Subang Jaya Development Sdn Bhd (Permohonan Semakan Kehakiman No. WA-25-337-12/2015)

Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia 2

Mahkamah Perusahaan Malaysia … Responden-Responden Grounds of Decision Azizah Nawawi, J: Application [1] This is the Applicant’s judicial review application seeking the following prayers:

An order of certiorari to quash the entire Industrial Court’s decision in the Industrial Court Case No. 13/3-295/2014, being the Award No. 1162 of 2015 dated 2.10.2015 (the “Award”);

(ii) A declaration that the Wage Restructuring implemented by the applicant with effect from 1.10.2013 was lawful;

(iii) An order for stay of execution of the Award in respect of any action to be taken in relating to the enforcing of the Award pending final disposal of the Applicant’s substantive judicial review application herein. [2] The grounds of the application are: 3

that the Industrial Court erred in law and in fact when it held that the applicant’s unilateral decision to top up minimum wages with service charge was not conforming with the statutory minimum wages;

(ii) that the Industrial Court erred in law and/or in fact where it arrived at the decision that minimum wages are basic wages without incorporating other components and therefore the applicant could not use service charge to top up the minimum wages;

(iii) that the Industrial Court erred in law where it held that the Guidelines on The Implementation of The Minimum Wages Order 2012 dated 6.9.2012 issued by the National Wages Consultative Council and endorsed by the Minister of Human Resources (the “Guidelines”) were not legally binding;

(iv) that the Industrial Court erred in law where it held that “the fundamental terms and conditions on the salary with service charge points cannot unilaterally changed and that the Hotel is bound by the fundamental terms as stipulated in Article 12 (Service Charge) where 90% of the service charge shall be distributed to all employees covered within the scope of the Agreement”; and

that the Industrial Court had erred in law when it failed to consider the financial impact to the applicant in that it had 4 acted contrary to its role to maintain industrial harmony when it handed down an Award which had resulted in an excessive increase in the employee’s remuneration package thereby imposing a financial burden on the applicant. [3] Having considered the application and the submission of the parties, this Court has dismissed the application with costs. The Salient Facts [4] The applicant manages Dorsett Grand Subang (the “Hotel”), which commenced operations sometime in November 1981. [5] The 1st Respondent is a trade union of employees (the “Union”) established and registered under the Trade Union Act 1959. [6] The crux of the dispute that lead to the filing of this judicial review application revolves around the terms and conditions on the restructuring of the wages of the employees in relation to the payment of basic wages and service point value which falls under the scope of the 9th Collective Agreement (the said “Collective Agreement”) entered between the Hotel and the Trade Union for the period of 1.2.2009 to 31.1.2012. [7] Under the said Collective Agreement, Article 10 and Appendix A provides for salary structure whilst Article 12 provides for the service charge remuneration. Prior to the implementation of the Minimum 5 Wages Order 2012 (the“MWO 2012”), service charge was collected by the Hotel from the Hotel’s customer when the bill is presented. It is then distributed to the Hotel’s employees in accordance to service charge point allocation under the said Collective Agreement. [8] Subsequently, due to the implementation of the MWO 2012 and the Guidelines issued by the National Wages Consultative Council, the Hotel was compelled to restructure the remuneration system by revising the monthly basic salary of all employees who were earning below the minimum wage level prescribed under the MWO 2012 to RM900.00 and the Hotel did that by carrying out the adjustment to the service charge paid to those employees. [9] As such, the Hotel had used the service charge paid to