(ii) whether the Industrial Court erred when she decided that the Hotels cannot unilaterally vary the terms of the Collective Agreement and thereby failed to take into consideration Section 30(5) of the IRA 1967. (see paragraph 7.1 of the Hotels’ Written Submission) 13 Issue (i) whether the Hotels’ act of converting part or whole of the service charge payable to the employees covered by the Collective Agreement to make up the minimum wages of RM900.00 in accordance with the MWO 2012 and the Guidelines is legal [25] 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, such as waiters. Service charge that is paid by the customers will be placed in a fund. [26] 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. [27] 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 14 MWO 2012 was issued. Therefore, in the hotel industry, the minimum wages of RM900.00 takes effect from 1.10.2013. [28] With the implementation of the minimum wages, the Hotels are 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 Hotels meet the minimum wages payment. [29] 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 as the minimum wages are the basic wages and that service charge is not part of the basic wages of the employees. [30] Section 2 of the Employment Act 1955 defines wages as “..... basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service...” [31] Section 2 of Act 732 defines wages and minimum wages to be as follows: “wages” – has the same meaning assigned to it in section 2 of the Employment Act 1955 15 “minimum wages” – means the basic wages to be or as determined under section 23 [32] Therefore, the minimum wages under Act 732 can only mean the basic wages and not the wider concept of wages or remuneration. Basic wages do not include service charges or overtime payment. 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 (d) retirement benefits from the definition of wages in s. 2. Wages is but one species of remuneration.” (emphasis added) [33] The same position was taken by Justice Asmabi in the Crystal Crown Hotel & Resorts Sdn Bhd (Crystal Crown Hotel Petaling Jaya) v. Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia [2017] 9 MLJ, where Justice Asmabi Mohamad held as follows: “[35] What amounts to the "basic wages " had been illustrated in the case of Décor Wood Industries 16 (Terengganu) Sdn Bhd 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 include additional emoluments, which some workmen may earn on the basis of a system of bonuses, related to production. The quantum of the 17 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) [34] I am also of the considered opinion that since the service charge fund does not belong to the Hotels, therefore the Hotels are not entitled to dip into the service charge for its statutory duty to pay the minimum wages. Since the service charge is collected from the customers for the employees, this fund does not belong to the Hotels as it is not from the hotels themselves. 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 (supra) case, where 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 18 which sum is paid to employees pursuant to the contract of service. [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) [35] Added to that, I also agree with the Union that the employees of the Hotel are already entitled to a share of the service charge as the 19 same is a contractual entitlement under Article 12 of the Collective Agreement, which reads: “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.” [36] Further, to take the service charge away from the employees would mean that it will be less favourable to the employees and this would be in breach of Order 6 of the MWO 2012. Therefore, the service charges should not be made as part of the Top Up Structure, whereby the employees’ portion of the service charge is being used to pay their minimum wages, resulting in them getting a lesser share of the service charges. 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, 20 negotiate on the restructuring of wages (see Order 6 of the MWO) provided that: