If you’ve ever had to let someone go in Sri Lanka, you will know it is nothing like what the textbooks suggest. The reality on the ground, whether you are running a garment factory in Katunayake or managing a tech startup in Colombo 03, is messy, stressful, and riddled with legal landmines. And frankly, too many employers get it wrong.
We have spent years advising businesses across Sri Lanka on how to handle dismissals properly. What strikes us most is how little awareness there is, even among seasoned HR professionals, about just how restrictive our labour laws actually are. So let us walk you through what you need to know.
Why Sri Lanka Is Different ?
Sri Lanka does not follow an “at-will” employment model. You cannot just hand someone a letter and walk them out the door. Our framework is built on the premise that a worker’s livelihood deserves statutory protection, and the courts take that seriously.
The centrepiece of this framework is the Termination of Employment of Workmen (Special Provisions) Act No. 45 of 1971 (as amended), commonly known as “TEWA”.And the Industrial Disputes Act No. 43 of 1950 (“IDA”). On a collective application of TEWA and IDA, you cannot terminate a workman’s services unless you:
- obtain consent of the workman (ideally in the form of a resignation) or
- obtain prior written approval of the Commissioner General of Labour or
- For justifiable cause
So When Can You Actually Terminate Someone?
There are judicial decisions that recognize certain grounds for termination, but each one comes with conditions attached.
Misconduct is the most common basis. Theft, dishonesty, persistent absenteeism, insubordination — these are all valid reasons. But it is important to hold a domestic inquiry where the employee is given a fair opportunity to defend himself .This will intimate bona fides of the employer. Skipping any of these steps and the Labour Tribunal will likely set aside the dismissal.
Redundancy is another recognised ground. Restructuring, closure of a division, technological change. But redundancy under Sri Lankan law isn’t straightforward either. You can seek permission from the Commissioner General of Labour under TEWA, demonstrate genuine operational necessity of this redundancy, and often negotiate compensation. The Commissioner does not rubber-stamp these applications. They investigate them.
Poor performance can justify termination, but only after the employer has documented the deficiencies, issued warnings, given the employee a reasonable period to improve, offered PIP’s and exhausted all remedial options. Walking into a Labour Tribunal and saying “he wasn’t performing” without a paper trail behind you is a recipe for disaster.
Fixed-term contracts expire automatically at the end of contractual period, and that is generally fine. But be careful. Our courts have repeatedly looked through arrangements where employers roll over fixed-term contracts year after year without a break in service. If the relationship has the hallmarks of permanent employment, the Tribunal may treat it as such.
The TEWA Application Process
.The employer must submit a written application to the Commissioner General of Labour, setting out the reasons for termination. The workman receives notice and gets a chance to respond. The Commissioner may hold an inquiry, examine documents, and hear both sides. Thereafter the Commissioner will make a decision, giving approval, refusal, or conditional approval (often with a compensation order attached).
We will not sugarcoat it, this process can drag on for months. That is precisely why many employers opt for a mutual severance – negotiated exits with agreed compensation packages. Done properly, with legal advice, these settlements hold up. Done sloppily, they unravel.
What Happens When It Goes Wrong ?
A workman who believes they have been unjustly dismissed can file an application before the Labour Tribunal within six months from the date of termination.
Labour Tribunals have powers to award more generous compensation in a quantum it deems just and equitableIt can order reinstatement with full back wages. It can award compensation where reinstatement is not the proper solution.
We have seen cases where employers ended up paying years’ worth of back wages because they couldn’t produce a single warning letter. Documentation is not bureaucracy for the sake of it. It is your defence.
Terminal Benefits You Cannot Avoid
Regardless of how or why employment ends, certain payments are non-negotiable.
Under the Gratuity Act, any employee who has completed five years of continuous service is entitled to a gratuity payment calculated at half a month’s salary for each year worked. This applies on termination, resignation, retirement, and even death.
Unutilized annual leave can be encashed. EPF and ETF contributions must be up to date and properly remitted to the respective funds.. These are not optional, they are statutory obligations, and failure to comply exposes the employer to significant penalties.
Constructive Termination — The Quiet Risk
Not every wrongful termination involves a letter. Sometimes the employer makes conditions so unbearable, slashing pay, demoting without cause, relocating without consent, not addressing toxic behaviors etc where the employee has no real choice but to resign. Sri Lankan law treats this as constructive termination by the employer, This catches many employers off guard. They assume that because the employee “resigned,” no liability attaches. That assumption is wrong, and it’s expensive when tested.
Practical Advice From the Trenches
After years of handling termination disputes across Sri Lanka — from industrial zones in Biyagama to corporate offices on Galle Road — here’s what we tell every client:
Document everything. Verbal warnings mean nothing in a Tribunal. Put it in writing. Keep copiesand maintain employee-personal files
Do not skip the domestic inquiry. It’s tedious, yes. But it is your shield. A properly conducted inquiry is the single strongest defence against an unfair dismissal claim.
Get legal advice before you act. Not after. Before. The cost of a consultation is a fraction of what you will spend defending a Labour Tribunal application.
Pay what’s owed promptly. Withholding employee salary, gratuity or EPF/ETF entitlements does not strengthen your position. It weakens it
Consider negotiated exits. A well-structured mutual severance/settlement agreement between employer and employee with independent advice available to the employee, is often the most pragmatic solution for both parties.
Final Thoughts
Employment termination in Sri Lanka is not something you can wing. The law is protective by design, the Tribunals lean towards the worker, and procedural missteps carry real consequences. Whether you are operating in Colombo, Jaffna, Matara, or Trincomalee, the rules are the same.
FAQ’s
No. Sri Lankan labour law requires employers to have a valid and justifiable reason for termination;employers must obtain either the written consent of the employee or prior written approval from the Commissioner General of Labour before proceeding with termination.
A domestic inquiry is a formal internal hearing conducted by the employer where the accused employee is given an opportunity to defend himself against the charges levelled against him. , and be allowed to present their case. While not codified under a single statute, Labour Tribunals in Sri Lanka consistently expect employers to have conducted a fair domestic inquiry before any misconduct-based dismissal.
An employee must file an application before the Labour Tribunal within six months from the date of termination.
At a minimum, employees are entitled to any outstanding payment in lieu of notice, encashment of unused annual leave,settlement of EPF and ETF contributions and gratuity if applicable.
No. TEWA applies only to establishments employing fifteen or more workmen. Employers below that threshold are not subject to the TEWA approval process, though other labour law obligations still apply.
Not necessarily. While a fixed-term contract automatically expires at the end of its term, Sri Lankan courts have looked beyond the label where contracts have been repeatedly renewed without a break in service. In such cases, the Tribunal may treat the employee as a permanent worker.
Constructive dismissal occurs when an employer’s conduct — such as unjustified demotion, salary reduction, relocation without consent, or tolerating a hostile work environment — makes it impossible for the employee to continue working. The employee’s resignation in such circumstances is treated as a constructive termination by the employer.
The position is not entirely clear-cut. The Gratuity Act does provide an exception for termination involving fraud or criminal misconduct. However, employers should exercise caution and obtain legal advice before withholding gratuity, as Tribunals scrutinise such decisions closely.
Yes. A negotiated exit where the employee voluntarily provides his resignation is one of the cleanest and most legally defensible methods of ending an employment relationship in Sri Lanka. It is advisable that such agreements are documented properly and that the employee has access to independent advice before signing.
The termination is deemed unlawful. The employee can challenge it before the Labour Tribunal, which has the power to order reinstatement with full back wages or award substantial compensation. The financial exposure for the employer in such cases can be significant.