those employees to top up the basic salary to the minimum wage amount of RM900.00 and the balance amount of the service charge would continue to be paid to the employees. The Union was informed of this vide a letter dated 30.9.2013 from the Hotel. [10] On 30.9.2013, the Hotel had filed a reference for trade dispute under Section 26 of the Industrial Relations Act 1967 (the“IRA 1967”) with the Industrial Relations Department. Since both parties failed to reach amicable settlement during the conciliation meeting on 4.12.2013, the Minister of Human Resources referred the said dispute to the 2nd Respondent for adjudication. 6 [11] Upon hearing both parties, the 2nd Respondent (the “Industrial Court”) had on 2.10.2015 dismissed the Hotel’s implementation of its wages restructuring system and order the Hotel to pay the minimum wages of RM900.00 to the employees earning less than RM900.00 a month without converting all or part of the service charge meant for distribution to the employees, to form part of the minimum wages. The Hotel also was further ordered to refund the service charge adjustment which has been deducted to top up the basic wages from 1.10.2013 to the employees. [12] Later, on 13.10.2015, the Industrial Court issued a rectification of the Award in pursuant to Section 30(9) of the Act. Being dissatisfied with the said Award, hence the Hotel filed this present judicial review application to challenge the said Award. The Findings of the Court [13] The Federal Court in Ranjit Kaur S Gopal Singh v. Hotel Excelsior (M) Sdn Bhd [2010] 8 CLJ 629 has set out the function of the Court in an application for Judicial Review and the correct test to be applied in reviewing the findings of the Industrial Court, to be as follows: “[15] …… Historically, judicial review was only concerned with the decision making process where the impugned decision is flawed on the ground of procedural impropriety. However, over the years, 7 our courts have made inroad into this field of administrative law. Rama Chandran is the mother of all those cases. The Federal Court in a landmark decision has held that the decision of inferior tribunal may be reviewed on the grounds of "illegality", "irrationality" and possibly "proportionality" which permits the courts to scrutinize the decision not only for process but also for substance. It allowed the courts to go into the merit of the matter. Thus, the distinction between review and appeal no longer holds. [16] The Rama Chandran decision has been regarded or interpreted as giving the reviewing court a license to review without restrain decisions for substance even when the said decision is based on finding of facts. However, post Rama Chandran cases have applied some brakes to the courts' liberal approach in Rama Chandran. The Federal Court in the case of Kumpulan Peransang Selangor Bhd v. Zaid Mohd Noh [1997] 2 CLJ 11 after affirming the Rama Chandran decision held that there may be cases in which for reason of public policy, national interest, public safety or national security the principle in Rama Chandran may be wholly inappropriate. 8 [17] The Federal Court, in Petroliam Nasional Bhd v. Nik Ramli Nik Hassan [2003] 4 CLJ 625, again held that the reviewing court may scrutinise a decision on its merits but only in the most appropriate of cases and not every case is amenable to the Rama Chandran approach. Further, it was held that a reviewing judge ought not to disturb findings of the Industrial Court unless they were grounded on illegality or plain irrationality, even where the reviewing judge might not have come to the same conclusion. [18] The Court of Appeal has in a number of cases held that where finding of facts by the Industrial Court are based on the credibility of witnesses, those findings should not be reviewed (see William Jacks & Co (M) Sdn BHd v. S Balasingam [1997] 3 CLJ 235, National Union of Plantation Workers v. Kumpulan Jerai Sdn Bhd (Rengam) [2001] 1 CLJ 681, Quah Swee Khoon v. Sime Darby Bhd [2001] 1 CLJ 9, Colgate Palmolive (M) Sdn Bhd v. Yap Kok Foong & Another [2001] 3 CLJ 9. However, there are exceptions to this restrictive principle where:

