Colombo, Sri Lanka – 10 September 2026 – In a significant ruling handed down today, the Supreme Court of Sri Lanka has affirmed a Labour Tribunal’s finding that the termination of an employee’s services was unjustified, but has opted to award compensation in lieu of reinstatement, citing an irreparable breakdown of trust and confidence between the employer and employee. The judgment was delivered in the case of Samaja Niyamaka Sanvardhana Padanama Guarantee Limited v. Millawa Gamage Siriyawathi (SC/Appeal/95/2020), providing crucial clarification on the “just and equitable” jurisdiction of Labour Tribunals.
Background to the Dispute
The case originated from proceedings instituted before the Labour Tribunal, Matara, on 02 January 2012, by Ms. Millawa Gamage Siriyawathi (the Respondent-Applicant), a District Manager at Samaja Niyamaka Sanvardhana Padanama Guarantee Limited (the Appellant-Respondent), a social mobilisation foundation engaged in microfinance and welfare programmes. Ms. Siriyawathi alleged unlawful termination of her services, effective 02 April 2011, and sought reinstatement with back wages.
The Appellant, Samaja Niyamaka Sanvardhana Padanama Guarantee Limited, admitted the termination but maintained that it followed a domestic inquiry where Ms. Siriyawathi was found guilty of several charges. These charges primarily related to financial irregularities at the ‘Ulahitiyawa Society’ amounting to Rs. 301,961/-, alleged attempts to suppress information, failure to produce documents for an internal investigation, and misconduct towards senior officers, including a financial loss at the Beliatta Branch where she had previously served.
Labour Tribunal and High Court Findings
The Labour Tribunal, by an order dated 30 September 2014, found the termination unjustified. It directed the Appellant to reinstate Ms. Siriyawathi without a break in service and to pay back wages amounting to Rs. 457,800/-. This decision was subsequently affirmed by the Provincial High Court of the Southern Province in Matara on 14 February 2017, which dismissed the Appellant’s appeal. The Appellant thereafter sought redress from the Supreme Court.
Arguments Before the Supreme Court
Appellant’s Position
Counsel for the Appellant, Uditha Egalahewa, PC, argued that the Labour Tribunal failed to properly evaluate the evidence demonstrating Ms. Siriyawathi’s responsibility for supervising the branch where financial irregularities occurred, and her subsequent actions to impede the investigation. The Appellant contended that these actions, coupled with allegations of abusive conduct towards senior officers, justified a loss of confidence, especially given its nature as a financial institution dealing with public funds. It was submitted that reinstatement was neither just nor equitable.
Respondent’s Position
Rohan Sahabandu, PC, representing Ms. Siriyawathi, countered that the alleged financial misconduct was not established. He asserted that Ms. Siriyawathi herself initially reported the irregularity and that her subsequent recommendation regarding a deduction was a genuine finding, not a fraudulent attempt to conceal loss. He further denied deliberately withholding documents and challenged the evidence regarding misconduct at the Beliatta Branch and abusive behaviour, citing a lack of corroboration and witness testimony. The Respondent stressed that the Labour Tribunal’s findings, affirmed by the High Court, constituted concurrent findings of fact that should not be disturbed on appeal.
Supreme Court’s Evaluation and Decision
The Supreme Court bench, comprising Justices Mahinda Samayawardhena, Arjuna Obeyesekere, and Dr. Sobhitha Rajakaruna (who delivered the judgment), carefully considered the evidence and submissions. The Court upheld the findings of the Labour Tribunal, affirmed by the High Court, that the charges levelled against Ms. Siriyawathi had not been established to a degree necessary to justify the termination. The Court reiterated the limited scope of its appellate jurisdiction regarding concurrent findings of fact by lower tribunals unless they are perverse or unsupported by evidence.
Distinction Between Unjustified Termination and Reinstatement
Crucially, the Supreme Court drew a clear distinction between the finding of unjustified termination and the appropriateness of reinstatement as a remedy. While agreeing that the termination was unjustified based on the unproven charges, the Court held that reinstatement is not an automatic consequence. Justice Rajakaruna emphasised that the “just and equitable” jurisdiction of a Labour Tribunal under the Industrial Disputes Act requires considering all circumstances, including the nature of employment, the relationship between parties, and the effect of reinstatement on the employer and workplace.
The Court found that despite the charges not being proven, the evidence and circumstances surrounding the disciplinary proceedings had led to a “fundamental erosion of the confidence” that the Appellant, a financial institution, reposed in Ms. Siriyawathi, who held a position of considerable responsibility. The Court noted that an employer should not be compelled to reinstate an employee where the relationship of trust and confidence has irretrievably broken down, particularly in such roles.
Drawing on precedents such as John Keells Ltd. v Ceylon Mercantile, Industrial and General Workers Union and Others, the Court affirmed that alternative relief in lieu of reinstatement may be granted in such circumstances, even if misconduct is not proven. The interests of both the workman and the employer, alongside the wider goal of a harmonious working environment, must be balanced.
The Verdict
Accordingly, the Supreme Court affirmed the finding that the termination of Ms. Siriyawathi’s services was not justified on the charges against her. However, it set aside the order for reinstatement. Instead, the Court determined that the appropriate relief was an award of compensation. The Court computed the compensation itself to avoid further delays, ordering the Appellant to pay Ms. Siriyawathi a sum of Rs. 327,000/- as compensation in lieu of reinstatement, in addition to the back wages of Rs. 457,800/- already awarded by the Labour Tribunal.
The judgment thus provides a significant precedent regarding the Labour Tribunal’s discretion to award compensation over reinstatement, even when an employer fails to prove misconduct, if the employer-employee relationship has suffered an irreparable loss of confidence.
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