In an economic environment, where competitiveness is the key to survival, industrial relations have a significant impact on a nation's economy. However, it is indeed a matter for regret that in Sri Lanka there has been no deregulation in the sphere of Industrial Relations.

When one discusses business, investor confidence and expectations are two matters which must be seriously considered. Reality demands that if we are to attract investment, the returns too must be attractive and hence business profitable. Protectionism that impinges on the economy is not in keeping with a liberalized economic policy. Therefore, the Government of Sri Lanka cannot continue with a legal framework which would hinder progress in this direction.

Labour law in Sri Lanka is a huge handicap to providing opportunities for economic development in this country. We need to change the labour laws to suit the socio-economic plans of the country.

Most of the labour laws came into operation during the period of the closed economy. In other words, the labour laws, as prevailing are not conducive to industrial development. This has raised fears among investors and employers about investing in labour intensive industries. Apart from this, it has also led to poor industrial relations. It is sad but true that the present labour laws in Sri Lanka have made employers regard labour as a liability instead of as an asset.

Some of the important enactments or labour laws, which have an impact on Sri Lankan industry are:

1. The Termination of employment (Special Provisions) Act of 1971.
It must be noted that the Act in question was introduced during an altogether different economic environment. According to the laws laid down in this Act, the employer must get the consent of the employee or get permission from the Commissioner of Labour to terminate the services of an employee, if the termination is on non-disciplinary grounds. This includes retrenchment, termination on closure of a company, lay offs, and it even covers absence on grounds of illness and incompetence on the basis that these are beyond the control of employees.

Thus it is seen that employees are safe as long as they steer clear of misconduct. Therefore, the employee can do the bare minimum and remain in employment, although it will not help to increase productivity.

The Act does not specify the method of calculating compensation — it is at the discretion of the Commissioner of Labour. This generally results in the Commissioner of Labour awarding unreasonable compensation.

There are delays in obtaining the order from the Department of Labour. Often, it takes longer than 6 months and sometimes over 1 year, during which the employer has to keep paying the salaries, although no work is done by the employee.

Any person who has worked for 180 days is covered by this act. Needless to say, much hardship is caused to employers whose labour requirements fluctuate periodically due to various extraneous factors. In short, the Termination of Employment Act can saddle an employer with excess labour which the "unfortunate" employer never planned for.

Rationalization of work arrangements by reductions in manning levels, introduction of shift work arrangements etc. are often resisted by workers and the employer is helpless because he will have to make an application to the Termination Unit under the Act and undergo difficulties both in terms of cost and time in a retrenchment exercise.

For reasons given above, it would be in the interest of the country, keeping in mind the need to create employment in Sri Lanka and to encourage investment (both foreign and local) to abolish the Termination of Employment Act. If the Act cannot be abolished due to political consideration it should be amended to provide a scheme of compensation, so that where there is a downturn in the business, the employer could retrench speedily. The Employers' Federation of Ceylon has proposed that the Termination of Employment Act should be phased out gradually by the government by introducing a social insurance scheme to assist employees whose services are terminated under this Act. The Government has not responded to this constructive suggestion.

2. Industrial disputes act
Any worker who is dismissed can seek relief before a labour tribunal. The employer has to justify the termination or the dismissal. The Labour Tribunal can make an order "As may appear to the tribunal to be just and equitable." The LT can grant relief to an employee, not withstanding, anything to the contrary in a contract of employment. In other words, the LT can even override principles of the general Law of Contract.

The Industrial Disputes Act also provides for direct state intervention in the settlement of industrial disputes. The first step in the dispute settlement process is conciliation. Failing conciliation, it will be referred to arbitration, which can be voluntary (where parties agree) or it could be compulsory arbitration (reference by the Minister of Labour).

However, it is a matter for regret that officials of the Labour Department generally conduct themselves under the misconception that their role is to protect labour and every attempt is made to get the employer to give in or reach a settlement, as far as possible in favour of the demands of the workers, without relevance to any objective criteria.