reliance upon an erroneous factual conclusion may itself offend against the principle of legality and rationality, or 9

there is no evidence to support the conclusion reached. (See Swedish Motor Assemblies Sdn Bhd v. Hj. Md Ison Baba [1998] 3 CLJ 288 ]. [19] It is clear from the above authorities that the scope and ambit of Rama Chandran had been clearly explained and clarified. Decided cases cited above have also clearly established that where the facts do not support the conclusion arrived at by the Industrial Court, or where the findings of the Industrial Court had been arrived at by taking into consideration irrelevant matters, and had failed to consider relevant matters into consideration, such findings are always amendable to judicial review”. (emphasis added) [14] In Booi Kim Lee v YB Menteri Sumber Manusia & Golden Plus Geaniait SB [1999] 3 MLJ 515, Justice KC Vohrah adopted Lord Diplock’s classification of grounds of judicial review in the House of Lords case of Council of Civil Service Unions V. Minister for the Civil Service [1985] AC 374. The three (3) grounds described by Lord Diplock are:

illegality;

(ii) irrationality; and

(iii) procedural impropriety. 10 [15] By illegality as a ground for judicial review, it means “that the decision-maker must correctly understand the law that regulates his decision-making power and must give effect to it’ and that “… the authority concerned has been guilty of an error of law in its action as for example, purporting to exercise a power which in law it does not possess.” [16] By irrationality it means ‘Wednesbury unreasonableness’ and “applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided upon could have arrived at it” [17] By procedural impropriety, it includes ‘failure by an administrative tribunal to observe procedural rules that are expressly laid out...” and “duty to act fairly”. [18] Bearing in mind the above principles, the core issue here is whether the Hotel can utilize the service charges collected from its customers for its employees to pay the minimum wages to its employees. [19] Service charges are imposed by the Hotel at the rate of 10% on all bills and receipts. Service charged was introduced to replace tipping so that every employee enjoys a fair share of it as opposed to tipping which goes to front-liners or guest-contact employees only, 11 such as waiters. Service charge that is paid by the customers will be placed in a fund. [20] The Hotel would retain 10% out of the 100% gross service charge. The remaining 90% gross service charge would be distributed to all employees covered within the scope of the collective agreement and the distribution shall be based on service charge points allotted to each employee. [21] Therefore, since the service charge is collected from the customers for the employees, this fund does not belong to the Hotel as it is not from the hotel itself.The service charge collected from the hotel’s customers then form part of the income for the employee under his contract of service with the hotel. In Crystal Crown Hotel & Resorts Sdn Bhd (Crystal Crown Hotel Petaling Jaya) v. Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia [2017] 9 MLJ 119, Justice Asmabi Mohamad held as follows: “[41] The service charge scheme is unique, in that, the money does not come from the employer but collected from the customers of the hotel and placed in a fund jointly owned by the employer and employees. This fund is pure income of the employee which sum is paid to employees pursuant to the contract of service. 12 [42] The Privy Council had clarified that the money from which the service charge points were paid did not belong to the hotel (see Peter Anthony Pereira & Anor v. Hotel Jayapuri Bhd. & Another [1986] 1 WLR at page 449). [43] The rationale and concept for the introduction of the service charge in the hotel industry as highlighted above showed that the money collected and deposited into the joint account of the employee and the Hotel belongs to the eligible employees of the Hotel and the payment to the employees in accordance with the service points allocation is provided in the contract of employment, hence I agree with the Award made by the IC that the Hotel could not be permitted to meet its obligation to pay the minimum wage as envisaged by the NWCC and MWO by utilising the service charge paid by its customers or patrons. In view of the above, the 'clean wage' system proposed by the Hotel was rightly rejected by the IC.” (emphasis added) [22] As such, I agree with the Union that the employees of the Hotel are entitled to a share of the service charge as part of the terms of their contract of service, as can be seen from Article 12 of the Collective Agreement, which reads: 13 “ARTICLE 12 SERVICE CHARGE Clause (a) The Hotel shall retain 10% of the 100% service charge imposed on all bills monthly. The remaining 90% service charge shall be fully distributed to all employees covered within the Scope of this Agreement as listed in Appendix A, except part-timers, temporary, casual, retired employees and foreign workers. … Clause (d) The service charge points shall on no circumstances whatsoever be deductible when an employee is on any type of paid leave.” [23] In the present case, these contractual rights have been entrenched since the first day the Hotel commenced its business in 1981, for more than 30 years. Under the contract of service, the employees of the Hotel have an average of 3.2 service charge points which, based on the period from October 2011 to September 2013, has an average value of RM360.00 per point. This would provide these employees with an average of RM1152.00 per month (RM360 x 3.2) in addition to their basic salary. Therefore, service charge is a substantial part of their total remuneration package, paid over and above their basic salary. 14 [24] With the implementation of the National Wages Consultative Council Act 2012 (“Act 732”), a National Wages Consultative Council (the “NWCC”) is established, whose functions includes making recommendation to the Government on the minimum wages and to review the minimum wages order (see section 4). Under section 22 of Act 732, the NWCC made a recommendation to the Government to implement the minimum wage of RM900.00, which was accepted by the Government under section 23 and hence the MWO 2012 was issued. Therefore, in the hotel industry, the minimum wages of RM900.00 takes effect from 1.10.2013. [25] With the implementation of the minimum wages, the Hotel is now seeking to use the service charges to meet its obligation under the MWO 2012 (the “Top Up Structure”). This means that the Hotel will continue to charge 10% service charge from its customers, but instead of distributing it to its employees as agreed in the Collective Agreement, all or part of it will be used to help the Hotel meet the minimum wages payment. [26] Having considered the submission of both parties, I agree with the Union that the Hotel cannot use the service charge to pay the employees basic minimum wages on the following reasons:

