Crystal Crown Hotel & Resort Sdn Bhd v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, (W-02(A)-1601-09/2015)

1 IN THE COURT OF APPEAL AT PUTRAJAYA (APPELLATE JURISDICTION) CIVIL APPEAL NO. W-02(A)-1601-09/2015 BETWEEN CRYSTAL CROWN HOTEL & RESORT SDN BHD …APPELLANT (CRYSTAL CROWN HOTEL PETALING JAYA) AND KESATUAN KEBANGSAAN PEKERJA-PEKERJA HOTEL, BAR & RESORT SEMENANJUNG MALAYSIA …RESPONDENT [In the High Court in Malaya at Kuala Lumpur Application for Judicial Review No. 25 – 163 – 09 / 2014 In the matter of an application for an order for a certiorari and an order of mandamus in respect of an Industrial Court Award No. 875 Year 2014 made in respect of Case No. 13

(26)/2—175/2012; 2 And In the matter of section 26(2) of the Industrial Relations Act 1967; And In the matter of Order 53 of the Rules of Court 2012; And In the matter of First Schedule of the Courts of the Judicature Act 1964. Between Crystal Crown Hotel & Resort Sdn Bhd (Crystal Crown Hotel Petaling Jaya) …Applicant And Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia …Respondent] 3 CORAM: DAVID WONG DAK WAH, JCA HAMID SULTAN BIN ABU BACKER, JCA UMI KALTHUM BINTI ABDUL MAJID, JCA GROUNDS OF JUDGMENT A. INTRODUCTION

1. This was appeal from the decision of the learned High Court Judge in dismissing the Appellant’s/Applicant’s Judicial Review application on 19.8.2015 which inter alia, sought to quash the Industrial Court Award No. 875 of 2014.

2. The Appellant/Applicant manages the Crystal Crown Hotel Petaling Jaya which commenced its operations in January 1995.

3. The Respondent is a trade union of employees established and registered under the Trade Unions Act 1959.

4. Aggrieved by the decision of the learned High Court Judge in the Judicial Review proceedings, the Appellant/Applicant filed an appeal to this Court. 4

5. The Appellant/Applicant and the Respondent in this appeal will be referred to as the Hotel and the Union respectively. B. BACKGROUND FACTS

6. In 2012, the Minimum Wages Order 2012 (“MWO”) was made as a subsidiary legislation under the National Wages Consultative Council Act 2011 (Act 732). It came into force on 1.1.2013 in relation to an employment establishment with at least 5 employees.

7. Initially, when the Hotel first commenced its operation sometime in January 1995, there was no collective agreement between the employees and the Hotel. The employees’ remuneration package consisted of inter alia, a basic salary and service charge. Then on 12.3.1999 the Union was granted recognition.

8. A trade dispute had arisen between the Hotel and the Union sometime around October 2011 over the Hotel’s refusal to commence collective bargaining. The collective bargaining was in respect of the terms and conditions to be incorporated in the 1st Collective Agreement between the parties. 5

9. The Hotel’s refusal to commence collective bargaining with the Union had resulted in the Union sending a letter dated 16.11.2011 to the Director General of Industrial Relations (DGIR).

10. In the aforesaid letter, the Union informed the DGIR that a trade dispute existed between the Union and the Hotel and sought the assistance of the DGIR to set a meeting to resolve this dispute failing which, the matter be referred to the Industrial Court for an award.

11. In an attempt to resolve the dispute, the DGIR convened a meeting on 9.2.2012. However, the meeting was unsuccessful. Thus, on 16.2.2012, the Minister for Human Resources referred the dispute to the Industrial Court under section 26(2) of the Industrial Relations Act 1967 (IRA).

12. On 18.7.2014, the Industrial Court made an award and had adopted the Union’s proposals. The Industrial Court made the following awards:

12.1 the effective date for the 1st Collective Agreement is on 1.10.2011;

12.2 a 10% salary adjustment from 1.10.2011;

12.3 fixed annual increments from RM 40.00 to RM 60.00 up to 30.9.2013; 6

12.4 fixed annual increments from RM 60.00 to RM 100.00 from 1.10.2013;

12.5 minimum salaries ranging from RM900.00 to RM1300.00 for the respective job categories as per Appendix B to the Award;

12.6 a 20-step salary structure be implemented; and 12.7 the service charge system be retained and limited to only employees covered under the scope of the 1st Collective Agreement.

13. Dissatisfied with the Award of the Industrial Court, the Hotel filed a Judicial Review application seeking inter alia to quash the Award and for an order of mandamus to direct the matter to be remitted back to the Industrial Court to be re-heard before another Panel.

14. The Hotel’s application for Judicial Review was dismissed by the High Court on 19.8.2015 with costs of RM 7,000.00. Hence this appeal. C. THE APPEAL

15. The issues before the Court are as follows. First, whether the Hotel can implement a clean wage system and remove service charge system. Alternatively, in the event the service charge system is maintained, the second issue is whether the Hotel can restructure the wages by utilising 7 the service charge or a portion thereof to top up its employees’ basic wages to meet the payment of minimum wages.

