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.