Another drawback in the dispute procedure is the principle that a benefit once extended to workers cannot be withdrawn. It does not take into account that any organization is vulnerable to changes in market forces. In other words, it does not give the employer the flexibility to vary, withdraw, or introduce benefits according to his capacity. Of course, it also stands in the way of an employer extending new benefits to employees in good times fearing that he will be tied down to them in the future, whatever be the circumstances.

There are also criticisms levelled against Arbitrators and Industrial Courts that equitable considerations are given undue prominence.

Collective Agreements — Another important area that the Industrial Disputes Act deals with is Collective Agreements. The Act clearly states that the violation of the Collective Agreement is an offence for which an employee or Union or worker can be prosecuted by the Department of Labour. It is a fact that when workers fail to carry out their obligations under the terms of the collective Agreement, no action is taken by the Labour Department (although they should be prosecuted) but on the other hand, if there is a breach on the part of the employer, the Department is quick to prosecute. Therefore, the Industrial Disputes Act creates doubts as to the value of such Agreements instead of encouraging collective bargaining.

3. Holidays
Sri Lanka has one of the highest (if not the highest) number of holidays in the world. The working week in most places is 5 days. There are 104 weekly holidays. There are 9 statutory holidays and 12 Poya holidays for the year. In addition to what is given above, most companies grant 21 days sick leave, 14 days Annual Leave and 7 days Casual Leave (total 42 days of leave). An employee works only 198 days per year out of the 365 days.

Most Wages Boards prescribe Sunday as the weekly holiday. This is a significant burden to industries which have continuous operations.

In most or all the major industries, work is done on holidays by making overtime payments, which cast an additional financial burden on the employer. It must be noted that there is no flexibility to pay them the normal day's wage for working on holidays — it has to be at least one and a half times and sometimes double or treble.

4. Casual Employment
As already stated above, both investors and employers are reluctant to invest in labour intensive industries because labour laws are not conducive. In a country like Sri Lanka where the unemployment rate is high, it would be useful to have more flexibility in creating employment as well as terminating employment. In this situation, it would be useful to introduce laws to allow employers to make use of casual employment. This would help the employer to change direction quickly and restructure his business to keep up with competition not only locally but internationally.

Unfortunately, at present this is one area that has given rise to many disputes, uncertainties and difficulties of interpretation. Both the Department of Labour and the Labour Tribunals have always been very hostile towards those who employ casual workers and they have always tried to interpret the law to mean that the employees who have been termed as casual workers by the employer are really permanent employees.

5 Contract Labour
Sub-contracting certain operations or activities of a company is now accepted in most countries and the need for contract labour in Sri Lanka should be viewed favourably by the government. Contract labour becomes essential in certain establishments to carry out their day to day activities and if such systems are not permitted the entire project or business venture could be rendered non-viable.

Unfortunately, the opinion has been express that such contract work will be a violiation of the labour laws in Sri Lanka and industrialists fear that the workers who do contract work may be termed as permanent employees of the company. It is therefore, essential that some rethinking is done on this subject and perhaps legislation introduced to accept contract labour as a separate category of employment under the laws of Sri Lanka.

6. The role of the labour department
It would appear that the Department of Labour is of the view that it is their duty to protect labour at any cost without examining the merits of the case. They do not seem to know that their responsibility for labour entails not only to protect them but they must also see that they do not disrupt the economic activity in the county. Investors have found that the Ministry of Industries has one approach and the Ministry of Labour another. To make the situation worse, it would appear that the labour officials themselves lack the training and experience to interpret the law. Therefore the Government should restructure the Labour Department so that the labour administration is done in a proper manner to make trade and industry competitive. In other words, the Department should change its present role of "Protecting employees at any cost" attitude to pay a role supportive of industry and trade.

7. Trade Unions
The government should have balanced legislation which would protect employers from union misconduct as well. There must not be a situation where there are no penalties suffered by an union and its members while there is strict enforcement and penal obligations on employers only. Unfortunately, this is the current reality in Sri Lanka.