational hierarchy.
The above discussion refers to the question of automaticrepudiation by the operation of the contract due to theconduct of the employee.
However it yet remains to be seen whether theemployee deliberately repudiated his contract by seekingemployment elsewhere. As noted earlier, the right to seeksecondary employment is subject to the important conditionthat such employment takes place outside the usual work-ing hours of his primary place of employment. It is pertinentto note that in the instant case the Respondent’s alternateemployment by his own employment clashes with the workinghours of the Appellants.
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Weeramantry in his law of contract defines repudiationas follows.
“Repudiation may occur either expressly, as where a partystates in so many words that he will not discharge theobligations he has undertaken, or impliedly, as wherebyhis own act a party disables himself from performanceor makes it impossible for the other party to render perfor-mance”
It was urged before us that the employee in theinstant case had by seeking employment elsewhere, impliedlyrepudiated his contract of employment, in other words thathe had vacated his post.
It has been held in several instances by this court, whichnow can be considered as trite law that for abandonment ofthe contract to be proved proof of physical absence as well asthe mental element of intent needs to be established (LankaEstate Workers Union v. Superintendent Hewagam Estateand affirmed in Nelson de Silva v. Sri Lanka State EngineeringCo/p.<6>
In the instant case the employee had been “suspended”from work and therefore was required to absent himself. Thisform of absence does not, in my opinion satisfy the requisiteabsence in order to prove vacation of post.
The Appellant submits that the Respondent had admittedthat he commenced work under another employer on 1stJanuary 2003. It is from this point onwards that the afore-mentioned test must be applied in order to ascertain whetherthe employee had vacated his post.
I am of the opinion that “absence” here is a reference tothe lack of presence when such presence is deemed necessaryin the ordinary course of employment. In other words, where
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the Respondent is required to be present at the work placeat a reasonable hour of the day and he absents himself andsuch absence continues it can be safely assumed that thefirst ingredient had been met.
The mental element or what is referred to as animusnon revertendi is the intention to abandon the contractpermanently.
In the present case the Respondent had been suspendedand subsequently been called for inquiry. The Respondenthad albeit briefly replied to the charge sheet. The inquiry wasscheduled to be held on 4th September 2003. The Respondentabsented himself on that day. However on the following dayof inquiry the Respondent gives evidence and also crossexamines witnesses. He however absents himself from theafternoon session held on that very same day. Prior to hisdeparture he requests that the inquiry be held on Sundays.These facts suggest that the Respondent had submittedhimself to the jurisdiction of the inquiring body and expresseda willingness to continue to do so. On account of the aforesaidI do not think that the employee’s physical absence could beconsidered as satisfying the prerequisites discussed above. Itis also pertinent to note that the employee had expressed awillingness to recommence employment under the Appellantin his evidence before the labour Tribunal. However it mustbe mentioned here that the Respondent’s contract of employ-ment with Vinter Fashions is not on record and unavailablefor perusal. Therefore the exact nature of his employmentcannot be discerned except to say that the hours of employ-ment were from 8.00 am to 5.00 pm six days of the week. Ifindeed the employment was of permanent nature, whichwould I think be compelling evidence of animus nonrevertendi.
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It was submitted to us that the Respondent wascompelled to seek such alternate employment due to economichardship suffered resulting from his suspension and othercircumstances of life. This is primarily due to the nonpay-ment of wages during the first four months of “suspension”and half months salary since then. At this juncture I ventureto consider the legality of the decision of the by the employerto suspend the employee without pay.
SR de Silva in his “law of Dismissal” states,
7t is settled law that the employer has no right ofsuspension. Ordinarily, therefore, the absence of suchpower either as an express term in the contract or in therules framed under some statute would mean that themaster would have no power to suspend a workman andeven if he does so in the sense that he forbids the employ-ee to work, he will have to pay wages during the so calledperiod of suspension.
Abeysekere in his “Industrial Law and Adjudication”concurs.
“The right to suspend, in the sense of a right to forbid aservant to work, is not an implied term in an ordinarycontract between master and servant. Such a power canonly be created by statute governing the contract, or byexpress provision in the contract. If a master neverthe-less, suspends in the sense of forbidding an employee towork, he will be liable to pay wages for the period ofsuspension
This Sri Lankan authorities suggest that a suspendedworker is entitled to full wages during suspension.
Learned counsel for the Appellant drew our attentionto' certain passages from Chakravarti's Law of Industrial
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Disputes which supported the proposition that suspensionis allowed as a precursor to a disciplinaxy inquiry. This isindeed the position in India as a result of the wording insection 33 of the Industrial Disputes Act of that country.In Management of Hotel Imperial, New Delhi & Ors. Vs.Hotel Workers Union™ it was held by the Indian Supreme Courtthat section 33 by implication modified the common law rulesgoverning suspension as it stood in India. Our IndustrialDisputes Act does not contain any provision similar to section33 of the Indian Act and hence the law in this country is theposition held in Hanley v. Pease(8).
