“By reason of the special circumstances of this case, the admission by the employee to repay the loss should be considered as a sufficient reason to deviate from the ordinary relief of reinstatement.”
In Labour Law: Repaying a Loss Doesn’t Shield Employees from Disciplinary Action
The Supreme Court has held that an employer can both recover damages from an employee and terminate their employment for misconduct, as long as all legal and procedural steps are properly followed. The Court said that even if an employee pays back a loss caused to the company, that repayment does not stop the employer from taking disciplinary action if wrongdoing is proven.
The case arose after a worker was accused of being responsible for shortages in goods distributed to employees. A domestic inquiry found him guilty, and he was dismissed. The Labour Tribunal later ruled that his dismissal was unfair and ordered his reinstatement along with compensation. The High Court agreed, but the employer appealed to the Supreme Court.
One of the key questions before the Court was whether an employer loses the right to take disciplinary action after an employee has already repaid the loss. Justice Sobhitha Rajakaruna, said that repaying money is a civil matter, while disciplinary action is about upholding honesty and responsibility in the workplace.
However, the Court also stressed that employers cannot dismiss employees merely because a loss occurred or because an employee admitted to it. The employer must prove serious misconduct or gross negligence through reliable evidence.
In this case, the Court found that there was no solid proof. The only testimony against the worker came from a senior officer who said that some workers complained about not receiving their goods – but this was hearsay and unsupported by documents or witnesses.
The Court emphasized that an admission of loss is not the same as admitting guilt. To prove misconduct, there must be clear proof of intentional wrongdoing, fraud, or serious carelessness.
The judgment also clarified that the burden of proof rests with the employer. Even if an employee admits that goods went missing, it is still the employer’s duty to show that the loss was caused by misconduct. The Court reaffirmed principles from earlier cases, where it was held that Labour Tribunals must decide cases based on the balance of probabilities, weighing which version of events seems more likely. An employer, the Court said, must “justify the act of dismissal with solid, positive evidence.”
Although the Supreme Court found that the employer had not proven serious misconduct, it did not order the employee’s reinstatement. Normally, when a dismissal is found to be unfair, reinstatement follows. But here, the Court said there were special circumstances. Since the employee had already admitted that the shortage occurred while under his care and had agreed to repay the company, the Court found reinstatement inappropriate.
Justice Rajakaruna wrote: “By reason of the special circumstances of this case, the admission by the employee to repay the loss should be considered as a sufficient reason to deviate from the ordinary relief of reinstatement.” Therefore, the Court ruled that the employee was entitled to compensation for wrongful dismissal – amounting to Rs. 467,000 – but would not be reinstated to his position.
“…I hold the view that an employer is entitled to both, recover damages from an employee and terminate his/her employment on disciplinary grounds, provided all requisite legal and procedural conditions are fulfilled. Likewise, disciplinary action against an employee should be grounded in established misconduct, rather than whether the associated loss or damage has been recovered. An employee’s civil liability and disciplinary proceedings against such employee may occur simultaneously, but are not mutually exclusive….” – Justice Sobhitha Rajakaruna
Case No: SC Appeal No. 152/2013 [Decided on: 23.08.2025]
Before: Justices Kumudini Wickremasinghe, Sobhitha Rajakaruna, and Sampath B. Abayakoon
