Speaker 1  00:12
Hi everyone, and welcome to another episode at the Advocata Studio. Today we have mrs. Shamali Rana Raja for our episode today. She is an attorney at law and is actually not a new face for the Advocata Studio. She holds a master's degree in business administration. She is an attorney at law and she specialises at in employment and labour law. And she has, I mean, she has experience for over 25 years, and she actually lectures at the University of Peradeniya. She is also a consultant for places like the World Bank, the ILO, and several other organisations. So we have quite a very good expert here in labour law, and we've invited her today actually to discuss something that has really been bothering the public about you know the very recently back in May actually just over a month ago the next factory in Katunayaka closed down right so we wanted to really explore really and just make sense of the situation and in light of like you know labour regulations in the country and the reforms that are required, and also the ability for Sri Lanka to attract and in retain foreign investments in in an environment where we have you know in in our in the current environment of our labour laws, if that makes sense. So just coming to my first question for you, mrs. Ranaraja. So, so under Sri Lanka's existing labour laws, particularly the Termination of Employment of Workmen's Act, or what we very popularly refer to as the TEWA, what really are the obligations of an employer when closing a factory or laying off a large number of workers. Do you see any legal violations in how the next factory closure was handled in Sri Lanka?

Speaker 2  02:08
Well, first of all, whatever information we have is from newspaper reports because Next itself has not issued a statement. So, what has happened is that the factory has been closed down. An initial report said that 1,400 workers have been terminated, but now it appears to be that the closure, factory closure, is correct. But that the workers are continuing to be paid their salaries, while an application that the company has made for termination of those workers is being heard by the Commissioner General of Labour under the Tava Act. So then the question is whether you whether Next has the right to do that. So under the termination law, any comp employer that employs more than 15 workers can only terminate a worker or a group of workers by three different methods. One is for disciplinary reasons, in which case Teva does not apply.

Speaker 1  03:10
Okay.

Speaker 2  03:10
So that would be like one work at a time, or if at the most maybe a group of workers who have engaged in a brawl or something like that. So they would not come under taber, and that causes a disciplinary termination. But they can challenge that in the labour tribunal, so they have some recourse, and then the employer has to prove that termination. Where non-disciplinary terminations are concerned, then there are two methods: the employee can resign voluntarily in exchange for accepting some kind of severance pay, what we commonly call a VRS or a voluntary resignation scheme, and or the employer, and that is a the severance pay is negotiated between the employer and the employee or the trade union representing them. There is no legal mandate on how much should be paid. If neither of these apply, then the employer has to apply for permission to the Commissioner of Labour to terminate the services of these workers on the basis of whatever justifiable reason that they are able to produce. But that permission is not a given. That permission is granted only after an inquiry by the commissioner of labour or the officer that the authority is delegated to under the tava, which may take several months. So during that time, the employer must continue to pay wages because otherwise there would be a termination in violation of the act. So the commissioner is also not bound to give approval. The commissioner can say there is no grounds that I see for approving this termination or application for termination, and therefore permination is denied, approval is denied. So go back to employment and start working. So the employer would. Have paid wages for that period of inquiry and has to now start re-employing them or continuing to employ them. They they don't get permission to terminate. So has this happened before many times? There have been many so many companies who apply for termination and the employer says there may be one workers for non-disciplined reasons like lack of I don't know, for you know the position being made redundant, and the commissioner can say, "Well, I don't accept this, employ this work, or it can be a number of people who they want terminate on the basis of loss of profits or something, and the commissioner can say, "Well, you haven't proved that you have had a reduction in profits, or you are a loss-making institution, so continue to pay. That is the right of the commissioner under the law. So it's not a given that simply because an application is made that

Speaker 1  05:48
there'll be approved that the approval will be given. Given yes. So

Speaker 2  05:52
from what I have not seen the application, but the emerging information is that reliable information is that an application has been made and the inquiry into this has commenced on the 30th. That's what the Commissioner General of Labour has announced after a discussion between the union and the employer and the minister and the officials present. So, if that application has been made and next is continuing to pay wages, which is available. information? Then it has not acted in breach of any law.

Speaker 1  06:26
Okay, right. Not done.