All authorities refer to the case of Hanley v. Pease &partners to support the proposition that an employer has noright to suspend a worker under the common law. Closerscrutiny of the judgment reveals that the word suspensionas referred to by the lordships in that case has somewhat ofa narrower meaning than the meaning ascribed to the wordgenerally. For convenience I refer to a portion of Lush J’sjudgment.
“assuming that there has been a breach on the part ofthe servant entitling the master to dismiss him, he mayif he pleases terminate the contract, but he is not bound todo it, and if he chooses not to exercise that right but to treatthe contract as a continuing contract notwithstanding themisconduct or breach of duty of the servant, then thecontract is for all purposes a continuing contract subject tothe masters right to claim damages against the servant forhis breach of contract.”
The word “suspension” has at least two distinct meanings.It is sometimes used in a punitive sense, i. e. punitivesuspension. This is where a workman is prohibited from workand deprived of pay as punishment for some misconductcommitted by the workman. Workers are also suspended in
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a secondary sense. That is where the worker is prohibitedfrom entering the work place as an interim measure pendinginquiry to facilitate such inquiry.
The Hanley case refers clearly to suspensions of the firstcategory. Their lordships correctly held that,
“After electing to treat the contract as a continuing one theemployers took upon themselves to suspend him (worker)
for one daythereby assessing their own damages
for the servant's misconduct at the sum which wouldbe represented by one day’s wages. They have no possibleright to do that ”
This is also the position of law in our country. Oncean employer suspects a worker of serious misconduct it isincumbent on him to obtain evidence of such misconduct tojustify termination. As such some form of inquiry is necessaryfor the aforementioned purpose. However such inquiries maysometimes be compromised if the alleged offender is permittedto roam free to influence witnesses. If the employee attemptsto dismiss the worker summarily his bonafides is questioned.Thus the employer would be left with the difficult choice ofeither dismissing the employee summarily or conducting aninquiry whilst providing continuous work.
Hence In my view it would be within the spirit of theHanley judgment that employers are granted the opportunityof suspending the employee pending disciplinary inquiry.This is for the purpose of ascertaining whether the workeris guilty of any misconduct in order to decide whether thecontract of employment should be terminated. The workercannot be deprived of his wages during this period. Thisresult is further desirable as it also furthers two policyobjectives. It acts as an incentive for employers to disposeof such inquiries expeditiously and also offer the worker anopportunity to vindicate himself.
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I now turn to the conclusions reached by the learned HighCourt Judge. The learned High Court judge had formed anopinion that there was constructive termination of servicesin light of the delay in conducting the disciplinary inquiryand the deprivation to his salary.
The inquiry was first held on 2003-09-04 and then on2003.09.17 on which date the Respondent gave evidence. On2003.09.30 by letter marked “A16” the Appellant informedthe Respondent that the Respondent is taken to have repudi-ated the contract by entering into a contract of employmentwith another company. On the last day further inquiry wasfixed for 2003.10.01 though proceedings of such inquiry havenot been placed before us. The Respondent in his evidencebefore the labour Tribunal stated that he did not take part inand was summoned to any further proceedings. Presumablythis is due to the Respondent being considered as not beingan employee any more. Be that as it may the Respondent wasfound guilty by the inquiring officer.
I am also of the view that the commencement of theinquiry could have been at an earlier date than the date onwhich it occurred. However I am not inclined to hold thatthere was constructive dismissal on those grounds alone.
In my opinion termination occurs by the letter dated 26thJanuary 2004 marked “A 19” as it expresses the view that theRespondent would have been terminated in any event on thefindings of the inquiry if not for the Respondent’s repudia-tion.
By the said letter the employer in this case has made it .abundantly clear that he is not inclined to any further to offeremployment to the worker due to the adverse findings madeby the board of inquiry.
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The Appellant Company drew our attention to thegravity of the charges preferred against the worker, of whichthe worker has not been found guilty of by the inquiringofficer. I am satisfied that the said proceedings were conductedupon the worker been sufficiently informed of the chargesagainst him and that he was provided an adequate opportu-nity to explain and establish his innocence. Therefore I see noreason to disturb the findings of the inquiring officer.
Therefore under the circumstances I find that thedismissal of the Respondent worker as being justified.
The Appellant finally submits that the Respondenthad unjustly enriched himself by accepting wages from theAppellant Company whilst taking employment elsewhere. Asmentioned previously wages are a natural right of the workerthat flows from the contract of employment. The employermay in certain circumstances (as adverted to previously)decide not to provide work to the worker and prohibit himfrom attending to work. Yet the employer’s duty to pay wagesremains. In this instance the employee was merely receivinghis contractual dues. The fact that he had received otherwages during his suspension from a 3rd party is beside thepoint.
Finally on consideration of all facts relevant in this caseI hold that the dismissal was justified in light of the factsrevealed at the inquiry as well as at the labour Tribunal. TheRespondent is not entitled to any damages for the dismissal.However he is entitled to all wages deprived of him during theperiod of his suspension and to any statutory dues he maybe entitled to.
RATNAYAKE J. -I agree.
EKANAYAKE J. -1 agree.appeal dismissed.