Contract of employment and rights and responsibilities of employees

K. Wijayaratnam (Former Deputy Commissioner of Labour)

The employer employee relationship commences with the contract of employment. In terms of the contract, the employer offers work to an employee on certain terms and conditions which include remuneration and the employee accepts the offer and undertakes to work personally.

The Supreme Court had said in Carson Cumberbatch & Company Limited vs Nandasena (1974) NLR 73 at 84) that the “the existence of a contract is “sine quo non” (very necessary) for identifying a workman”.

This contract may be in writing, verbal or even implied by conduct.

There is no legal requirement except under the Shop and Office Employees (Regulation of Employment and Remuneration) Act (No 19 of 1954) and the antiquated Service Contracts Ordinance No. 11 of 1865, to issue a written employment contract.

The employment contract evolved with the emergence of the working class. Prior to the emergence of the working class, society was governed by feudal system and the relationship between the people in the different occupations or trade, was governed by feudal customs.

Occupations of the workers were determined by their caste or grouping they belonged to and compensations for such services were made in kind. With the abolition of the feudal tenure system - “the Rajakariya” consequent to the Colebroke Reforms in 1832 in Ceylon, as Sri Lanka was known at that time and with the rise of the working class following the introduction of cash crops into the Island, a new kind of employment relationship came into being, based on oral and written contracts.

These contracts were governed by common law and favoured the employer as they were influenced by the forces of supply and demand.

Common law treated the contract of employment as an agreement between equal partners, which was really not so, because of the oversupply of labour and the absence of unity amongst the workers, the workers did not possess equal bargaining power.

The workers had little or no rights except for the claim for wages and their employment security depended on the whims and fancies of the employer.

An employee’s rights under the common law are reducible to a period of notice or in the last analysis to a sum of money in lieu of notice. There were no definite rules or law regarding notice.

Where there was no mention of a notice period in the contract and where there was no customary practice regarding notice, reasonable notice was to be given.

What is reasonable notice of termination of a contract of employment depended on the circumstances of each case. (K.C. Fernando vs A.A. De Silva - 62 N.L.R.10).

A common law court cannot order an employer not to terminate the employment of an employee or order the reinstatement of a dismissed employee because of the coerced continuation of an employment relationship was seen inconsistent with the common law’s commitment to individual freedom. The employees had more obligations to fulfill and fewer rights under the common law.

The failure of the common law to protect the employee led to the growth of trade unions, to collective bargaining and to State interference on behalf of the employees.

The State till the early 20th century, guided by the principles of laissez faire or non interference did little or nothing to ameliorate the conditions of the employees, allowing the employers to manage their workers in their own exploitive ways.

Whatever laws that were enacted, like the Service Contracts Ordinance No. 11 of 1865, and the Estates Labour (Indian) Ordinance No. 13 of 1889, were biased and favoured the employers.

The “notorious “discharge ticket or” the pattucheetu” prevented the employee from leaving his employment without the consent of the employer and the Service Contract Ordinance imposed stiff penalties where an employee deserted his employer without the employer’s consent.

With the extension of the franchise under the 1931 Constitution, the spread of liberal ideas in the aftermath of the Russian revolution and the rise of the Labour Party in Britain, the State came to be concerned with the welfare of the working class which formed a larger section of the electorate.

The State introduced several laws like - the Wages Board Ordinance, the Maternity Benefits Ordinance, the Wages Board Ordinance, the Factories Ordinance, the Industrial Disputes Act, the Shop and Office Employees (Payment of Remuneration) Act, and the Employees Provident Fund Act etc which changed the whole scope of the contract and introduced fundamental changes.

The introduction of compulsory arbitration and collective bargaining and the introduction of the Labour Tribunals in 1957 (by amendment to the Act) as a forum for speedy settlement of disputes, took away the arbitrary right of the employer to terminate the employment contract at will, by giving the necessary notice stipulated in the employment contract.

They imposed on the employer new conditions and responsibilities besides what had been agreed by the parties and the implied conditions.

In the settlement of industrial disputes, the Arbitrator could create new obligations or modify the old ones in the contract. Unlike in commercial arbitration he is not confined to the strict interpretation of the rights and liabilities laid down in the contract.

