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New guidelines on compensation payments

"That is the fact today and employers have to recognise this reality," Neville Joseph told a seminar on recessionary trends and its impact on labour at the Trans Asia Hotel last week. It was organised by Corporate Legal Conference Services.

He said in Sri Lanka there was no need to hold disciplinary inquiries to sack employees. "The fact that you hold a disciplinary inquiry only shows your bona fides on the principle of natural justice."

Joseph said that in today's context the International Labour Organisation (ILO) was as, or even more important than the IMF and the World Bank in Sri Lanka. "Like the other two institutions, the ILO also has a major impact on the economy vis-à-vis its involvement in labour."

He suggested that companies, when confronted with sit-in or stay-in strikes, should give notice to employees to vacate the premises and suspend the strikers. "Once they are asked to vacate and continue to stay, they are violating the law."

Joseph acknowledged that the Labour Department was ineffective in handling strikes. "If you have an efficient Labour Department, a strike issue is quickly sent for arbitration and when this takes place, the strike is illegal."

He asserted that the Labour Commissioner's office was more important that the office of the Chief Justice because a strike can affect the whole community and the country.

Joseph said the Supreme Court was now considering work-to-rule as a form of misconduct like in Britain. Currently work-to-rule is either permitted in the public or private sector since labour laws are unclear on this form of protest.

Retired judge F.N.D. Jayasuriya said the right to strike was a basic right and a legitimate weapon and couldn't be prevented.

"There is little companies can do when a strike is legally resorted to," he said.

Gamini Weerakoon, a retired Labour Commissioner, said the situation in 1971 when the Termination of Employment Act was enacted is similar today.

"In 1971, this law was passed because a large number of private sector firms were laying-off staff. We have a similar situation today," he added.

The former commissioner said that if a company asks a worker to stay at home for a week, it would amount to termination which then requires the permission of the labour commissioner.

"The less time consuming and less expensive method is to negotiate with the employee and offer him a package," he said.

He said in the current economic environment there were employers who felt it was cheaper to ask some employees to stay at home and pay their full wages. "There are cost reductions in this exercise in terms of tea, lunch, power, etc. If you keep them at home and pay them, legally it does not amount to termination."

Referring to the crisis facing garment firms, Weerakoon said one option was for companies to phase out the termination process by resorting to full pay, then after a period of time, half pay and ultimately lay off workers.

"The problem in a total closure scenario is that there is no fixed compensation payment formula," he said adding that some employees even demand five years' salary in lieu of termination, even if they have worked for a few years or have just two to three years before retirement.

He said time and again there were conflicting orders by the labour and superior courts on the issue of compensation.

Recently the labour commissioner had issued a set of guidelines to his officers on compensation without consultations with trade unions or employers. According to this new formula, an employee can get two to three months' salary for each year of service or the present salary upto retirement age whichever is less.

"Whether this is just and equitable, I don't know. In the case of a bankrupt company, that company won't be able to pay at these rates," he noted, adding that there were some good features in the guidelines.

Weerakoon said employers should know the compensation guidelines from the labour commissioner which would then eliminate the need to consult the commissioner on such issues.

He said Sri Lanka labour laws were far more advanced than many countries including the US. "We have an advanced labour structure – some many call too rigid – where no child labour is allowed, social security is provided and freedom of association is guaranteed."

During the discussion that followed the main presentations, it was revealed that appointment letters were not compulsory.

"Although it is the practice here and beneficial to both sides, there is no lawful requirement for appointment letters to be given to employees," said Weerakoon.

He said the number of official company closures in 2000 was 89 compared with 84 in 1999, 53 in 1998, 59 in 1997, 97 in 1996 and 80 in 1995.

Recessionomics: the economics of aging

By Arjuna Mahendran

Sri Lanka currently has 375,000 government pensioners who are paid a total of Rs. 25 bln. This amount is about 10% of the government's tax revenue. Salaries take up another 30%, interest on public debt 40% and subsidies and welfare spending another 20%. It doesn't take a genius to add these numbers and come to the conclusion that 100% of the government's tax collections finance these four items.