Speaker 2  06:27
Not in breach of the termination act because they have closed the factory. But as long as they are paying wages, they are compliant, not in violation of the Tava Act. If they stop paying wages, then that would become a termination in violation of the act, and the employees could either go to the labour tribunal or complain to the commissioner of labour under the Tabor Act, saying that there has been non-compliance there.

Speaker 3  06:49
Okay.

Speaker 2  06:50
Then the commissioner of labour can convert the application that has been made or close that application and hear new applications by complaints by the workers. But so far that has not happened. So they are not non-compliant. But is there some

Speaker 1  07:05
sort of legal minimum period, like a notice period, that they should actually be giving before such mass layoffs are like done? Like, is that something that no, there is nothing like nothing

Speaker 2  07:16
like that? Because as long as wages are paid, no termination has happened. I understand. So the notice period would be what is there in individual contracts of employees. So permanent employees may need to be given three months. If they were fixed-term contract employees, they may need to be given one month if they were terminated. But so far they are told by the Commission of Labour that that has not happened. That there is a pending application. So that application, if it were to conclude at some point, the commissioner can refuse or approve the application to terminate. So, if the approval is granted, then the commissioner must award compensation for loss of employment, which is based on a formula published in 2005, which is based on past service of each employee, and that's a maximum of something like 48 months' salary. So, also has to be said that in terms of months of salary, Sri Lanka is the second highest in the world of severance pay. That's most countries expensive basically. Yes, most countries it's about two weeks' salary or a month's notice salary, something like that, so we are in terms of months, but you have to also factor in that our minimum wage at present is 21,000 rupees. So, in terms of that, 48 months even does not come to a huge amount in terms of financial implication, and also the Taba has an inbuilt cut-off of a maximum of 202 point 5 million rupees.

Speaker 1  08:46
Okay.

Speaker 2  08:46
So that is there, but still that is a considerable amount given that the threshold is only 15 workers, which means that the small and medium enterprise sector is also covered. So, if it was not next, if it was a company with 16 workers who went through the same process, would they be able to pay 2.5 million a maximum? But otherwise, you know, based on past service for those 16 workers is a toss-up. So this is, you know, a question of whether it's equitable from both sides. Whether an employer should be penalised for employing someone, and they are closing down because they are making losses. Should they be made to pay on the basis of service already completed? Is a question, and such high compensation because in terms of month salary. Where next is concerned, then it becomes a question of whether we are an investment-friendly environment as well. So

Speaker 1  09:42
I mean, I'll come. I'll come to that because I mean, firstly, thank you for clarifying because I think a lot of the you know the news that is out there and the kind of like knowledge about this issue is that it was in violation of the law, which was why there was a lot of uproar. So thank you for clarifying that, and actually before. I go into really, what does this play out? Like, how how does this play out for like employers? I also wanted to just quickly ask you the the closure of the next factory. You know, we all know it happened with very little notice. So, like, do you think that the level of unionisation or worker representation in the next factory, influenced how this closure was handled, or really more broadly, does the presence or absence of strong unions in free trade zones affect the ability of workers to protect their rights in situations like this? Because there's a lot of like you know we we speak a lot about unions, right? So really, what power do they really have in situations like this. Okay,

Speaker 2  10:41
so that's a lot of questions. One omnibus question, but to take the first one, I don't think you know Sri Lanka has such a poor rate of unionisation. Only about three and a half percent of workers in the private sector are unionised. So it

Speaker 2  10:54
has an impact whether you are in the free trade zones or out. It's just that the free trade zones get attention because that is the sector that most NGOs or news outlets can focus on. But the 1000s of enterprises outside the free trade zone that are not unionised have the same problem.

Speaker 1  11:13
Yeah.

