Colombo, Sri Lanka – 10 September 2026 – In a significant ruling that further clarifies the assessment of compensation in unlawful employment termination cases, the Supreme Court of Sri Lanka has dismissed an appeal seeking enhanced compensation against Uga Escapes Management (Private) Limited. The apex court, on 9 September 2026, affirmed the Provincial High Court’s decision to reduce the compensation awarded to Nirmalendran Udhaya Gnanasunderam, a former General Manager – Human Resources.
The judgment, delivered by Dr. Sobhitha Rajakaruna J., with Mahinda Samayawardhena J. and K.M.G.H Kulatunga J. agreeing, reiterates the fundamental principle that compensation for unlawful termination must reflect the actual financial loss proven by the employee, rather than serving as a punitive measure or an automatic windfall.
Background to the Dispute
The case, identified as SC/Appeal/136/2024, originated from the termination of Mr. Nirmalendran Udhaya Gnanasunderam’s employment with Uga Escapes Management (Private) Limited. Mr. Gnanasunderam was employed as the General Manager – Human Resources from 1 April 2016, and his employment concluded on 1 February 2017. He contended that he was constructively terminated on mala fide, unlawful, and unjust grounds, despite the termination being presented by the company as a normal cessation of employment.
Aggrieved by the termination, Mr. Gnanasunderam, who was 41 years old and earning a monthly remuneration of Rs. 480,000 at the time, initiated proceedings before the Labour Tribunal of Colombo. He sought back wages and compensation equivalent to ten years’ salary for what he claimed was an arbitrary and unjust termination. The Labour Tribunal, by an order dated 17 December 2019, found that the Applicant’s employment had indeed been constructively terminated and awarded him compensation totaling Rs. 11,968,000.
Uga Escapes Management subsequently appealed this decision to the Provincial High Court of the Western Province in Colombo. The High Court, in its judgment dated 27 October 2022, upheld the Labour Tribunal’s finding that the termination was unlawful, unjust, and unreasonable. However, it substantially reduced the compensation awarded from Rs. 11,968,000 to Rs. 1,440,000, dismissing the appeal subject to this variation.
Mr. Gnanasunderam then sought leave to appeal before the Supreme Court, with his grievance primarily confined to the adequacy and lawful computation of the compensation awarded by the High Court. He argued that the High Court failed to consider his substantial financial loss, including reduced earnings from alternative employment, subsequent unemployment, and loss of future earnings, citing the increased statutory minimum retirement age under Act No. 28 of 2021.
Supreme Court’s Analysis on Compensation
The Supreme Court granted Leave to Appeal on the specific question of law: “Did the learned High Court Judge err and/or misdirect himself by failing to correctly apply the law pertaining to the computation of compensation in lieu of reinstatement, especially in a situation where the termination of the Petitioner’s employment was found to be unlawful and/or unjust and/or unfair and/or mala fide, including the well-established legal principles and heads of computing/assessing financial loss in terms of, inter alia, the judgment of the Supreme Court in Jayasuriya v. Sri Lanka State Plantations Corporation [1995] 2 Sri L.R. 379?”
Delivering the judgment, Dr. Sobhitha Rajakaruna J. emphasized that the finding of unlawful termination was not in dispute before the Supreme Court; the focus was solely on the quantum of compensation. The Court reiterated that compensation is intended to cover actual financial loss and is neither a punishment for the employer nor a windfall for the employee.
Crucially, the judgment reaffirmed the principles laid down in the seminal case of Jayasuriya v Sri Lanka State Plantations Corporation. These principles dictate that assessment should consider immediate loss of wages and benefits, prospective future loss, and where supported by evidence, loss of retirement benefits. However, the Court stressed the paramount importance of the employee establishing the loss with sufficient evidence. Remuneration received from subsequent employment and other payments made post-termination must be factored in to ensure the employee receives an indemnity, not a profit.
The Supreme Court rejected the Applicant’s approach of mechanically calculating prospective loss by multiplying salary by the entire period remaining until the normal or statutorily extended retirement age. It highlighted that the assessment must be based on the specific evidence and circumstances of each case, taking into account contingencies that might affect the continuity of employment.
Key factors considered by the Supreme Court included:
- Short Period of Service: Mr. Gnanasunderam had only been employed by Uga Escapes for approximately ten months, contrasting with long-serving employees whose career history could provide a strong basis for projecting future earnings.
- Prompt Alternative Employment: The Applicant obtained alternative employment with Janashakthi Insurance PLC relatively quickly (approximately two months after termination), significantly mitigating his immediate unemployment loss.
- Failure to Quantify Subsequent Increment: While the Applicant admitted receiving a lower initial remuneration from his new employer, he also admitted receiving a subsequent increment but failed to disclose its date or amount. The Court held that the burden of establishing the extent of any continuing loss rested on the employee, and this omission was material.
- Minimum Retirement Age Act: The Court clarified that the Minimum Retirement Age of Workers Act, No. 28 of 2021, does not automatically establish an entitlement to earnings until the extended age without evidence that the particular Applicant would have remained employed for that entire period.
The Court found considerable force in the Respondent’s submission that the Applicant’s proposed compensation figures (Rs. 16 million or Rs. 23 million) were speculative and did not adequately account for his short service, prompt alternative employment, admitted increment, and the inherent uncertainty of continued employment for the remainder of his working life.
The Final Verdict
The Supreme Court concluded that Mr. Gnanasunderam had failed to establish a sufficient evidentiary or legal basis to disturb the quantum of compensation determined by the High Court. The short period of service, prompt acquisition of alternative employment, and the failure to provide evidence of continuing loss beyond a reasonable period were significant factors.
The Court affirmed that the High Court’s assessment, which resulted in an aggregate payment equivalent to nine months’ salary (three months received post-termination plus six months awarded), was consistent with the principles of actual financial loss and was not based on an erroneous legal principle or a wholly unsupported assessment.
For these reasons, the Supreme Court answered the Question of Law in the negative, thereby affirming the High Court’s decision dated 27 October 2022. The appeal was dismissed, with no order for costs.
This ruling reinforces the judiciary’s approach to industrial disputes, emphasizing that while employee rights against unlawful termination are protected, the assessment of compensation must be firmly grounded in proven financial loss and not speculative claims.
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