Labour Tribunals under the provisions of the Industrial Disputes Act (Cap. 131),


R.K.S. Suresh Chandra LL.B., LL.M


With the setting up of Labour Tribunals under the provisions of the Industrial Disputes Act (Cap. 131), provision was made for Labour Tribunals to grant the relief of reinstatement with or without back-wages or compensation in lieu of reinstatement to workmen whose services were determined to be wrongfully terminated. The provisions which provide for the granting of compensation by Labour Tribunals under the Industrial Disputes Act are Sections 33(1)(d), 33(3), 33(5) and 33(6).

However, none of these provisions spell out the manner in which the quantum of compensation should be determined. The only guideline provided for in the Act regarding such grant of compensation is the “just and equitable” concept as stated in S31 C(1), which provides that it shall be the duty of the Tribunal to make all such inquiries into the application and hear all such evidence as the Tribunal may consider necessary, and thereafter make such order as may appear to the Tribunal to be “just and equitable”.

In interpreting the “just and equitable concept” our Courts have pronounced that the test of a just and equitable order is those qualities that would be apparent to any fair minded person reading that order. -Vide Peiris v Podisingho.[1] T.S.Fernando J in Richard Peiris & co. Ltd. v Wijesiriwardena[2] stated that justice and equity can themselves be measured not according to the urging of a kind heart but only with the

1 78 C.L.W. 46

2 62 N.L.R. 233

framework of the law. Tambiah J in Hayleys v Crosette Tambiah[3] stated that a Labour Tribunal cannot completely disregard the law of the country and act in an arbitrary manner. H.N.G. Fernando C J in M.C.Colombo v Munasinghe[4] stated that “when the Industrial Disputes Act confers on an arbitrator the discretion to make an award which is just and equitable the legislature did not confer on an arbitrator the freedom of a wild horse. An award must be just and equitable as between the parties to a dispute, and the fact that one party may have encountered hard times because of personal circumstances for which the other party is in no way responsible is not a ground on which justice or equity requires the other party to make undue concession … And arbitrator holds no licence from the legislature to make any such award as he may please, for nothing is just and equitable which is decided by whim or caprice or by the toss of a double headed coin.” This dictum of H.N.G.Fernando C J is the strongest pronouncement made on regarding this concept. The importance of public interest in making just and equitable orders was stated by Kretser J in Manager Nakiadeniya Group v Lanka estate Workers Union[5] when he stated thus “In making a just and equitable order one must consider not only the interest of the employees but also the interests of the employers and the wider interests of the country, for the object of social legislation is to have not only contented employees but also contented employers.”

It is in this backdrop that the question of the quantum of compensation should be considered. The present state of the law is not very clear on this issue although efforts have been made to resolve same. A perusal of the case law reveals varying formulae being adopted from time to time in determining the quantum of compensation.

3 63 N.L.R. 248

4 71 N.L.R. 223

5 77 C.L.W. 52

The basis for granting compensation to a dismissed employee is for loss of employment and the possible consequence of loss of career. These are matters which relate to monetary loss. Questions relating to sentimental factors have been discounted in granting compensation. The question also arises as to weather penal element is involved in granting compensation against an errant employer. This aspect does not appear to be specifically adverted to in granting compensation. If compensation is confined to monetary loss only and if it is established that no monetary loss has been caused to an employee by a harsh dismissal, would the employer get away without having to pay compensation for a wrongful act committed by him? This is an aspect which needs to be considered specially in view of the fact that it has been established in certain cases that even where termination is justified, compensation could be granted.

In considering the leading cases where attempts were made to lay down guidelines regarding the computation of compensation, Justice Vythilingam in C.T.B. v Wijeratne[6] stated that a Tribunal should take into account such circumstances as the nature of the employer’s business, his capacity to pay, the employer’s age, the nature of his employment, length of service, seniority, salary at the time of termination, future prospects, opportunities for obtaining similar alternative employment, past conduct, circumstances and the manner of dismissal including the nature of the charges levelled against the workman, the extent to which the employee’s actions are blameworthy, the effect of the dismissal on the future pension rights, and any sum paid or actually earned or which should have been earned since the dismissal took place and went on to say that the amount however should seldom if not never exceed a maximum of 3 years salary. The judgement had the effect of placing a ceiling on the quantum of compensation as it was limited to 3 years’ salary.

