SRI LANKA Law and Practice Contributed by: Ayanthi Abeyawickrama, Varners
4. Employment Law 4.1 Nature of Applicable Regulations
imposes both fiduciary and statutory duties on direc - tors. These duties include: • acting in good faith in the best interests of the company; • exercising powers for proper purposes; • avoiding conflicts of interest; and • performing their functions with care, diligence and skill (see Sections 187–189 of the Companies Act). Directors may be held personally liable for breaches of these duties, particularly in cases involving unlawful distributions, trading while insolvent, or misstatement of financial information. Officers, including company secretaries, may also face liability for non-compliance with statutory requirements, failure to maintain proper records, or facilitating regulatory breaches. They are also liable for securities law violations or breaches of statutory obligations under laws such as the Employ - ees’ Provident Fund Act or the Employees’ Trust Fund Act. In the case of listed companies, directors and senior management must additionally comply with the “fit and proper” criteria under the Listing Rules of the Colombo Stock Exchange and relevant provisions of securities laws. They are expected to avoid conduct such as insider trading, misrepresentation of material facts, and falsification of financial statements. Direc - tors of listed entities operating in regulated sectors (such as banking, finance and insurance) must also satisfy the sector-specific fit-and-proper requirements imposed by regulators such as the Central Bank of Sri Lanka and the SEC. The principle of separate legal personality protects shareholders from personal liability – as such, they are generally not liable for the debts or obligations of the company, other than for any amount unpaid on their shares. Nevertheless, Sri Lankan courts will pierce the corporate veil in exceptional circumstances, such as in cases involving fraud or offences related to bribery, corruption or money laundering.
The nature of the legal rules governing employment relationships in Sri Lanka is primarily regulatory and protective of employees based on equitable stand - ards. Employment contracts are recognised and enforce - able, but they must comply with the minimum stand - ards set by statute. Contractual terms more favour - able to the employee than those prescribed by law are valid, but any term less favourable than the statutory minimum is void to the extent of such inconsistency. The principal statutes regulating employment include: • the Wages Boards Ordinance, which sets stand - ards, minimum wages and working conditions in all trades; • the Shop and Office Employees (Regulation of Employment and Remuneration) Act, No 19 of 1954, for employees in shops and offices; • the Factories Ordinance, which is applicable to industrial establishments and sets basic health and occupational safety standards; • the Industrial Disputes Act, No 43 of 1950, which regulates terminations, disciplinary action, and resolution of disputes; • the Termination of Employment of Workmen (Spe - cial Provisions) Act, No 45 of 1971 (TEWA), which requires prior approval or consent for termination of certain categories of employees; • the Payment of Gratuity Act, No 12 of 1983; and • the Employment of Women, Young Persons and Children Act. In addition, employers must comply with statutory provisions governing working hours, leave entitle - ments, termination benefits, and social security obli - gations under the Employees’ Provident Fund Act and the Employees’ Trust Fund Act. In unionised workplaces or sectors with active trade unions, collective bargaining agreements (CBAs) may supplement statutory protections and apply in parallel with individual contracts. These CBAs, once registered under the Industrial Disputes Act, become
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