Wednesday, 13 January 2021 08:03

Cabinet gives nod to raise employee termination compensation to Rs. 2.5 m

Despite private sector protests Cabinet this week gave approval for the upper limit of compensation under the Termination of Employment of Workman Act (TEWA) to be increased from Rs. 1.25 million to Rs. 2.5 million.

Cabinet spokesman Keheliya Rambukwella said the Cabinet paper submitted by Labour Minister Nimal Siripala de Silva was approved during the Cabinet Meeting on Monday. The change comes after several rounds of discussions between unions and private sector workers at the National Labour Advisory Council (NLAC).

The Termination of Employment (Special Provisions) Act, No. 45 of 1971, as amended by Act No. 12 of 2003, was enacted for the purpose of providing relief when terminating the service of workers. The Act introduced a formula for determining the amount of compensation to be paid to workers at the termination of employment.

Accordingly, the compensation was determined on the basis of the period of service under the regulations imposed by the Minister of Labour. However, the regulations include a provision that the amount of compensation calculated according to the formula above should not exceed Rs. 1.25 million, which has been opposed by unions.

“It has been observed that workers with higher monthly salaries receive lower compensation in the event of job losses, especially due to unfair dismissal of workers and closure of institutions. Our government is of the stance that this needs to be changed. Therefore, Cabinet has approved raising the ceiling from Rs. 1.25 million to Rs. 2.5 million,” Minister Rambukwella said.

The Employers’ Federation of Ceylon (EFC) and the Free Trade Zone Manufacturer’s Association (FTZMA) had earlier protested the increase insisting it was detrimental to investors who would now have to pay a higher severance package including gratuity.

FTZMA wrote to the Labour Minister in December warning that any change to the current ceiling could “seriously damage the continuity of business, investment, and generation of employment opportunities.” They emphasised this could have deeper impact in the backdrop of the COVID-19 impact exerted on companies.

The Association pointed out that the legislation was enacted in an environment where Sri Lanka was implementing an inward-oriented economic policy with the prime objective of protecting employment; but argued aspects envisaged by the legislation at that time have changed now.

It emphasised that the country has moved away from such socioeconomic policies to open market economic policies, but that the labour market remained unchanged with highly rigid conditions, hampering investment and limiting the creation of employment opportunities.

The association said legislation such as TEWA could undermine Sri Lanka’s quest for foreign investment, as under TEWA an employer cannot dismiss an employee except for serious disciplinary infractions, unless there is prior written consent of the employee or prior written approval by the Commissioner General of Labour (CGL). It added that, in effect, an investor does not have the freedom to reduce its workforce in order to adjust to the changing business environment, and said Sri Lanka is the fourth highest severance paying country in the world for redundancy dismissal.


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