040-SLLR-SLLR-2008-V-1-SRI-LANKA-INSURANCE-CORPORATION-LTD-v.-JAYATILAKE.pdf
Sri Lanka Insurance Corporation Ltd. v
SCJayathilake411
SRI LANKA INSURANCE CORPORATION LTD.v
JAYATHILAKESUPREME COURT.
S.N. SILVA, C.J.
SHIRANEE TILAKAWARDANE, J. ANDSOMAWANSA, J.
S.C. APPEAL NO. 23A/2008S.C. (H.C.) L.A. NO. 32/2007H.C.A.L.T. NO. 1037/2005L.T. NO. 02/418/2004FEBRUARY 11th, 2008
Refusal to extend an otherwise expired contract of employment – Does itamount to an 'unjust termination' or ‘constructive termination' ofemployment of the workman? – Does it warrant relief under the IndustrialDisputes Act? – Reasons for refusal not given – Is it fatal?
The Supreme Court granted leave to appeal in recognition of the fact thatthere had been, and continues to be, a growth of similar such claims in theLabour Tribunals, which seek judgment against the employer for refusing toextend an otherwise expired contract of employment as an “injust"termination or "constructive termination" of employment.
412Sri Lanka Law Reports[2008] 1 Sri L.R
Held:
When a contract of employment expires, it ends by the operation ofthe law, and privileges which could not be reasonably envisaged withthe terms of the contract cannot be assumed or obtained beyond thescope of the ambit of the contract unless any rules or policiesadopted by the employer-employee contract permits an extension ofemployment.
In adjudicating claims such as the present one, equity also permitsthe corporate world the freedom to operate within a mutually agreedcontact, as long as the dominant power of the employer is not usedto exploit the services of the workman, as the just and equitable reliefmust be assured to both parties who seek redress to the labourcourts.
Where employers choose to provide employees with the right toapply for extensions of employment, they are under a duty to decideupon such extensions in a reasonable and just manner, even whensuch decisions are within their sole discretion.
In determining the merits of a decision to refuse an extension, thefollowing three matters have to be considered and examined by theCourt through consideration of evidence and testimony proffered byboth parties as to the existence or non-existence of each.
There has been no employee misconduct alleged or if misconducthas been alleged, employer failed to adequately investigate andresolve the matter.
Employer does not have a policy of evaluating applications orextensions of employment that includes consideration of factors suchas absence of misconduct, length of employment and employeeability.
Employer failed to evaluate the application for extension ofemployment.
If, and only if, the Court finds that the employee is able to establish no lessthan two of the above considerations in its favour, then the Court is able toapply the principal of constructive termination as contained in the IndustrialDisputes Act upon the grounds that, as a matter of law. the employer hasmade an unreasonable refusal to extend employment, and by so doing hasconstructively terminated the employee.
Per Shiranee Tilakawardane, J.
"It is my view that the petitioners failure to provide reasons for denial of therespondents application may indicate a less than optimal business operation, butdoes not by itself necessarily suggest. Let alone require one to conclude, theinverse proposition namely, that the application was denied without reason."
Sri Lanka Insurance Corporation Ltd. v
SCJayathilake (Shiranee Tilakawardane, J.)413
Cases referred to:
Sri Lanka Insurance Corporation Limited v D.N.W. Jayasundara HCALT98/2006, SCLTA.
Shanmugam v Maskeliya Plantation Limited 1996 1 Sri LR 208.
APPEAL from judgment of the High Court (exercising provincial appellatejurisdiction).
Sanjeewa Jayawardane for the appellant.
Chamantha Weerakoon Unambuwa with Dhammika Jayawardane for therespondent.
Cur.adv.vult.
June 26, 2008
SHIRANEE TILAKAWARDANE, J.This Court granted the respondent-appellant-petitioner(hereinafter referred to as the "Petitioner") special leave, on thequestion of law stated in paragraph 23(a) of the petitioner'spetition, namely, whether the High Court (as defined herein) fellinto substantial error by holding that the petitioner’s refusal toextend the respondent's service gave rise to a "constructivetermination" of the applicant-respondent-respondent (hereinafterreferred to as the "respondent").
This Court granted leave to appeal in recognition of the factthat there had been, and continues to be, a growth of similarsuch claims in the Labour Tribunals, which seek judgmentagainst an employer for refusing to extend an otherwise expiredemployment contract as an "unjust" termination or "constructivetermination" of employment.
The High Court dismissed the petitioner's Appeal to set asidethe Labour Tribunal's order dated 1st August 2008 and upheldthe order of the Labour Tribunal that the petitioner's refusal togrant the respondent's application for continued employmentwas an unjust and unreasonable "termination”, warranting reliefunder the Industrial Disputes Act.
414Sri Lanka Law Reports{2008] 1 Sri L.R
A review of the written submissions to both this Court and thelower Courts as well as a review of the evidence submitted at thelower court hearings, reveals the facts of the case relevant to thisCourt's decision to be as follows:
Though successor to a government corporation, thepetitioner is now a private limited liability company dulyincorporated under the laws relating to Companies in SriLanka.