The Labour Tribunal in making a “just and equitable order “could make “an order notwithstanding anything contrary in the contract of employment” and could even reinstate a dismissed employee, if it found that the dismissal was unjustified.

The employment contract

Today employer employee relations are not matters only for the contracting parties but are also concerns of the State and the society. The common law relationship had been superceded partly or wholly by status. Status is determined extrinsically by law and not by agreement.

“Status may supersede the contract affecting either party to it”. (Indian Institute of Technology v Mangat Singh quoted by S.R. De Silva in Monograph 4 Page 66) The terms and conditions in the employment contract are today mainly formulated by statutory provisions, relevant collective agreements if any, arbitrator/Industrial Court awards, implied conditions and obligations and what is agreed between the employer and employee either in writing or orally.

The employer is defined in the Industrial Disputes Act (Cap 131) “as any person who employs or on whose behalf any other person employs any workman and includes a body of employers (whether such body is a firm, Company, Corporation or Trade Union) and any person who on behalf of any other person employs any workman”.

Section 48 of the same Act defines an employee as “any person who had entered into or works under a contract with the employer in any capacity, whether the contract is expressed or implied, oral or in writing, or whether it is a contract of service or of apprenticeship, or a contract personally to execute any work of labour and includes any person whose services have been terminated”.

The employment contract vests certain rights and responsibilities on the parties to the contract- the Employer and the Employee.

Employers’ rights They include:

The employer has a right to maintain discipline in the organisation. Discipline is necessary to ensure orderly operation of any organisation. “Discipline would mean “to train to conduct, to bring under control, or establish order”.

The Management in order to maintain discipline can formulate rules and disciplinary procedures which are reasonable and acceptable.

The law in Sri Lanka except certain collective agreements does not lay down a disciplinary procedure but the Court of Appeal in Thavarajan and two others vs. Balakrishnan CA1/81, LT 13/7215/78 decided on December 12, 1983, said that denial of an opportunity to the defendant employee to show cause before dismissal would be a violation of the principles of natural justice. In the absence of any laid down disciplinary procedure, the procedure should be guided by principles of Natural Justice and decisions of courts if any.

A reprehensible or a criminal act on the part of the employee committed outside the working hours and outside the work place, also may be regarded as an act subversive of discipline and be disciplinarily dealt with by the employer if (1) it is inconsistent with the fulfilment of the express or implied conditions of service, (2) if it is directly linked with the general relationship of employer employee, (3) if it has a direct connection with the contentment and comfort of the men at work; or (4) has a material bearing on the smooth and efficient working of the establishment (C.A. Appeal Nos. 862/85, 863/85 decided on 2.8.91).

To punish the employee for misconduct, (breach of the contractual obligations - written, oral and implied) for subversive activities against the Government or for criminal offence/s where the employee had been convicted.

To suspend the employee from employment with or without pay pending an inquiry for alleged misconduct, for a reasonable period with or without pay. The right to suspension must be based on the contract which is either expressed, (collective agreement, or the employment contract) or implied or based on custom or practice.

The right to transfer an employee: The Employer’s right to transfer his employee within his service from one department to another, from one branch to another branch of the establishment in the Island, is accepted by courts.

The question of transfer “is an internal Management function and it is implied there in the contract unless the letter of appointment stipulates that the employee is not transferable”. (H.W. Senanayake J in Supt. Pambigama v. National Estates Service Union, C.A. Appeal 172/88 decided on 8.6.92.) Liability to be transferred from one department to another at a different place by the employer or at his instance is a normal incident of service, that is to any, it is an implied condition of service” (Workman of Philips v. Philip India Ltd. 1960, 2 L. L. J. 125).

There are however some limitations (i) that the employee cannot be made to suffer financially, (ii) the transfer should be bona fide, and in the interests of the business of the organisation, (iii) that it should not result in say reduction in the rank (CESU vs. Meddecombe Estate, Watagoda and another, 73 N.L.R 278, and (iv) that no mala fide transfers be made.

An employer is entitled to reorganise his business in order to prune losses or improve its efficiency and in the process retrench staff subject to the existing laws,

Similarly the Employer is entitled to close his business and terminate the employment contracts of his employees subject to existing laws.