that the minimum wages are the basic wages and that service charge is not part of the basic wages of the employees. On the issue of basic wages, Justice Asmabi held in Crystal Crown Hotel (supra) held as follows: 15 “[35] What amounts to the "basic wages " had been illustrated in the case of Décor Wood Industries (Terengganu) SdnBhd v. Timber Employees Union [1990] 1 ILR 423 as: "...does not include additional emoluments which some workmen may earn on the basis of a system of bonus related to production. Nor does it include any other supplements and allowances, such as housing and cost of living which is not directly related to the work in that category. " [36] From the above, it would appear that the concept of "basic wages " under the NWCC does not include any other additional components. This concept had been illustrated in OP Malhotra's "The law of Industrial Disputes " at page 84 (supra) as follows: "The phrase 'basic wage' is also ordinarily understood to mean that part of the price of labour, which the employer must pay to all workmen, belonging to all categories. The phrase is used ordinarily, in contradistinction to allowance----the quantum of which may vary in different contingencies. The 'basic wage', therefore does not 16 include additional emoluments, which some workmen may earn on the basis of a system of bonuses, related to production. The quantum of the earnings from such bonuses, varies from individual, to individual according to efficiency and diligence; it will vary sometimes from season to season, with the variation in the working conditions in the establishment; it will also vary with variations in the rate of supply of raw materials or with assistance obtainable from machine. This element of variation excludes the additional emoluments from connotation of the 'basis wage'." (emphasis added) In Funk David Paul v. Asia General Asset Berhad [2013] 1 LNS 1327, the Court of Appeal held that: “13. ……… Wages in our view is a term referring to payments for service or works rendered on a regular basis; hence we have the terms or sayings ‘my weekly or monthly wages’ in ordinary parlance. This meaning would explain the exclusion of (a) service charge (b) overtime payment (c) gratuity or

retirement benefits from the definition of wages in s. 2. Wages is but one species of rem,uneration.” (emphasis added) 17

(ii) that the Hotel must pay minimum wages from its own funds and not from the service charge fund. In paragraph 60 of the Award, the Industrial Court has correctly held as follows: “60. Minimum wages is basic wages without incorporating other components and therefore the Hotel cannot use service charge to top up. The minimum wages of RM900 is not related to the profit and loss of the Hotel and it is the bare minimum which the Hotel has to pay with its own fund. Service charge is a separate term in the Collective Agreement and the payment of the minimum wages will be with the Hotel’s own funds to the employees earning less than RM900.00 a month.”

(iii) that the service charge does not belong to the Hotel and therefore it is not entitled to dip into the service charge for its statutory duty to pay the minimum wages;

(iv) that this would deprive the employees of a very fundamental and essential term of their contract of service, that is service charge as an additional element of remuneration;

that the service charge system had been implemented in the Hotel since it began operations in 1981 and the employees should not lose this payment, which is paid over and above 18 their wages as part of their remuneration pursuant to their contract of service;

(vi) that to take the service charge away from the employees would mean that it will be less favouarble to the employees and this would be in breach of Order 6 of the MWO 2012. In Crystal Crown Hotel (supra), Justice Asmabi held as follows: “[37] For the purpose of implementing the MWO, the employer may, before the coming into force of the MWO, negotiate on the restructuring of wages (see Order 6 of the MWO) provided that:

the restructured basic wages to be paid to the employee should be in accordance with the minimum wages rates specified in the MWO (Order 6 (a));

the restructured wages should not be less favourable than the employee's existing wages (Order 6 (b));

the restructured wages should not be less than the amount of wages earned by the employee as agreed in the contract of service before the restructuring of wages (Order 6 (c) ); 19

the restructuring of wages should only involve the payment for work done during the normal hours of work of the employee (Order 6 (e) ); and

the restructuring of wages should not cause the employee to lose any remuneration specified under paragraphs (a) to (f) of the definition of 'wages' in section 2 of the Employment Act 1955, section 2 of the Sabah Labour Ordinance, section 2 of the Sarawak Labour Ordinance which the employee would be entitled to under the contract of service (Order 6 (f)). [38] The law had envisaged that the implementation of the minimum wage system must not in any way result in the employee getting anything less favourable than the employee's current wages. Neither could the basic restructured wages be less than the amount of wages earned by the employee pursuant to the contract of service.” (emphasis added) [27] However, it is the submission of the Hotel that the Top Up Structure that it intends to implement is consistent with paragraph 3(v) of the 20 Guidelines on the Implementation of the Minimum Wages Order 2012, which provides that: “Subject to negotiation between the employer and the employee, the method of restructuring of wages is based on the following conditions: ….

for the hotel sector where service charge collection is implemented, the employer may convert all or part of the service charge meant for distribution to the employee, to form part of the minimum wages.” [28] On this issue, the Industrial Court made the following findings: “64. The applicability and acceptability of the Guidelines albeit without any legal force in respect of the “Method of Restructuring of Wages” is obviously subjected to a negotiation between the employer and the employee before the employer can convert all or part of the service charge meant for the distribution to the employee to form part of the minimum wages and thereafter to refer to illustration 6 on the “Formula For Restructuring of Wages and Allowances”. In this trade dispute, UW1 categorically denied that there was a negotiation between the Hotel and the Union in respect of the trade dispute. The Hotel’s letter dated 30 September 2013 (HB1, page 4) signed by 21 COW1 further reiterates the fact about the non-negotiation. The relevant portion of the letter states as follows: “The Management of the Hotel had called for a meeting with your good offices, which was scheduled for 28 September 2013 to discuss oh the Hotel’s proposal on the restructuring of wages pursuant to the Minimum Wages Order 2012 and Guidelines issued by the National Wages Consultative Council vide KSM/MPGN 600 – 1/2/7 JLD 8 (117) dated 26 December 2012. However, despite having discussed the matter, we regret to note that the Union had rejected the Hotel’s proposals for the restructuring of the wages of the employees.

