Financial Times

Strike looms over new labour laws
By Suren Gnanaraj
Labour unions have warned that the recent amendments to the Termination of Employment Act could trigger off a massive retrenchment of nearly 100,000 workers in the apparel industry before the end of 2004, as the quota system draws to an end.

The trade unions are expected to meet shortly to decide on some stringent action, calling on the government to immediately withdraw the gazette on the new compensation formula. Anton Marcus, Coordinator of the Free Trade Zone Workers trade union, said that a token strike by all workers was in the offing, if the government failed to act fast to rectify the situation. He described the recent gazette introducing the new compensation formula for retrenched employees as a free license given to employers to hire and fire workers.

The government has been under pressure to implement the binding redundancy compensation formula and the revision process of time bound dispute settlement as part of its commitment to the IMF and the World Bank. Loans for structural reform of the economy, including the IMF's $567 million over the period 2003-5, and the World Bank's $380 million, are disbursed in regular six-monthly instalments, conditional on the government's progress in enacting specific structural reforms contained in the Poverty Reduction Strategy Paper (PRSP).

The Employers' Federation of Ceylon said in a statement the compensation formula when compared with other countries in the Asian region is extremely generous and attractive. However, labour leaders said these reforms are being done without time for analysis or an adequate safety net or compensatory scheme. General Secretary of the National Association for Trade Union Research and Education (NATURE), T. M. R. Raseedin described the formula as offering only a 'pittance', when compared to the amount of compensation that is generally ordered by the Commissioner.

Raseedin said that even though the Minister of Finance had announced in his budget speech that the formula had been devised after much consultation with the trade unions, no such consultation was ever made. Proposals put forward by his organisation on behalf of all trade unions were not even considered.

The amendments have sought to repeal the Commissioner of Labour's discretion in determining the amount of compensation payable to an employee whose service has been terminated, and instead replaced it with a standard compensation formula. Attorney-at-Law Sharmalee Ranarajah felt that the new compensation formula looked good on paper but doubted whether it would work in reality. The smooth operation of the Termination of Employment of Workmen Act has been a victim of the system, she said.

"Employers were forced to pay salaries for months on end until the commissioner concluded his inquiries, and these inquiries would sometimes go on for about a year, causing financial loss to the employer."

In terms of granting compensation, there was no method in the madness, as far as the commissioner was concerned. In some cases the commissioner would order two months' salary for every year of employment and as in the Standard Chartered Bank case, the commissioner could order the employers to pay 20 months' salary.

“This formula will now introduce a degree of certainty to the system," she said. However, she cast doubts as to whether the commissioner would actually make a determination within the time limit of two months, since the time limit was likely to be considered as directory rather than mandatory resulting in the same problems of cost and delay re-surfacing.

Despite lobbying from the private sector, the new amendments have retained the Commissioner's power to determine whether or not an application for retrenchment should be entertained, and has stipulated a time frame of two months within which a determination must be made.

However, according to Marcus, as of January 2003, when the amendments were introduced, the Commissioner of Labour had failed to make use of the power vested in him and preferred to tow the government line by ordering compensation rather than re-instatement to retrenched workers.

Marcus fears that close to 100,000 individuals currently employed in the industry could be affected. "Those who have invested in the garment industry cannot be classed as genuine investors. They are quota refugees, who will definitely pull out their investments once the quota system ends and go in search of other destinations where the cost of production is much less," he warned.

NATURE' Raseedin warned that the government decision to fund the Unemployment Benefit Insurance Fund (UBIF) from dormant or unclaimed EPF funds could lead to a travesty of the EPF Act.

The government has given the trade unions an assurance that the standard formula would not be implemented until the UBIF was in place. The government has suggested that the employees contribute 0.1 percent of their income towards the fund, whilst employers would be required to contribute 0.15 percent.

This fund will provide a dole to workers for a period of six months until they find new employment. However, employees who earn less than Rs. 3000 per month and those whose work has been terminated on disciplinary grounds would not eligible.

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