To demand from the employee to work reasonable overtime.

Responsibilities of an employer include

Pay the stipulated (contractual/legally due) wages/remuneration, in time as stipulated by law. The employer’s duty to remunerate his employee lies at the foundation of the contract and a failure to pay wages/salary over a period either promptly or at all entitles an employee to terminate the contract (1969)4 ITR-247) and seek relief at the Labour Tribunal for constructive termination or at the Department of Labour for wrongful termination.

Provide the employee with a safe and healthy working environment, (Sections 11, 12, 13 of the S&O E Act and and under the Factories Ordinance - regulations). Good house keeping serves to minimise accidents make the employee feel secure and makes the work place clean, tidy and safe to work in and increases productivity.

Provide the employee with safe equipment and safe fellow workers.

Observe all the statutory provisions relating to workers,

Treat the employee with respect, not to use foul language on the employees, not to make false accusations against employees (of theft or bad behaviour) provide adequate work to the employee to earn his/her wages/salary, to be impartial and non discriminatory in his dealings with the employees

Observe the conditions laid down in the Industrial Disputes Act as amended by Act No. 56 of 1999 (Section 32A).

Employees’ rights include

To receive the stipulated remuneration from the employer,

To the benefits under the various laws relating to employees,

The freedom to form and join a trade union; (Article 14(d) of the Constitution of the Democratic Socialist Republic of Sri Lanka) The right to form and join unions also carries with it the right to freely engage in “lawful trade union activities”.

Employees’ responsibilities/obligations would include

It is necessary that an employee be not only concerned with his rights but be equally concerned with his responsibilities and obligations to the establishment and to the employer.

To serve his employer honestly, faithfully and loyally to the best of his ability, promote the organisation’s interests, and perform the contractual duties in such a way as not to frustrate the objectives of the organisation. The relationship between an employee and the employer is one of trust and confidence and the law implies into the contract of employment the term that every employee shall serve his employer faithfully.

This is a fundamental obligation and any serious or persistent course of conduct which is inconsistent with the obligation may well amount to breach of the contract.

This may include persistent late attendance, incompetence, willful neglect of duties, theft of employer’s property, go slow, work to rule sit on etc. Good conduct by the employee is a condition either expressed or implied in the contract of service, the breach of which entitles the employer to terminate the contract subject to the existing law.

To obey all lawful orders of his superiors, observe/adhere the conditions laid down in his employment contract, implied conditions and the organisation’s rules, not accept bribes or inducements from outsiders in relation to his work.

In obeying lawful instructions the employee shall not obey them in a wholly unacceptable way which may disrupt or adversely affect the employer’s business or bring the organisation to a halt (Secretary of State for Employment vs ASLEF No. 2 Q.B 443).

Not to disclose or misuse confidential information in respect of the business or activities of the employer unless they are illegal or against the interests of the country.

To devote the whole time for which he is paid (that is his normal working hours) in furtherance of his employer’s interests and not his own. Not to engage in gainful employment without the permission of the employer. (Please see 79 N.L.R 133 - The Ceylon Bank Employees Union v The Bank of Ceylon).

Not to incite a fellow worker against the employer (63 NLR 536)

Not soliciting employer’s customers to patronise another party.

Not to bring disrepute to the organisation by his/her conduct. Be polite to customers and other staff members and employees and to dress properly to work.

To adopt himself to reasonable changes (especially in view of the rapidly changing technology) as long as the changes are not fundamental to fall outside the scope of the employment contract {(1984)1 E R 508, (1984) I R LR 190, Walten J. in Creswell v Board of Inland Revenue}.

To work reasonable overtime when the Employer requires him to do.

A sincere observance of the obligations and the rights by the two social partners would help to minimise friction between the two parties and help to build a harmonious working environment.

The employee must think of not only what monetary and other gains he can get from the employer but be conscious of his responsibilities to the organisation and make it more productive so that he can rightly demand a share in the fruits of his contribution.

Similarly the employer must not think of only what he can get from the employee with the minimum benefits he gives but also think of his responsibilities and create a more conducive working environment which will make the organisation more productive and the worker contended.