The Hotel proceeded with the top up of the service charge to RM 900.00 for the employees earning less than RM 900 a month by issuing on such letter “implementation of the Minimum Wages Order 2012” dated 30 September 2013 (HB1, page 7) signed jointly by Salbiah Jaafar, Assistant Human Resources Manager and Hugo Gerritsen, Area General Manager. The Hotel’s decision to do so tantamount to unilaterally implementing the top up with service charge, and this becomes 22 composite wages and not conforming to the minimum wages…” [29] I agree with the above findings as in the present case, there was no negotiation with the Union as the Hotel had proceeded to unilaterally implement the Top Up Structure. Thus, the same is clearly inconsistent with the Guidelines which requires the parties to negotiate on the matter. In Shangri-La Hotel (KL) Bhd v. National Wages Consultative Council & Ors [2017] MLJU 502, with regards to the Guidelines, the Court held as follows: “[26] The Guidelines stipulate that it is "subject to negotiation" which means that it cannot be unilaterally imposed on the Unions. [27] This interpretation is consistent with paragraph 6 of the MWO 2012 which stipulates that any restructuring of wages is by way of "negotiation". [28] Therefore, the Hotel cannot force the Unions to accept the Top Up Structure if the Unions do not agree to the proposal otherwise it would render the clear words of paragraph 6 of the MWO and even paragraph 3 of the Guidelines redundant.”(emphasis added) 23 [30] Added to that, I am also of the considered opinion and I agree with the Union that the Guidelines are merely advisory in nature and have no force of law. The same position was taken by Justice Asmabi in Crystal Crown Hotel (supra) case: “[30] The Hotel’s reliance on section 3 of the Guidelines on the implementation of the Minimum Wages Order 2012 which stated that with respect of the hotel sector where the service charge was implemented, the employer may convert all or part of the same to form part of the minimum wages was misconceived as the Guidelines itself had expressly provided that such a term was subject to negotiations between the employer and the employees. In the case at hand the Union had strongly objected to the proposal. Further the Hotel was only relying on the Guidelines with no legislative force. Therefore, non-binding.” (emphasis added) Conclusion [31] In the Award, the Industrial Court made the following findings: “67. The Court is of the unanimous decision hereby dismissed the Hotel implementation of the minimum wages by topping up from the service charge of the 24 employees and orders to pay the minimum wages of RM900.00 to the Hotel’s employees earning less than RM900.00 a month without converting all or part of the service charge meant for distribution to the employees, to form part of the minimum wages. Accordingly, the Hotel is ordered to refund the employees the service charge adjustment (deducted to top up the basic wages) from 1 October 2013.” [32] In view of the reasons enumerated above, I am of the considered opinion that the Award is not illegal or irrational as the Industrial Court has applied the correct legal principles in its findings. Therefore, I find no merit in this application and the same is dismissed with costs. (AZIZAH BINTI HAJI NAWAWI) JUDGE HIGH COURT MALAYA (Appellate and Special Powers Division 2) KUALA LUMPUR Dated: 27 June 2018 25 For the Applicant : Wong Keat Ching Messrs Zul Rafique & Partners Kuala Lumpur. For the 1st Respondent : Shireen Selvaratnam Messrs Sreenevasan Kuala Lumpur. Cases referred:

Ranjit Kaur S Gopal Singh v. Hotel Excelsior (M) SdnBhd [2010] 8

Booi Kim Lee v YB Menteri Sumber Manusia & Golden Plus Geaniait SB [1999] 3 MLJ 515,

Crystal Crown Hotel & Resorts Sdn Bhd (Crystal Crown Hotel Petaling Jaya) v. Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar &Restoran Semenanjung Malaysia [2017] 9 MLJ 119.

Funk David Paul v. Asia General Asset Berhad [2013] 1 LNS 1327

Shangri-La Hotel (KL) Bhd v. National Wages ConsultativeCouncil & Ors [2017] MLJU 502.