31 July, 2018
Industrial court upholds hotels' restructuring of wages by converting service charge to be included with the basic wage to form the minimum wage — Inter Heritage (M) Sdn Bhd (Sheraton Imperial Kuala Lumpur Hotel) v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia (Award No. 1608 of 2018); The Andaman, a Luxury Collection Resort, Langkawi (Andaman Resort Sdn Bhd) v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia (Award No. 1609 of 2018)
Introduction
These two cases were heard together as both properties — Sheraton Imperial Kuala Lumpur and The Andaman, a Luxury Collection Resort — are part of the same group. The cases involved trade disputes with Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia ("the Union") in respect of the restructuring of the employees' wages pursuant to the implementation of the Minimum Wages Order 2012 ("MWO 2012").
In the latest major development in a series of cases on minimum wage within the hotel industry, the Industrial Court, vide Award Nos.1608 and 1609 of 2018, held that the properties are entitled to restructure the employees' wages by converting part or the whole of the service charge payable to be included with the basic salary to form the minimum wage rate of RM900.00 in compliance with the MWO 2012.
Brief facts
Prior to the introduction of the service charge system, most hotels in Malaysia practised the tipping system. However, as the tipping system only benefited certain categories of employees (that is, only those who had direct dealings with the customers such as bellboys and waiters) it was replaced by the service charge system. Under the service charge system, hotels would collect a fixed service charge from the customers' bills and deposit it into a service charge fund. The bulk of the monies collected would then be distributed to all employees covered under the applicable collective agreements, based on the allocated service charge points, with a remaining portion retained by the hotels for the purpose of maintaining the service charge fund.
The MWO 2012 was gazetted on 16 July 2012 and came into effect for the hotel industry on 1 October 2013. Under the MWO 2012, the minimum wage rate for the employees in Peninsular Malaysia was RM900.00 a month. The Guidelines on the Implementation of the Minimum Wages Order 2012 ("the Guidelines”) was introduced which, among others, permitted employers in the hotel industry to convert all or part of the service charge meant for distribution to the employees, to form part of the minimum wage.
In view of the Guidelines and in order to comply with the MWO 2012, the two properties used all or part of the employees' service charge entitlement to form the employees' basic salary to meet the minimum wage rate of RM900.00. The Union naturally argued against this method. The properties then raised trade disputes which were referred to the Industrial Court. The issue before the Industrial Court was whether the properties were entitled to convert all or part of the service charge entitlement to form part of the minimum wage.
It was the main contention of the Union that the properties were not entitled to use the service charge entitlement to form part of the minimum wage and the two properties in question should have used their own funds to increase the minimum wage of the employees. The properties, on the other hand, argued that they were entitled to restructure the employees' wages by converting part or the whole of the service charge payable to be included with the basic salary to form the minimum wage rate of RM900.00 per month in compliance with the MWO 2012.
Decision of the Industrial Court
The Industrial Court unanimously agreed with the properties' arguments that the employees will be enjoying no less favourable wages than what they were earning prior to the restructuring of the wages and the practice is therefore not to the detriment of the employees. The Industrial Court further held that the evidence on the financial implications adduced by the properties aptly demonstrated that the properties would be saddled with a very high increase in manpower costs if the properties had to use their own funds to top up the minimum wage rate of RM900.00 per month.
In respect of the Guidelines, the Industrial Court held that although the Guidelines has no legal force, they were nevertheless a persuasive document and, by virtue of section 30(5A) of the Industrial Relations Act 1967, the Industrial Court ought to give due consideration to the same.
The Industrial Court took the position that the conversion of part or whole of the service charge does not tantamount to a unilateral variation of the collective agreements as there was no reduction to the service charge allocation paid to the employees concerned.
The Industrial Court accordingly held that the properties are entitled to restructure the employees' wages by converting part or the whole of the service charge payable to be included with the basic wage to form the minimum wage of RM900.00 per month in compliance with the MWO 2012.
Past decisions of the Malaysian courts
These two decisions are significant as they represent a departure from previous industrial relations jurisprudence.
The Malaysian courts have consistently ruled against the hotel industry in respect of this issue. In the case of Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restaurant Semenanjung Malaysia v Crystal Crown Hotel & Resort Sdn Bhd (Crystal Crown Hotel Petaling Jaya) [2014] 3 ILR 410, the Industrial Court held that the service charge remuneration should be retained as the contract of employment provided for the payment of basic salary and service charge. This decision was affirmed by the High Court as well as the Court of Appeal. The case is currently pending appeal before the Federal Court.
The approach adopted in Crystal Crown was followed in almost all subsequent decisions of the Malaysian courts. For example, in the case of Georgetown City Hotel Sdn Bhd v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar dan Restaurant, Semenanjung Malaysia [2016] 2 LNS 1326, the Industrial Court, relying on Crystal Crown, dismissed the hotel's implementation of the minimum wage by utilising the service charge of the employees.
Similarly, in the case of THR Hotel (Selangor) Berhad v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar dan Restoran, Semenanjung Malaysia (Award No 761 of 2017), the Industrial Court unanimously dismissed the hotel's implementation of the minimum wage which had converted the service charge of the employees.
In Shangri-La Hotel (KL) Bhd & 4 ors v National Wages Consultative Council & 2 Ors (Originating Summons No: 24-74-11/2015), the High Court held that the Guidelines which the hotels were seeking to rely on does not have the force of law. The High Court's decision was subsequently affirmed by the Court of Appeal and the hotels' application for leave to appeal to the Federal Court was dismissed.
Please click on the following links to view the full text of the judgments:
Industrial Court of Malaysia – Award No. 1608 of 2018
Industrial Court of Malaysia – Award No. 1609 of 2018
For further information, please contact:
Nadia Abu Bakar, Shearn Delamore & Co
nadia@shearndelamore.com