16. The next issue is whether in the event the service charge is maintained, the service charge can be distributed to employees who are not within the scope of the Union representation.

17. The counsel for the Union contended that the Award of the Industrial Court was neither irrational nor illegal. The decision that minimum wages must be paid from the Hotel’s own coffers instead of from the service charge pool is consistent with Order 6 of the MWO.

18. The Union further contended that the service pool belongs to the employees and that the Hotel is not entitled to utilise the service charge funds to help it meet its obligation to provide for the payment of minimum wages to its own employees.

19. The Union also submitted the service charge system must be retained and the clean wage system must not be implemented. The Hotel’s obligation to increase the minimum wages must not be to the detriment of utilising the money collected for the service charge. In other words, the Union submitted that the Hotel must not pay its employees 8 using the money or a portion thereof from money collected from tips to fulfil its obligation to pay minimum wages.

20. The Hotel on the other hand argued that, in light of the implementation of the MWO, the service charge can be incorporated into the basic salary or alternatively, the service charge can be utilised to top-up the basic salary. This is done to bring the basic salary up to the minimum wage requirements under the MWO.

21. The Hotel also argued that the service charge pool should be extended to all employees who were in receipt of the service charge prior to the coming into effect of the 1st Collective Agreement.

22. The Hotel further argued that the learned High Court Judge had erred and had misconceived the role of the Industrial Court in determining a trade dispute under section 26 of the IRA.

23. The Hotel submitted that the learned High Court Judge failed to appreciate that the Industrial Court had acted beyond the scope of the provisions of subsections 30(4) and 30(5) of the IRA. In doing so, the learned High Court Judge had failed to consider the financial ramifications that would result from its award towards the relevant industry, specifically the hotel industry in this matter. 9

24. In support of its contention, the Hotel had explained at length to this Court that the Industrial Court and the High Court had erred in deciding that service charge did not belong to the Hotel but came from the customers.

25. Reference was made by the Hotel to the decision of the Privy Council in Peter Anthony Pereira & Anor v Hotel Jayapuri [1987] 1 CLJ 14 where it was stated that service charge, just like the basic salary, is due under the contract of service. As such, it should be treated similarly as a basic salary. Service charge only belongs to the employees as and when it is paid out to the employees but not before that.

26. The Hotel also submitted that the decision of the Industrial Court and the High Court would result in unjust enrichment and discriminatory practice towards the employer (the Hotel) as the employees were already receiving substantial amounts as wages. By refusing the employer to utilise the service charge to meet the new raised basic salaries would result in the employees receiving a financial windfall to the detriment of the Hotel. 10 D. OUR DECISION

27. It is important to note that, based on the provisions of Act 732, the implementation of the minimum wage system must not in any way result in the employees getting anything less favourable than the employees’ current wages. The basic restructured wages also must not be less than the amount of wages earned by the employees pursuant to the contract of service.

28. We were mindful of the decision in National Union of Hotel, Bar and Restaurant Workers, Peninsular Malaysia v. Masyhur Mutiara Sdn. Bhd. [2018] 1 CLJ 318 where this Court approved the Industrial Court Chairman’s explanation on the introduction of the service charge in the hotel industry based on the Privy Council’s decision in Peter Anthony Pereira’s (supra) case which is to replace the practice of tipping which only benefitted the guest service employees of the hotels but not the other employees who are not in direct contact with the customers or patrons of the hotels. In short, it was a collection system that would benefit all employees and had become the norm in the hotel industry where it forms part of the wages paid to hotel employees.

29. We further noted the origin of the service charge. The 10% service charge would be levied on the customer’s bills and they are paid by the 11 customers. This collection would then be channelled into a fund called the service charge fund where 10% of the collection would be retained by the hotel as administrative charges and the remaining 90% would be distributed to eligible employees of the hotel, subject to the service points allocation agreed by both parties.

30. We pause here to note that the monies in the service charge fund do not come from the employer. These monies are collected from the customers who paid additional 10% of their bills under the supposition that the 10% is going to the employees in lieu of tips.

31. We were also of the view that the employees of the Hotel are entitled to a share of the service charge as this is their contractual entitlement [see example of contract of service of the Hotel’s employee, Clause 4, page 284, Appeal Record Volume 2(2)].

32. The obligation of the Hotel to provide for a minimum wage is a separate issue from its obligation to fulfil the contractual entitlement of the employees to a share of the service charge collected.

33. We were of the view that the Clean Wage System proposed by the Hotel does not tilt the balance in the employees’ favour. We viewed the proposal as being less advantageous to the employees when they are 12 being deprived of the element that the service charge as a separate element of the remuneration.

