No Employee Can Give Prior Consent to Termination in Appointment Letter, Unless Fixed-Term Contract – CA

The Court of Appeal recently examined the application of Section 2(1) of the Termination of Employment (Wages and Agreements) Act (TEWA), which mandates that employers obtain an employee’s consent before terminating their employment. In this case, the employer argued that the employee had provided consent for termination in the letter of appointment, which was signed at the start of the employment. The employer contended that this consent met the requirements of Section 2(1) of TEWA, and therefore, no further process was needed before terminating the probationary employee.

The facts of the case revolve around an employee who was hired under a standard contract with a probationary period. The employer attempted to terminate the employee’s probation without specifying the grounds or following due procedure. The employee contested the termination, claiming that the employer had failed to comply with the requirements of TEWA, specifically the need for prior consent to termination.

The Court of Appeal sided with the employee, ruling that:

“…An employee should have the right to know the grounds for his termination to consider providing consent required in the said Section 2(1) of the TEWA. It is unreasonable to expect an employee to give written consent on the date of recruitment for an unforeseen future incident/event. Thus, I conclude that no employee can give prior consent to the termination of their employment in their initial letter of appointment unless it is a fixed term contract….”

“….an employer should follow an acceptable procedure according to law following the principles of the Rule of Law and Natural Justice before such employer takes a decision either to extend or to terminate the probationary period of an employee. There remains a difference between a.) an employee who serves under a fixed-term contract without an obligation for a period of probation and b.) an employee who serves a period of probation upon a usual contract of employment which has no end date….” – Justice Sobhitha Rajakaruna

The judgment distinguished between employees on fixed-term contracts and employees on open-ended contracts (whose termination or extension of probation must adhere to legal protections).

In conclusion, the Court of Appeal reaffirmed that employers must comply with the legal requirements under TEWA before terminating or extending a probationary employee’s service. 

“….In Lanka Canneries (Pvt) Ltd v. Commissioner of Labour and Others CA/WRIT/385/2021 decided on 31.08.2022 I have determined that when an employer decides to terminate the services or even extend the probationary period the employer should follow a procedure, according to law, where such decision-making power may not infringe the Rule of Law and the principles of Natural Justice……it is mandatory to obtain the prior consent of the workman or the prior approval of the Commissioner before terminating the scheduled employment specifically on non-disciplinary grounds. It is paramount that the consent and the approval required therein should be in writing…” – Justice Sobhitha Rajakaruna

Employer Cannot Arbitrarily Terminate Services or Set Termination Date 

“….termination is an active decision by either the employer or employee, whereas expiry of the contract is passive, occurring when the agreed period naturally concludes. Employees whose services are terminated before the expiration of the contract may have the right to challenge it as unfair dismissal, whereas the expiry of a contract does not usually trigger the same rights unless multiple renewals suggest an implied permanent role. Similarly, when an employer uses the term “termination” in an appointment letter, it should not imply that they intended to end employment from the very start. The end date of a fixed-term contract can be set at the beginning of employment, but the actual date of “termination” of employment in an usual contract of employment cannot be determined on the date of recruitment. Completing a service period might be casually referred to as “termination”. However, from a legal perspective in labour law, “termination” always results from a specific reason, incident, or conduct, occurring after the time of recruitment, either on disciplinary or non-disciplinary grounds. The employer cannot arbitrarily decide the termination of services or set the termination date according to his whims and fancies…..”

Fixed-Term Contracts: Set Duration, but Termination Must Comply with the Law

“The services of a probationer can be terminated on ‘disciplinary grounds’, provided that the employer gives reasons under Section 2(5) of TEWA and is also subject to an inquiry whilst the services of a probationer can be terminated on ‘non-disciplinary’ grounds subject to the aforesaid section 2(1) of TEWA. Even if we assume, though I disagree, that an employer has the right to terminate a probationary employee without notice, such a decision must still revolve around a specific reason or incident. There is a distinct difference between the ‘expiration of a service period’ and ‘termination’. If the employer decides that employment will end after six months, this can be viewed as a term within a fixed-term contract…..

A fixed-term labour contract is an employment agreement that lasts for a specified period, often established to complete a project or cover temporary staffing needs. It differs from an open-ended or permanent contract in that it has a clear start and end date, typically agreed upon by both employer and employee. These contracts are often renewed if the need persists, but frequent renewals may legally transform a fixed-term position into a permanent one, depending on the interpretation of the Labour Commissioner. When a fixed-term contract ends as scheduled, it is usually not considered a dismissal/ termination of employment and therefore, the employer may not need to provide severance. Anyhow, the ‘termination’ of services even during the fixed-term labour contract should be done according to prevailing law….” – Justice Sobhitha Rajakaruna 

Probationary Period: Employer’s Discretion and the Need for Proper Procedure 

“…As such I take the view that probationers cannot be treated as a different species of the category of an employee. It is the discretion of the employer to impose a period of probation for a new recruit. Anyhow, serving during the probationary period is part and parcel of a process prior to the determination by employer to confirm the respective employee in his or her services. I stress that I do not believe that an employer’s discretion to terminate an employee during probation on non-disciplinary grounds should be restricted. What I need to emphasize here is that the extension or termination of the period of probation should follow the proper procedure as explained above…..” 

Court Calls for Balanced Interpretation of Labour Laws 

 “……Although I have reached the findings above, I did not fail in considering the possible implications that may arise with such an interpretation. It is important that those resolving industrial disputes strive for an objective interpretation of Labour laws that protects employees’ rights while respecting the legitimate interests of employers. The balanced approach ensures fairness, promotes industrial harmony and supports sustainable economic growth. Such an approach is essential for creating a competitive job market and fostering economic interests. While Sri Lankan Labour laws are designed primarily to protect the interests of workers, it is essential that the interpretation of law remains balanced and impartial….” – Justice Sobhitha Rajakaruna

Case No: CA/WRIT/227/2022 [Decided on 11.12.2024]

Before: Sobhitha Rajakaruna J. Mahen Gopallawa J.