Speaker 2  11:13
So it's it's the same difficulty whether you're in the zone or not. If you're not unionised, you're at a disadvantage when it comes to bargaining power, especially in a country where there is such high unemployment, especially in this age group where these types of workers are in, there is a huge pressure on workers to not bargain for better working conditions because of the fear of loss of employment. So a union would give them a better voice at the table, a stronger voice at the negotiating table. That's one. With regard to, did the unionisation have a hand in the closure of decision of next to close? We don't know, but the news reports seem to suggest that the other two factories that next operates, which have not closed down are not unionised, or that there is no union representing workers there. So, in that context, to draw the conclusion that the union presence had some sort of say in the decision is a logical one. There's also a collective agreement. The first collective agreement in a apparel factory in a free trade zone in Sri Lanka was signed in 2021 between Next and the Free Trade Zone and General Workers Union, the company points out that the collective agreement has now lapsed because it was effective from 2021 to 2023, but it was not renewed for whatever reason. We don't know, so that collective agreement is no longer in operation. But there are principles that both sides had agreed on that all decisions will be made by with you know with negotiations will be by mutual respect, timely communication, and based on trust. So it's difficult to understand if the company management did not give notice to either the workers or the union, which they were not bound to do because there was no collective agreement. Did all these principles go out of the window the moment the collective agreement lapsed? Do you not then have mutual trust and respect and communication, timely communication then? And considering the huge reputational loss next has suffered now because the clean clothes campaign, the ETI, everybody is now looking at this particular closure, even though they say they are not in violation of any law. Begs the question: What were they, you know, thinking would happen in terms of their obligations towards the you know ethical trading initiative they have in partners for the I think from 1996 and they have four paragraphs in their annual report on how they comply assure compliance with supply chain due diligence responsibilities both in the EU and the UK and you know the UK laws and all that. So in that context, are you okay with being not in breach of the letter of the law? But what about the spirit of the law? So that is, I think, something that they are going to have to think because clearly a union connection will be drawn because other two factories have not closed down. So if your if the position is being taken that this factory was suffering losses, then comes the question of how are you set up in such a way that the losses can be localised to this particular factory and not to the other two. It may be possible. I don't know the legal ramifications of their structure. They may be set up as separate business units, but the union connection is now unavoidable because this was the only factor where there was a collective agreement, which has lapsed, no doubt. But you had espoused principles of, you know, negotiating with the union in the case of a redundancy situation. They would negotiate strictly on the basis. Is a first come, first to go, last come first to go, that kind of situation. So, do those principles sort of stop being applicable the moment the collective agreement lapses? And what about the goodwill you built up with the union? And was this approach to so that's us trying to second guess managerial decisions which we are not equipped to do, and which is not fair because next is not represented here. But outwardly, the union connection is unavoidable.

Speaker 1  15:29
Understood. But I mean, in most cases, it's helpful that there is a trade union, right? Because I mean, that that is what allows for workers' voices to also be heard, right? So in situations like this, having a union is also the reason for why we're sitting here and we're discussing this, right? And that it is a big problem. Yeah. So I just maybe coming back to really the law. Do you think incidents like this, the next factory closure, as an example, it affects Sri Lanka's image as an investment destination? Because is there? I mean, is like what? What? I mean, what I want to understand is that really does this set any concerning precedents about you know how Sri Lanka would be seen by you know potential employers who want to come and set up base here? What do you have to say about that?

Speaker 2  16:20
Well, the taber itself has got a bad reputation that it doesn't really deserve in the sense that it does not really apply or have an impact on a large part of the labour force, because Sri Lanka has a labour force which is 60% in the informal sector. So that is employment that is not does not maintain records. That does not pay social security like EPF ETF, or decent working conditions. Provide paid leave and all that. So TEPA certainly does not apply to this informal sector. 60% maybe 10% will comply. But by and large, even if you had more than 15 workers, the employers probably will get away with not complying with Tava. So, Tava is irrelevant there. Then you have in the formal sector a large percentage of the formal employment in Sri Lanka is in the government sector. We have 1.5 million out of a labour force of 8 million in the public sector, so Tava does not apply to them. So we are then talking about loss of reputation for Sri Lanka as an investment destination based on a very small percentage of workers in the private sector who are working in enterprises which are more than 50. So obviously, you wouldn't apply approve a BUI company, you know, that wanted to set up with less than 1415, workers, but labour law in Sri Lanka has got a bad reputation. You know, for reasons of other things like fragmentation, lack of coverage, pockets where law does not apply, and being unnecessarily complicated. But in terms of whether it impacts on investors, the ADB did a investment climate assessment survey 2005, which is long out of date. But nevertheless, they are investors in the urban sector ranked labour law as number five. Before that came, you know, infrastructure inadequate infrastructure, high cost of setting up in business, high cost of utilities like electricity, the uncertain policy environment-they came much higher before labour and employment. And in the rural sector, it did not matter at all because of the high degree of informalization. So, you have to look at what Sri Lanka is doing wrong. That it's only the you know non-compliance or this politically charged incidents like this that are highlighted, but other things which really impact on employ investment are not dealt with promptly, so labour law takes the rap for actual inefficiencies, which are in other sectors, which have far greater impact.