So where does the money come for building roads, hospitals, schools, etc. and most importantly, fighting the war? This is where the two dons want us to focus our attention. The answer is partly from the EPF. The EPF got Rs. 17 bln by way of contributions in 2000 and paid retirees and brain drainers leaving the country Rs. 11 bln. Most of the balance Rs. 6 bln was lent to the government.

Of course, Rs. 6 bln is peanuts when you consider that the government borrowed Rs. 200 bln in fresh loans in 2000. But the billion-rupee question being asked is: 

'Would you want your EPF money to be invested with company X which had total outstanding borrowings of Rs. 1.2 trillion in 2000 and Rs. 200 bln in annual income?'

40% of company X's income goes on interest, 30% on wages, 10% on pensions (which, incidentally, are likely to explode in the next ten years due to indiscriminate hiring recently) and 20% on handouts to shareholders (to keep them from asking for proper dividends!). Company X has never depreciated its fixed assets which it occasionally sells off to fund its current expenses. Nor has it accumulated any reserves since the rubber boom after the Korean War in the early 50s. So its only prospects to keep investing in its obsolete and inefficient infrastructure is to keep selling off assets to foreigners or keep borrowing till it goes bankrupt.

Would you entrust your life's savings to Company X? I wouldn't. And that is precisely the point the learned dons are making. Company X is the government of Sri Lanka and all EPF contributors face a precarious future when the government starts scurrying around to find funds to pay the interest on its mountain of accumulated debts. Of course, Sri Lanka being a sovereign nation has the right to print its own money. And that is the trick which has allowed it to borrow so profligately over the decades. By printing money to pay off its creditors (such as the EPF account holders) successive governments have devalued the currency thereby ensuring that Sri Lankan wages remain among the lowest in Asia. This means our workers do not have the wherewithal to upgrade their skills in order to move up the value chain. Therefore, after 20 years of having a thriving garment industry, which grew because of relatively cheap, diligent and productive female labour, we have not entered other better-paying sectors like electronics and software production in a meaningful manner.

And to add insult to injury, the savings and EPF of our lowly-paid workers end up being lent back to the government! So our working population is in a trap where their real wages are depressed and their savings eroded by the same government which is supposed to improve their lot. No wonder a large number still opt to go abroad and be employed as servants to imbecile employers who sometimes treat them like animals. In Singapore and Malaysia EPF monies are lent back to the contributors to fund the purchase of their first house. The governments build the houses for their citizens to ensure the money is well spent and the housing is good quality. In this manner, citizens acquire assets through their working lives and have the benefit of the lump-sum payment on retirement. Also, the era of open-ended pension schemes has been stopped and replaced by superannuation schemes.

Though I have painted a bleak picture on Sri Lanka, I believe the situation can be rectified. But we have to act fast before our aging population gets caught in a mire.

"Over dependence on foreign experts"

"Unlike in the political scenario, when policies change with a change in the government, this corporate plan will be the manifesto to be followed by successive presidents of this institution until it is reviewed in the fifth year," noted B.R.O. Fernando after being installed as president of the institution at its 95th annual sessions held in Colombo recently.

He said he had prepared a five-year corporate plan for the institution, which coincides with the centenary of this body, to be marked in 2006.

An engineer's manual and code of practice on each discipline in this field to meet the required professional standards would be compiled and made available while the existing code of ethics is to be reviewed.

Fernando said the institution has a network of engineers spread across Sri Lanka and its total membership now exceeds 6,500.

He raised the issue of foreign expertise in Sri Lanka, a bone of contention among many professional organisations here.

"Our dependence on foreign specialists and experts overlooking the availability of our local experts to undertake most projects is a matter of serious concern, and which if not arrested immediately will be like throwing away the baby with the bath water."

Fernando also referred to the power crisis, saying the institution had informed the head of state on the urgency of implementing the coal power project at Norochcholai.

"Today we have a very unfortunate situation where very important matters connected with power generation and important decisions are reported to have been taken by committees void of engineers. The saddest part in this entire scenario is the lack of accountability on such decisions taken," he said.

Fernando said the institution would lobby the government that comes into power at the general election to appreciate the decisions of the engineers.