Until the petitioner's refusal to extend respondent'semployment, the respondent worked for the petitioner as aGrade III employee in the post of "Executive", havingcommenced employment with the petitioner's predecessorin 1970 as a Grade V employee.
Though the Respondent's employment contract does notcontain express rules on retirement, it does, however,expressly bind respondent to agreement and compliancewith the petitioner's corporate policies and rules, as theymay be amended from time to time.
An amendment dated 4th June 1998 to Clause 1 ofChapter VII of the Administrative Procedural Handbook ofthe petitioner, sets out a policy of retiring an employee atthe age of 55, subject to the approval of the employee'sapplication for extension of employment. Under cross-examination at the Labour Tribunal hearing, therespondent conceded his awareness of this amendmentand the Policy it contained.
The respondent's letter of warning alleged that therespondent had violated his duty of loyalty to the petitionerby attempting to divert business from the corporation forpersonality remunerative reasons, and this resulted in adeferment of the respondent's salary increments.
On or about December 2003, the respondent filed anapplication for extension of his employment past the age of55 years. This was refused and having informed him, therespondent's services with the company ended on 20thMarch 2004, the day he reached the age of 55.
Sn Lanka Insurance Corporation Ltd. v
SCJayathilake (Shiranee Tilakawardane, J.)415
In the area of employment and Labour law, the law must servetwo, often competing purposes and must do so by achieving aprecarious balance between the two. On one hand, the courtsare duty-bound to protect the rights of the workman fromcorporate bullying and an abuse of corporate power, as theworkman is clearly the lesser-empowered of the two parties.Indeed the very creation of Labour law itself is a result of theneed to place checks and balances on capricious abuse of themore dominant power of the employer's action. However, inseeking to achieve such protection, the courts must take care toavoid eroding upon the right of employers and, indeed,corporations in general, to freely negotiate the relationship theychoose to hold with their employees and the autonomy they areafforded as private entities under the laws governing corporateexistence.
In adjudicating claims such as the present one, equity alsopermits the corporate world the freedom to operate within amutually agreed contract, as long as the dominant power of theemployer is not used to exploit the services of the workman, asthe just and equitable relief must be assured to both parties whoseek redress to the labour courts. When a contract expires, itends by the operation of the law, and privileges which could notbe reasonably envisaged within the terms of the contract cannotbe assumed or obtained beyond the scope of the ambit of thecontract unless any rules or policies adopted by the employer-employee contract permits an extension of employment. In SriLanka Insurance Corporation Limited v D.N.W. Jayasunderah),where the facts were very similar to the present case and againstthe petitioner, the court noted that:
" When the contract of employment has come to an endthere would be no termination of the contract. Thus itwould be an automatic ending of the contract by theoperation of the law as a result of ending the life spanof the contract of service. The discretion to grant anextension is with the employer and the refusal to grantan extension would not affect the status of the formercontract as the former contract remains expired andunchanged. Even if the extension in fact had been
416Sri Lanka Law Reports[2008] 1 Sn L R
granted by the employer it would only either renew theformer contract by extending the life of the formercontract or replace the former contract with a newcontract all together."
Learned Counsel for the petitioner essentially submitted thatthis settled the matter. But while viewing refusals of extensionsunder the purview of contract law preserves the integrity of "thecontract" as a product of free will and desire of those who chooseto become party to one, the aforementioned balance betweenemployer and employee rights, in terms of the spirit of theIndustrial Disputes Act, requires that this Court recognizes thepower imbalance between the two, and the very real means bywhich an employer can effect termination of an employee withoutaffirmatively acting in that regard. In doing so, this Court hasrepeatedly held that where employers choose to provideemployees with the right to apply for extensions of employment,they are under a duty to decide upon such extensions in areasonable and just manner, even when such decisions arewithin their sole discretion, in the case of Shanmugam vMaskeliya Plantations Limitedreference was made to this inthe following manner:
"Mr. Mustapha (Counsel for the appellant) rightlyconceded that the appellant has no contractual right toan extension in service after the optional age ofretirement, namely 55 years. Admittedly, the appellantwas granted 3 extensions of service after he reached55 years but was refused his 4th extension of service.
The question then is whether the refusal of the 4thextension was justified in the particular facts andcircumstances of this case. This was the true issuebefore the arbitrator and I agree with Mr. Mustapha thatthe arbitrator erroneously viewed the dispute largely, ifnot, entirely, as a matter of contractual entitlement."
In determining the merits of a decision to refuse an extension,I hold that three matters have to be considered and examined bythe court, through consideration of evidence and testimonyproffered by both parties as to the existence or non-existence ofeach if, and only if, the court finds that the employee is able to
Sri Lanka Insurance Corporation Ltd. v
SCJayathilake (Shiranee THakawardane, J.)417
establish,by a preponderance of the evidence, no less than twoof the considerations in its favour, then the court is able to applythe principal of constructive termination as contained in theIndustrial Disputes Act (and award appropriate relief) upon thegrounds that, as a matter of law, the employer has made anunreasonable refusal to extend employment and, by so doing,has constructively terminated the employee. The three mattersthat need to be considered when arriving at a determination onthis matter are:-
There has been no employee misconduct alleged orif misconduct has been alleged, employer failed toadequately investigate and resolve the matter.