Speaker 1  19:10
Understood. I mean, but we can't deny though that you know because we're talking specific. I mean, the reason we're here today is because of an incident that took place in the in like in the free trade zones, right? And that's where you see most of like you know Sri Lanka's exports coming out, and that's also the source of most of Sri Lanka's you know

Speaker 2  19:28
foreign exchange,

Speaker 1  19:29
and like is also the where the Sri Lanka's potential for growth lies, right? So, I mean, we still have to talk about like I mean, um, yes, the next factory was obviously one incident, but with the fact that the way that Tava operates, do you feel? I mean, like you have to admit there has there is some sort of signal that it sends to you know employers and businesses wanting to set up here that it's not going to be very easy for them to actually. Come set up and then take off because I mean maybe if you can shed light on like how this works out in other countries like how do other companies lay off workers like do they have to deal with the same high costs of severance pays that you know you see in Sri Lanka like how does it work because a company should be able to lay off workers as well right so in the in the case of Sri Lanka is expensive, and it becomes a very big deal, like how it is today, right? So, how how is it handled in other nations?

Speaker 2  20:28
Yeah, well, without a doubt, Heva, as it is, you know, whether you look at it as a hindrance or not, punishes employers who set up and create employment, and it looks as a looks at reasons for severance or exit as being something that is the fault of the employer, rather than something which may be the result of external factors like COVID happened. Nobody couldn't control that. Now the increase in tariffs in the U.S. where I think 40% of our exports are headed, and the 90-day previous freeze is about to expire. The government has to be proactive here and ask manufacturers who are exporting to the U.S. How is this going to impact you? Otherwise, it's going to impact a lot of people for no reason, no fault of their own, because they've already done the budgets. They've already got their orders. They've got, you know, for the next financial year, they have put a structure in place which has now been, you know, completely put into disarray via absolutely external influence. So then you can't punish an employer for going into unprofitability. So Sri Lanka has to take a good hard look at what are you trying to do, because you are asking the employer to pay compensation, which is a maximum of four years, 48 months severance pay under the taber, assuming that that person is not going to find employment for the next four years. So, are you saying that Sri Lanka creates such little employment that this person who is being laid off under the table is not going to be able to find a job for the next four years? So that you had to compensate for four years. So, there's absolutely no logic in that formula. So, it is for the government when it is talking about labour law reform to look at it pragmatically because you the government has to put in place unemployment insurance schemes, social security, and to ensure that people get back into work without punishing an employer who has given employment, who has created employment, is now forced to exit for reasons beyond their control, think of a you know again a pandemic type of scenario. So we have to be able to create enough employment for workers to transition from one job to another without having this concept of lifetime employment with this one employee, and therefore we are going to punish you if you close your factory and go elsewhere where it is more profitable, so that is the real disincentive. That is the message that we are sending out by focusing on this next issue from a very emotive, emotional kind of perspective. That then employer has no right to close down their business if it does not make business sense to them, you know, they are not in it for charity; they are in it for profit. And if the employer says they are in it, they are not profitable, then they have to go to the Commissioner General of Labour and prove on some kind of non-defined yardstick how they are not profitable to a bureaucrat who has never worked in the private sector and who does not understand how the private sector corporate entities work, I do not know whether that is fair. So, just as much as you must protect workers from unfair dismissal, which is the real question, you must also not punish investors who come to Sri Lanka as an investment location and contribute to the economy even for a while, and then when it is no longer workable for whatever reason, so you look, you we treat them as if they are frivolously exiting Sri Lanka, abandoning their workers. That makes no sense. So, unfortunately, Sri Lankan unions have by and large taken this stance, that you know, people, employers will terminate employees if they can, if they are allowed to. So therefore, they should be restricted from terminating. That's why there's so much of

