If there is one question we get asked more than any other by employers in Sri Lanka, it is this, “how much will the Tribunal award?” And our honest answer, after decades of practice, is almost always the same, “it depends.”
That response frustrates clients. They want certainty. . But the truth about compensation awards by Labour Tribunals in Sri Lanka is that they function on just and equitable basis. with a higher degree of discretion,
The Starting Point — Section 31B of the Industrial Disputes Act
The Labour Tribunal’s jurisdiction to hear termination disputes flows from Section 31B of the Industrial Disputes Act No. 43 of 1950. When a workman files an application claiming unjust termination, the Tribunal has two primary remedies at its disposal. It can order reinstatement with or without back-wages. Or it can award compensation. In practice, compensation is the more common outcome, particularly where the relationship between employer and employee has deteriorated beyond repair.
Here is the problem. The Act does not prescribe a formula. It does not set a cap. It does not lay down a minimum. Section 31C simply empowers the Tribunal to make an order that is “just and equitable” in the circumstances. Those two words , “just” and “equitable”, are doing an enormous amount of heavy lifting, and they are the single biggest reason why two seemingly identical cases can produce wildly different outcomes depending on which Tribunal hears them.
The Back Wages Question
Nothing generates more inconsistency than the question of back wages. When a Tribunal finds that a termination was unjust, it must decide whether to award wages for the period between the date of dismissal and the date of the order. Given that Labour Tribunal proceedings in Sri Lanka routinely take three, to conclude, the back wages component alone can dwarf every other head of compensation.
In some cases, full back wages could be awarded. Others reduce the amount, depending on facts and circumstances of the case.
There is no binding formula. The Supreme Court and the High Court have offered guidance in various decisions, but guidance is not precedence, and Tribunal Presidents retain considerable latitude.
What Factors Actually Influence the Award?
While there is no statutory checklist, certain factors consistently surface in Labour Tribunal in Sri Lanka:
Length of service. A workman with twenty years of service will almost always receive a higher award than one with two years
Last drawn salary. The monthly wage at the time of termination serves as the baseline for most calculations.
Circumstances of dismissal. Was the employee marched out without warning, or was there a considered process? Employers who act harshly or vindictively tend to face higher liability.
Whether a domestic inquiry was held. This is critical. A properly conducted inquiry, with written charges, a fair opportunity to respond, and a fair and an impartial hearing signals good faith of the employer.
Age of the employee. Older workers who face diminished prospects of re-employment often receive generous awards.
Employee’s own conduct and Mitigation efforts Tribunals do consider contributory misconduct, though they rarely reduce the award to zero on this basis alone.
Statutory Entitlements Sit on Top
It is worth remembering that Tribunal compensation is separate from statutory terminal benefits. Gratuity under the Gratuity Act No. 12 of 1983 is calculated independently. EPF contributions under the Employees’ Provident Fund Act and ETF contributions under the Employees’ Trust Fund Act must be settled regardless of the Tribunal outcome. Any outstanding entitlements under the Shop and Office Employees Act, payments in lieu of notice, unused annual leave encashment, are additional. The Tribunal award sits on top of all of these.
Employers who fail to appreciate this layering effect often underestimate their total exposure dramatically.
What Can Employers Do?
Accept the uncertainty, but preparation reduces risk. Maintain proper documentation. Conduct domestic inquiries diligently. Comply with TEWA where it applies. Pay statutory entitlements promptly and in full. And when a dispute arises, seek legal advice early, not after the Tribunal application lands on your desk.
The Labour Tribunal system in Sri Lanka is designed to protect workers, and it does so with broad remedial powers. Employers who respect the process and act in good faith will always fare better than those who gamble on outcomes they cannot control.
FAQ’s
No. The Industrial Disputes Act does not prescribe a cap on compensation. The Tribunal President has discretion to award an amount that it considers just and equitable in the circumstances of each case. This is one of the primary reasons outcomes vary so significantly.
There is no uniform formula. Some Tribunal Presidents calculate back wages from the date of dismissal to the date of the order, which can span several years. Others make deductions for periods where the employee could have sought alternative work.
Yes. Settlement is possible at any stage of the proceedings and is actively encouraged. Many employers opt for negotiated settlements to avoid the cost and uncertainty of a prolonged hearing. A properly documented settlement agreement, between both parties, is legally binding.
TEWA compensation and Tribunal compensation operate independently. A workman who receives compensation from the Commissioner of Labour under TEWA cannot subsequently file an application before the Labour Tribunal for the same cause of action.
There is no fixed timeline. Cases can conclude within a year or it may take three to five years, and some drag on for much longer. The duration depends on factors such as the complexity of the issues, availability of witnesses, adjournments, and the particular Tribunal’s caseload.
There is no statutory obligation on the employee to demonstrate that. However, some Tribunal Presidents do take into account whether the workman made reasonable efforts to find alternative employment when determining the quantum of compensation.
No. EPF contributions under the Employees’ Provident Fund Act and ETF contributions under the Employees’ Trust Fund Act are separate statutory obligations. They must be settled independent of any compensation the Tribunal may award. Similarly, gratuity under the Gratuity Act and any entitlements under the Shop and Office Employees Act must be paid on top of the Tribunal award.
Yes. An aggrieved party can appeal a Labour Tribunal order to the High Court.
Document everything. Maintain proper records of warnings, performance reviews, disciplinary proceedings, document the impartial domestic inquiry process and indicate that employee was offered sufficient training and additional help for improvement In our experience, the employers who fare worst before Labour Tribunals in Sri Lanka are those who acted without a paper trail. The ones who prepare properly and consistently are exposed to lesser risks.
