Notice and Severance

Notice Requirement

The contract of employment can be terminated by the employer on disciplinary grounds; or non-disciplinary grounds; or death or operation of law, (this category would include termination of the contract of employment due to factors such as frustration of contract and impossibility of performance); or an act of the employee which may arise in a variety of circumstances such as resignation, vacation of post or abandonment of employment. In case of fixed term contract, it would terminate by reaching the term of fixed period, as specified under the contract.

In accordance with the terms of TEWA, the employer is required to inform the employees of the reasons for dismissal except for disciplinary dismissal) However, any dismissal of a worker covered by the Termination of Employment of Workman Act (TEWA) which is not a disciplinary dismissal cannot take place without the prior written consent of the workman or the prior written approval of the Commissioner of Labour. However, cases where written approval is not required, include voluntary resignations by employees; retirements on the date clearly specified in the letter of appointment; retirements according to a provision of a collective agreement; termination by reaching the end of the fixed term; termination by operation of law. These provisions are applicable only to “scheduled employment”, i.e., the employment contract that falls under Shop & Office Employees Act, Wages Board Ordinance and Factories Act.

The law requires termination notice before terminating services of an employee. However, the law does not deal with individual dismissals rather it talks only about retrenchment (collective dismissals). Workers may be retrenched only after giving at least one month's notice. A worker is eligible for this one month notice only after one year of service. A worker with less than one year of service is not entitled to any notice.

Source: §31 of the Industrial Dispute Act, 1950

Severance Pay

Workers who have completed five years of service with an employer employing fifteen or more workmen, are entitled to gratuity at following rates in the event of termination (whether by the employer or workman, or on retirement or by the death of the workman, or by operation of law, or otherwise) of the services:

1.        Half a month's wages or salary for each completed year of service for monthly rated workmen; and

2.        14 days salary for each year of completed service for other workmen. 

This amount is payable in every circumstances whatever the reason for termination may be, (resignation, dismissal, retirement, death of the worker, by operation of law, or otherwise), and may only be withheld in certain narrowly defined instances.

Under the Termination of Employment of Workmen (Special Provisions) Act 1975, there is provision for redundancy payment. The compensation in lieu of reinstatement is only payable in the event of termination by the employer resulting from the closure of any business which is in violation of the Act in accordance with the following compensation formula:

  1. 2.5-month pay per year of service for 1st to 5th year of service (maximum compensation: 12.5 months);
  2. 2-month pay per year of service for 6th to 14th year of service (maximum compensation: 30.5 months);
  3. 1.5-month pay per year of service for 15th to 19th year of service (maximum compensation: 38 months);
  4. 1-month pay per year of service for 20th to 24th year of service (maximum compensation: 40 months); and
  5. 0.5-month pay per year of service for 25th-34th year of service (maximum compensation: 48 months)

Source: §5 & 6 of Payment of Gratuity Act; Termination of Employment of Workmen (Special Provisions) Act 1975

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