34. We were of the view that the introduction of the MWO should not have prevented the employees from receiving the payment of the service charge that they have been receiving since the operation of the Hotel in

1995. This payment should have been made over and above their basic minimum wage.

35. We were also of the view that the salary of the employees should have come from the Hotel’s coffers. As we had stated earlier, the service charge are monies paid by the customers and the patrons of the Hotel in lieu of tipping. Thus, these payments were made under the aforesaid understanding. It would be wrong for the Hotel to utilise the monies collected from these payments to assist it in meeting its obligation to pay its employees the basic minimum wages. Paying the employees the basic minimum wages is the Hotel’s responsibility. The service charge monies were never the Hotel’s to be utilised for any purpose other than what it was intended for. To use the money for the payment of the minimum basic wages of the employees is akin to using the employees’ monies to pay their own salaries. 13

36. We also noted that the Hotel’s proposal to do away with the service charge and introducing a clean wage system is once again unfair to the employees. This proposal, if allowed to proceed, would result in the employees’ wages being less than the remuneration agreed in their contract of service. This is obviously unfavourable to the employees and certainly not the intention of the MWO.

37. The Hotel’s alternative proposal to the clean wage system is to utilise the service charge fund to meet its obligation to pay the minimum wages. In doing so, essentially what the Hotel is trying to do is to escape from its obligation in providing the monies to pay its own employees. The Hotel is attempting to comply with the requirements of the MWO without impacting its own finances. This must not be allowed as the Hotel should not be entitled to utilise the service charge pool to meets its minimum wages requirement.

38. It is pertinent to note that the implementation of the national minimum wage will fundamentally have a financial impact on all employers and businesses and the Hotel is one of many other employers who would have to bear additional financial responsibility to meet this requirement. Thus, the Hotel should not be excluded from fulfilling its obligation like any other employer. 14

39. If the Hotel is to be allowed to utilise the money from the service charge pool to meet the minimum wage requirement, it would go against the intention of the introduction of the MWO which is to improve the standard of living of the work force in the country. If the Hotel is allowed to do so, it would not only defeat the purpose of MWO but the employees would be placed in a vulnerable position where their take home salary can potentially be lower than what they are currently earning at present.

40. We found the Hotel’s contention that the introduction of the minimum wage together with the service charge collection for the employees would be an unjust enrichment of the employees and would have serious financial consequences to the Hotel beyond the scope of section 30(4),

(5) of the IRA, to be untenable and unsustainable. This contention has already been taken into account by the National Wages Consultative Council (Wages Council) and the Minister/the Government under the provisions of Act 732. To this end, we refer to sections 4(1), 22 and 23 of Act 732 which are self-explanatory and we reproduce below for ease of reference: “ Functions and powers of the Council

4. (1) The functions of the Council shall be –

21. Before any recommendation is made under section 22, the Council shall take the following actions:

22. (1) Based on the actions taken under section 21, the Council shall, at such time as the Minister may determine, make a recommendation to the Government through the Minister on the following matters:

(2) The Government may, after considering the recommendation –

(3) Where the Government directs the Council to review the recommendation and make a fresh recommendation under paragraph

(2)(b), section 21 and subsection (1) shall apply.

(4) The Government may, after considering the fresh recommendation made pursuant to subsection (3) –

23. (1) Where the Government agrees with the recommendation of the Council under paragraph 22(2)(a) or 22(4)(a) or determines the matters under paragraph 22(4)(b), the Minister shall, by notification in the Gazette, make a minimum wages order on the matters specified in paragraphs 22(1)(a) to (e) as agreed to or determined by the Government. 17

(2) The Minister may, upon the direction of the Government, by notification in the Gazette, amend or revoke the minimum wages order.” In short, we found that service charge is part of the total remuneration package and is not part of basic wages.

41. As such, we found that the decision of the learned High Court Judge did not suffer from any infirmities of illegality and/or irrationality as alleged by the Hotel.

42. We were in agreement with the learned High Court Judge that had correctly decided the facts and the laws placed before the Industrial Court did not merit any appellate intervention.

43. We hereby affirmed decision of the High Court which we found was arrived at after careful consideration of the relevant matters and no irrelevant matters were considered. Thus, we were in agreement that a reasonable tribunal similarly circumstanced would have come to the same decision on the same facts. E. CONCLUSION

44. Thus, after having given consideration to the submissions of both parties, we unanimously dismissed the Hotel’s/Appellant’s appeal with 18 costs of RM 10,000.00. The costs of the appeal were subject to the payment of the allocatur’s fee and the deposit was to be refunded. sgd (UMI KALTHUM BINTI ABDUL MAJID) Judge Court of Appeal Putrajaya Dated: 24.06.2020 Counsels/Solicitors Solicitors for the Appellant: Sivabalan Nadarajah (together with Reena Enbasegaran) from Messrs. Shearn Delamore & Co. Solicitors for the Respondent: Ambiga Sreenevasan (together with Shereen Selvaratnam) from Messrs. Sreenevasan.