Reforming termination laws: Strengthening apparel industry and social security

 Joint Apparel Association Forum former Chairman Noel Priyathilaka

• Former JAAF Chief says job of Government is to protect both the employer and employee

The Sri Lankan apparel sector has faced many challenges in recent years. Beyond the well-documented local challenges, the industry has also had to grapple with challenges originating from afar such as COVID-19 and the resultant economic uncertainties in the subsequent years and the geopolitical tensions which have added to the complexities surrounding global maritime logistics which have a direct impact on Sri Lanka’s favourability as a production location. As international demand waned, many manufacturers, especially small and medium-sized businesses, were forced to reduce operations. However, outdated termination laws in Sri Lanka have hindered local industries’ ability to adapt, leaving many with no choice but to shut down their factories entirely.

Noel Priyathilaka, past-Chairman of the Joint Apparel Association Forum, argues that reforming these uncompetitive termination laws is crucial not only for the survival of businesses but also to boost investor confidence and increase export revenues, perhaps the most reliable long-term solution to Sri Lanka’s dollar shortage. In 2023, Sri Lanka’s apparel exports generated $ 5.42 billion, a critical source of foreign exchange. However, stringent employment laws relating to termination have prevented the industry from maintaining operational flexibility in times of crisis, risking the closure of several factories and the loss of all associated jobs and suppliers to such factories.

Priyathilaka emphasises the need for a balanced approach that protects both employees and employers. He proposes the introduction of a social security program for private sector workers which would complement the existing Employee Trust Fund (ETF). Under his plan, an additional 1% contribution from each employer and employee would fund a new safety net for private sector employees. Through this effort the total ETF contribution would rise from the current 3% to 5% thus, ensuring workers are protected and are able to tide over during economic downturns without stifling business operations.

This reform, he says, would allow businesses to make crucial decisions in times of economic hardship while providing employees with financial security during layoffs. He emphasised that under current laws, businesses, particularly small and medium-scale manufacturers, struggle to make timely decisions in times of crisis, such as the economic fallout from COVID-19. 

Priyathilaka emphasised that credible and reliable investors that Sri Lanka should seek to attract, are known for conducting country comparisons and risk diagnostics prior to any investment and an offering of an unemployment insurance scheme of this nature would signify Sri Lanka’s serious intent to realise institutional reforms, thus giving foreign investors the necessary confidence to justify their investments in Sri Lanka. 

The proposal, backed up by the Joint Apparel Association Forum, is gaining traction as a potential lifeline for the apparel industry and beyond, with the potential to cover over 3.5 million private sector employees.

As Sri Lanka works to rebuild its economy, reforming termination laws and implementing a comprehensive social security program could offer a sustainable path forward, ensuring the long-term survival of industries and safeguarding the livelihoods of workers.