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Minimum wage to include service charge in collective agreement dispute

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Minimum wage to include service charge in collective agreement dispute 

The Industrial Court of Malaysia has ruled on the inclusion of service charge in calculating wages in meeting the minimum wage requirement.
In this article, we examine the facts, issues and ruling of the case.

BACKGROUND The Industrial Court of Malaysia (“the Court”) in the case of Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar dan Restoran, Semenanjung Malaysia v Subang Jaya Hotel Development Sdn Bhd (Grand Dorsett Subang Hotel)[1] (“the Grand Dorsett case”) has recently granted an award in favour of the Hotel pertaining to the inclusion of service charge[2] in the calculation of wages to meet the MYR1000 statutory requirement for minimum wage as per the Minimum Wage Order 2016 (“MWO”).

The Grand Dorsett case is seen to have departed from the Court of Appeal decision made in Crystal Crown Hotel[3], where it was held that service charges shall not be considered as wages for the purpose of calculating minimum wage and therefore the hotel was ordered to pay additional wages to employees under the Collective Agreement in order to meet the statutory minimum wage.

THE ISSUE The main issue raised was whether the Hotel could take into account the service charge component of the employee’s monthly remuneration to “top up” any amount below the minimum wage, in considering the wages of employees earning less than MYR1000 basic wages a month. The Industrial Court in the Grand Dorsett case departed from the Court of Appeal’s decision in Crystal Crown Hotel on the ground of “achieving industrial peace”. The Industrial Court relied on Bharat Bank’s case[4] which held that the Court does not merely interpret or give effect to contractual rights and obligations of the parties, but it can “create new rights and obligations between them” which is essential for keeping industrial peace. Therefore, a broader approach was taken in the Grand Dorsett case where section 30(4) of the Industrial Relations Act 1967[5] was applied by the Court.

THE DECISION The Industrial Court in the Grand Dorsett case held that the relevant legislation applicable to the employees earning a basic wage of less than MYR2000 a month in the instant case is the Employment Act 1955 (“EA”). Consequently, section 2 of the EA does not exclude service charges from the definition of “wages” and as such, it cannot be excluded by any judicial decision apart from an Amendment Act. Thus, it is now trite law that service charge is part of “wages” of an employee as defined under section 2 of the EA, which is also the definition of “wages” in the National Wages Consultative Council Act 2011 (“NWCC Act”).

The Industrial Court further held that failure to take into account the service charge would cause industrial disharmony, whereby it would lead to a 20% increase of salaries if the employer had to top up the employees’ wages to meet the minimum wage as per the MWO. In view of the above, the Hotel was entitled to take into account the service charge paid to the employees to determine “wages” in order to comply with the NWCC Act and MWO.

COMMENTS The approach taken by the Industrial Court puts greater emphasis on the need for industrial peace and harmony. Notwithstanding the Court of Appeal’s decision in the Crystal Crown Hotel case which held that minimum wages is limited to basic wages only, the Industrial Court in the Grand Dorsett case departed from the decision by allowing the Hotel to take into account the service charge paid to employees as those service charge payments formed part of wages as defined under section 2 of the EA.

For further insight in this area of law, please contact our Partners:
P Jayasingam
Wong Keat Ching
Thavaselvi Pararajasingam
 
[1] Industrial Court Case No. 23(7)(13)/2-228/15, Award No. 1196 of 2018 dated 28 May 2018
[2] Service charge collected from the Hotel’s sales revenue are distributed and paid to Hotel employees in accordance with each employee’s service charge points as stipulated under the Collective Agreement between the Hotel and the Union
[3] Crystal Crown Hotel & Resort Sdn Bhd (Crystal Crown Hotel Petaling Jaya) v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia [2015] 1 LNS 1450
[4] Bharat Bank v Employees of Bharat Bank [1950] SCR 459
[5] Section 30(4) provides that in making its award in respect of a trade dispute, the Court shall have regard to the public interest, the financial implications and the effect of the award on the economy of the country, and on the industry concerned, and also to the probable effect in related or similar industries.