The Law Writing Solution

Does the refusal to extend an expired fixed-term employment contract amounts to unjust or constructive termination? (In the context of Sri Lanka)

Sri Lanka Insurance Corporation Ltd. v Jayathilake [2008] 1 Sri L.R

Disputed issues:

Refusal to extend an otherwise expired contract of employment
- Does it amount to an 'unjust termination' or 'constructive termination' of
employment of the workman?
- Does it warrant relief under the Industrial Disputes Act?
Reasons for refusal not given - Is it fatal?

Significance of the case: The Supreme Court granted leave to appeal, acknowledging the increasing frequency of such claims in Labour Tribunals.
A crucial landmark ruling was established on what constitutes an "injust" or "constructive" termination.

Note:
The LT had ruled the failiure by the employer-company to give reasons for refusal to extend the service of the respondent (employee) constitute constructive termination and HC affirmed the position taken by the LT in the appeal.
The employer-company appealed to the SC and SC allowed the appeal setting aside the ruling of the LT and HC. However, SC had set down three facts that should be taken into consideration by the court in determining the merits of “extension refusal” cases. SC further established that only if the Court finds that the employee is able to establish no less than two of the above considerations in its favour, then the Court is able to apply the principal of constructive termination as contained in the Industrial Disputes Act on the grounds that, as a matter of law. the employer has made an unreasonable refusal to extend employment, and by so doing has constructively terminated the employee.

SC Reasonanig
Labour law seeks to balance the competing interests of the employer and employee and accepts the autonomy of the corporate world to operate by mutually agreed contracts while assuring the less-empowered is not exploited by the dominant power i.e. employer.
SC further accepted that where employers choose to provide employees with the right to apply for extensions of employment, they are under a duty to decide upon such extensions in a reasonable and just manner, even when such decisions are within their sole discretion
Each case has to be considered on its own merits and circumstances and in this case the petitioner-company do has a policy to evaluate applications for extension of service as contained in their Handbook and it was not mandatory to adduce reasons for a decision to non-extension and the court did not see any requirement to mandate otherwise.
The failiure of the petitioner-company to give reasons for non-extension does not alone make the termination unjust.
Employee although established the below 4(i) and LT and HC found their ruling on that fact, SC based their decision on the considerations 4(ii) and 4(iii).

Held:
When a contract of employment expires, it ends by the operation of the law, and privileges which could not be reasonably envisaged with the terms of the contract cannot be assumed or obtained beyond the scope of the ambit of the contract unless any rules or policies adopted by the employer-employee contract permits an extension of employment.
(2) In adjudicating claims such as the present one, equity also permits the corporate world the freedom to operate within a mutually agreed contact, as long as the dominant power of the employer is not used to exploit the services of the workman, as the just and equitable relief must be assured to both parties who seek redress to the labour courts.

(3) W here employers choose to provide employees with the right to apply for extensions of employment, they are under a duty to decide upon such extensions in a reasonable and just manner, even when such decisions are within their sole discretion.
(4) In determining the merits of a decision to refuse an extension, the follow ing three matters have to be considered and examined by the Court through consideration of evidence and testimony proffered by both parties as to the existence or non-existence of each.
(i) There has been no employee misconduct alleged or if misconduct has been alleged, employer failed to adequately investigate and resolve the matter.
(ii) Employer does not have a policy of evaluating applications or extensions of employment that includes consideration of factors such as absence of misconduct, length of employment and employee ability.
( iii) Employer failed to evaluate the application for extension of employment.

Gaza faces a grave risk of famine Donate now