Employer does not have a policy of evaluating' applications or extensions of employment that
includes consideration of factors such as absence ofmisconduct, length of employment, and employeeability.
Employer failed to evaluate the application forextension of employment.
On these principles, and on analysis of the facts of this case,it is pertinent that at the Labour Tribunal inquiry the LearnedCounsel for the respondent submitted, and the High Court laterfound that one instance of misconduct was alleged against therespondent as evidenced by a warning letter (X-4 in theproceedings of the Labour Tribunal), though no evidence of anyformal inquiry or official corporate resolution of the matter waspresented by the petitioner that would establish its claim ofrefusing the extension due to the respondent’s prior misconduct.The High Court's rejection of the petitioner's contention was, ineffect, a determination that the respondent had established thefirst of the three matters listed above. However, unlike the HighCourt who saw fit to affirm the Labour Tribunal's order based, inlarge part, upon finding the petitioner's misconduct claim invalid,our scrutiny and analysis of the instant case must extend to thesecond and third matters set out above.
A review of the evidence submitted by learned Counsel for thepetitioner reveals the submission of a 4th June 1998 amendment (the
418Sri Lanka Law Reports[2008] 1 Sri L.R
"Amendment" to Clause 1 of Chapter VII of the AdministrativeProcedural Handbook of the petitioner (X-2 in the proceedings ofthe Labour Tribunal), which in turn reveals that the petitioner holdsa policy of retiring an employee at the age of 55, subject to theapproval of the employee's application for extension ofemployment. According to the Chapter, approval of suchextensions lay in the sole discretion of the Chairman (or the Boardof Directors, if so decided by the Chairman), and in either case, thedecision will take into account several factors relating to the health,ability and history of service of the employee. Furthermore, theChapter reiterates that an employee's failure to submit anapplication or to obtain approval of an application for extensionresults in the retirement of the employee. By this evidence,petitioner has unequivocally established that petitioner indeed hasa policy regarding extension applications that requires deliberationand evaluation in the decision-making process. Respondent is perse unable to counter the 2nd requisite set out above, and in fact,conceded under cross-examination his awareness of both thisAmendment and of the Policy.
The only submission by the learned Counsel of the respondentrelating to the petitioner’s alleged failure to evaluate therespondent's application is his contention that no reasons areprovided to the respondent in the letter notifying him of thepetitioner's denial of his application. It is my view that thepetitioner's failure to provide reasons for denial of the respondent'sapplication may indicate a less-than-optimal business operation,but does not by itself necessarily suggest, let alone require one toconclude, the inverse proposition – namely, that the application wasdenied without reason. While this Court recognizes the need toplace limits on the extent of corporate autonomy in the context ofemployment procedures, we are not willing to extensively intrudeon ministerial practices such as the manner and format ofemployee notifications. The petitioner, by its own policy, does notrequire reasons for denial to be made known upon issuances ofextension denials, and I do not see reason to mandate otherwise.Accordingly, the respondent failed to establish at least two of thegrounds set out above, and having only established one of thethree grounds. I conclude that the High Court erred, as a matter of
Sri Lanka Insurance Corporation Ltd. v
SC ■Jayathilake (Shiranee Tilakawardane, J.)419
law, in holding that the employer’s mere denial of an extension wasan unreasonable refusal constituting a "constructive termination" ofemployment.
It may be apparent from the above analysis that the above tests
in essence a codified and expanded version of the analysisalready used by the courts – places a significant burden upon theemployee, as it requires the employee to clearly establish multiplefailures on the part of the employer in order establish the"wrongdoing" of an employer.
I think that it is important to establish this burden for multiplereasons. First, as such allegations of employer purportedwrongdoings can be fiscally and reputationally disastrous to theEmployer Company, the task of establishing wrongdoing on thepart of an employer to whom an employee has voluntarily joined,should, in fact be an explicit requirement in order to precludefrivolous and baseless allegations. Indeed placing such anincrease in the threshold requirement, which claims must pass inorder to seek relief will, this Court believes, serve to reduce thenumber of these "extension refusal" cases being initiated to onlythose that are truly with merit. Second, to ease the existent burdenof the employee in establishing employer wrongdoing would, ineffect, shift the burden to the employer to establish its owninnocence, creating several "perverse incentives" for the employer
false accusations and inquiries of misconduct, as one example -that would ultimately harm all employees in the long-run.
For the reasons above, I hereby set aside the decision of theHigh Court and dismiss the respondent's application to the LabourTribunal with costs.
S.N. SILVA, C.J.-I agree.
SOMAWANSA, J.-I agree.
Appeal allowed, decision of the High Court set aside.
Respondents application to the Labour Tribunal dismissed.