Speaker 1  24:31
opposition towards the reform. Yes, but the focus

Speaker 2  24:35
should be on providing unemployment security. Focus should be on creating so much new employment that workers don't have to worry about losing their job. In a perfect economy, they would just take two weeks compensation and go into another job, but that does not happen. But then we have to look at so that is not adequate. Two weeks is not adequate, but we have to look at why Sri Lanka is unable. To create employment in those numbers, and look at why there is so high and such high unemployment in trying to reform labour, but it does not happen pragmatically like that. It happens for political reasons very often. Yeah,

Speaker 1  25:15
actually, can we talk a little bit about you know what's the current status of labour reforms in Sri Lanka, like I mean, Dawa's attempts to sort of introduce a new employment law in 2023. I mean, how is that going? Do you know anything about it? Can you provide us with some insights from as per your understanding? The

Speaker 2  25:33
draft was produced in 2023 July by the then Minister of Labour to the National Labour Advisory Council. That's the first anyone saw of it, and the NLAC, the National Labour Advisory Council, which consists of employer representatives, trade unions, and the government, when asked, they were informed that well, this was drafted within the labour department, and that is patently not true, because the labour department is not a law drafting institution. It's the enforcement arm of the government with regard to labour. So we do not know who the authors of this document is, and it was provided only in Singala. There was no official translation previously. We have drafted most labour laws in English, and then once it is finalised, translated it into Singha and Tamil, which are the official languages, which is workable because we have two working languages, but not everybody is conversant in

Speaker 4  26:27
both.

Speaker 2  26:28
So only a Singha draft was provided, and the Tamil-speaking trade unions and workers' representatives and NGOs refused to engage with this draft because they don't have the means to translate it as an official document and comment, and they can't comment on a draft that they don't understand. So you immediately put those unions, especially the plantation sector unions, out of the discussion. So it is not consultative by any means. Secondly, the draft purported to combine 13 labour laws, including very disparate laws like the Shop and Office Act, wages boards ordinance, which are on wages and terms and conditions like paid leave, with termination with industrial disputes under the Industrial Disputes Act, TEVA Act, and brought in new laws, also new provisions also on workplace harassment, but only sexual harassment. So it was the baby, the bathwater, the kitchen sink, and the grandmother's recipe book all in one. It was 206 pages long, 21 chapters, and to my knowledge, not even 10 people would have read it cover to cover because it's such a dense, indecipherable, indigestible document, and there was no possibility of a discussion because it was so fast-paced. Stakeholders like the trade unions were asked to provide responses within a very short period of time. You can't digest 206 pages in that amount of time. A and B. Even if it is adopted, how do you expect an ordinary school leaver who's coming into the labour force at the age of 18 or 19 after 12 years of schooling to read a document that needs a team of lawyers to decipher and understand what your terms are, so you are asking for people to be exploited by this labour law reform because any entrant to the labour market should be able to understand. Okay, this is my minimum wage. These are my working hours. This is my age of retirement. This is my paid leave entitlement. You can't do that with that document. So logically, the reform should have happened along certain lines, like the decent work concept of the ILO has four concepts. One is employment creation or employment conditions of work. So that would be things like wages and working hours and all that. You have rights to rights at work, which is like the right to join and form and join a trade union. You have social dialogue, which is the collective bargaining arm, and you have social security. So if you did it along those even, there would be social securities like EPF, ETF, maternity benefits, gratuity, those things. So, if you did it in a structured way like that, it could have been deciphered or understood. But you present an omnibus act like this, which is so complex that it makes no sense. And now I understand that this new government is also looking at the same draft, but practically it is, you know, absolute injustice to foist that either on employers or employees because the majority of employers in Sri Lanka are MSMEs. So the blue chips will have teams of lawyers who can tell them what this means, perhaps. But otherwise, the smaller companies, smaller enterprises, which do not have that kind of capacity, will be left completely helpless. They will not know how to comply or what to comply with, because it's such a complex piece of badly drafted law, not even well drafted law. So that is where the status. Is at so it would be. I mean, there would have to be a concerted trade union action to refuse to engage with this and to have it, you know, stopped in a new draft engagement because the previous process was so secretive that you really don't know what the purposes of the reform were, and if it was even a good draft, even at that point you could have said, "Well, look, we haven't been consulted, but this is a draft we can work with. Therefore, we will engage. But it was such a bad piece of legislation that really nobody could agree to go ahead with discussing it. There was no saving it at all.