6 77 N.L.R. 481

However, Vythilingam J himself in the subsequent case of Henderson &Co. v Wijeratne[7] went further than the limit of 3 years and ordered i years salary as compensation. Sharvananda J in Caledonian Tea & Rubber Estates Ltd. v Hillman[8] stated that he was unable to subscribe to Vythilingam J’s Proposition of three years’ salary and stated that flexibility is essential and pointed out that circumstances may vary in each case and the weight to be attached to any particular factor depend: on the context of each case. Seven years’ salary was granted a; compensation in that case. In Cyril Anthony v Ceylon Fisheries; Corporation[9] the Supreme Court awarded 7 years’ salary a, compensation to a dismissed workman. Thus it is seen that attempt were made to lay down a ceiling on the quantum of compensation by; circumscribing same within a number of years’ salary.

Dr. Amerasinghe J in Jayasuriya Vs Sri Lanka State Plantation Corporation[10] dealt with the question of the determination of the quantum of compensation exhaustively and reviewed the cases which dealt with this issue previously. His Lordship stated that “Compensation” is derived from the Latin root compensation, and what is expected is that after ; weighing together of the evidence and probabilities in the case, the Tribunal must form an opinion of the nature and extent of the loss, arriving in the end at an amount that a sensible person would not regard as mean or extravagant, but would rather consider to be just and equitable in all the circumstances of the case. There must eventually be an even balance of which the scales of justice are meant to remind us. The Tribunal must endeavour to give each man that which is his right.”

7 S.C.33/73

8 79(1)N.L.R.421

9 S.C.57/85

10 1995(2) S.L.R.379

His Lordship went on to state thus…………………”It is preferable in my view to have a computation which is expressly shown to relate to specific heads and items of loss. It is not satisfactory in my view to simply say that a certain amount is just and equitable. There ought, I think, to be a stated basis for the computation, taking the award beyond the realm of merely assurance of fairness. This would enable the parties and anyone reading the Order to see that it is, all in all, just and equitable.” ………………. “There are certain parameters. There is data which is necessary to determine the orbit of every Tribunal, So as to prevent it from straying off its course. What are the matters to be considered? There ought to be at least an approximate computation of immediate loss, i.e. loss of wages and benefits from the date of dismissal up to the date of the final order or Judgement, and another with regard to prospective, future loss, and a third with regard to the loss of retirement benefits, based as far as possible on a foundation of solid facts to the Tribunal by the parties.”…….While it is not possible to enumerate all the circumstances that may be relevant in every case, it may be stated that the essential question, in the determination of compensation for unfair dismissal is this: What is the actual financial loss caused by the unfair dismissal? for compensation is an “indemnity for the loss”. Now, losses can be of various kinds, but the matter for consideration in this kind of case is the financial loss, and not sentimental harm caused by the employer.

His Lordship went on to state that in determining loss of earnings, the employee’s pay (net of tax), allowances, bonuses, the value of the use of a car for private purposes, the value of a residence and domestic servants and al1 other perquisites and benefits having a monetary value to which he was entitled should be taken into account. Consideration also should be made to wage increases, promotional prospects, etc. Once the incurred losses have been computed, a Tribunal should deduct any wages or benefits paid by the employer after termination as well as remuneration from fresh employment. An employee is also entitled to be compensated for the loss of future earnings and benefits.

The judgment of Dr. Amerasinghe J thus formulates three aspects in computing compensation, i.e. immediate loss, future loss and loss of retirement benefits. However, there should not be a mechanical application of these factors in every case. They have to be viewed carefully and made use of according to the facts and circumstances of each and every case. This still leaves the question of flexibility open to a Tribunal in awarding Compensation. See also the decision in Nadesamoorthy v the River Valleys Development Board, per Kulatunge J.[11]

The question of the granting of compensation and the determination of the quantum has also to be viewed in the context of modern concept of open economy and globalisation. In this context it may be relevant to note, in passing, the position faced by the Commissioner of Labour in granting compensation under the provisions of the Termination of Employment (special provisions) Act where due to falling economy many concerns are closing down and downsizing their ventures. The commissioner has been seen to be granting compensation on the basis of a particular number of months’ salary for each year of service, and has recently published in the Labour Gazette January to March 2001 -Volume 52 the following proposition – “in determining compensation payable, the following criteria be adopted. Two to Three months’ salary for each year of actual service or full salary for the remaining period (denied service) up to retirement, whichever is less, subject to a maximum of 50 months salary.” This certainly is an interesting proposition which would evoke much interest. It also begs question as to whether there should be consistency in the granting of compensation whether it be granted by a Labour Tribunal or by the commissioner of Labour.

In conclusion it would be observed that in this uncertain state of affairs, it would be best for the Legislature to step in and set down appropriate guidelines to determine the quantum of compensation.

11 S.C.10/94