Sri Lanka EOR & PEO

Sri Lanka has a number of important regulations that govern how an employee can be terminated and what type of notice he or she is entitled to receive. Generally, notice periods are specified in employment agreements.

If an employer is terminating the employment relationship on disciplinary grounds, they must inform the employee in writing. This should describe the reasons for dismissal within two working days of the date of termination.

Under major employment laws in Sri Lanka, most employees can only be dismissed for one of the following reasons:

• The employee consents
• The Commissioner of Labour has provided prior approval
• A justifiable cause exists

To terminate an employee for a justifiable cause, employers need to provide sufficient evidence that supports their decision. This is in case the employee challenges it as an unjust dismissal to the Commissioner of Labour or a labor tribunal.

Justifiable cause is not defined by law, but it has been interpreted to include the following:

• Misconduct
• Breach of contract terms
• Unsatisfactory performance
• Inefficiency
• Insubordination
• Incompetence, abusive or unruly behavior
• Gross negligence in the discharge of duties
• Intoxication during work
• Dishonesty
• Theft
• Conviction of a crime involving imprisonment or moral turpitude
• A central consideration of determining justifiable cause is whether the employer acted in good faith.

Under Sri Lanka’s labor laws, disputes regarding dismissals can be referred to alternative dispute resolution, including mediation, conciliation or arbitration. These cases can also be sent to a labor tribunal that can order reinstatement and back payment of wages, or provide severance pay in an amount the tribunal deems equitable.

Employees can challenge termination for unjust dismissal and apply for severance payments by filing an application within six months of the dismissal. Potential compensation for unjust dismissal includes:

• Employee with 1 to 5 years of service – 2.5 month’s salary for each year of service the employee completed, subject to a cap of 12.5 month’s salary
• Employee with 6 to 14 years of service – 2 month’s salary for each year of service the employee completed, subject to 30.5 month’s salary
• Employee with 15 to 19 years of service – 1.5 month’s salary for each year of service the employee completed, subject to 38 month’s salary
• Employee with 20 to 24 years of service – one month’s salary for each year of service the employee completed, subject to 43 month’s salary
• Employee with 25 to 34 years of service – 0.5 month’s salary for each year of service the employee completed, subject to 48 month’s salary

In any situation, the maximum value of a severance payment cannot be greater than LKR 1.25 million. Additionally, labor tribunals are given wide discretion to determine what they believe to be just and equitable, given the particular circumstances surrounding the claim.

Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time. Horizons’ Sri Lanka EOR can mitigate risk for foreign companies and provide guidance through this process.