Speaker 1  30:40
Understood. Thank you, mrs. Ran Raja, for that. So I think today, I mean, we started off with the next conversation, the next factory closure. We talked about you know the relevance of Teva. Did it have a role to play in how the factory was you know the closure was handled? And what we kind of realised, I don't know. In my opinion, I feel like yes, labour law is a huge determinant, obviously, of people's decisions to come set up businesses here, factories here, and and obviously like generate you know enough income. But I mean, there's also so much more to it. I mean, that was something that you touched on at the beginning of this conversation. It's also, you know, how stable, like you know, for example, electricity prices are. How stable, you know, other land policies are, for example. There's so much more to it, right? So I feel like this podcast was interesting because it really shed light on the fact that it's just not just labour law. But that being said, I mean what you touched on at the very like the end of this is that our reform process is quite it's chaotic, you know. And and

Speaker 2  31:54
also there is this question that is not addressed apart from labour law, how easy it is for investors to go through this process of obtaining approval and compliance, because Advocata did a study previously, which showed that even if you do each approval step back to back, you know, without no delays in between, it would take two full years to get that approval. What are we then talking about? And there is no one-stop shop. We keep talking about this at every investment, you know, creation forum that we go to on creating employment and all that. There is no one-stop shop where the employer, the investor, can be told, okay, these are your labour laws that you need to comply with here. The Department of Labour will register you. You move to the next desk, and you have the inland revenue. You move to the next one, and the CEB is there. There is no such thing. You have the Department of Labour in Narahimbito. You have the Environmental Authority in Batramula. You have the Inland Revenue in Fort. So where is that interface?

Speaker 1  32:58
To make it easy. Yes,

Speaker 2  32:59
and there was a report just a week ago. A Singapore-based investor company, which is the largest manufacturer of mattresses in Sri Lanka, which said that they had invested in a factory something like $8 million in Sri Lanka, and they were given approval to go ahead to start manufacturing. And after they set up, the BOI has informed them. This is the newspaper report that they can only export 50,000 mattresses per year to the U.S. and they have already employed 500 workers, and they have therefore been forced to stop production for the last six months, and they're incurring a loss. And they have announced and said they're just about to pull out, losing the employment will be lost for about 500 workers, so this is now clearly a situation where they would have to go through the whole process of exiting the employment aspect by going to the commissioner for closure, permission to closure because of an act by the BUI. You can't change the goalposts after somebody has come in and set up. If they were told, well, you can't manufacture more than 50,000, they would never have invested. So you can't. So they would, the BOI and the government would be liable to so many different violations of you know investment agreements and things like that. And the newspaper reports also say that despite the precedence office requesting that this obstacle be removed, the BOI is refusing to do that, and the BUI is fast getting a reputation for being an actual bottleneck in most of these facilitation process. And I am saying this based on my experience with other things as well. So we have to look at making this whole process integrated and easier for investors if you want to attract investment, not look at why labour law is a deterrent or something else is a deterrent. You have to be able to present a portfolio to the investor that gives them everything in one one lot. Not wait two years for everything from land leasing or you know getting an electricity connection to be. Like a Russian roulette exercise, you know, or finding the pieces of a jigsaw puzzle. So, really speaking, why would an investor invest if they have to go through all this difficulty? Because there are enough other destinations. So, I think blaming labour law is an easy excuse, but it is very complex, and the reforms have not happened. That is true, but there is much more to it than just that.

Speaker 1  35:25
Yeah, I think that's a key message of today's podcast. Actually, I mean, I started off thinking that today was about you know, labour law. We should be talking about labour law, but clearly, it's so much more than that. So, thank you, mrs. Ranaraja, for joining us today. I think today was an extremely enlightening podcast. Personally, at least for me, we appreciate you coming on board, and we hope you enjoyed the session today. Thank you for watching our podcast today. Please subscribe to our channel, and if you have any feedback for today's video, please drop them in the comments below, and we'll see you at the next episode of Advocata Studio.


Transcribed by https://otter.ai