In what is considered an employer friendly decision, the Industrial Court on 26 November 2020 handed down an award refusing a union’s claim for across the board 10% salary increases, bonuses and other benefits, citing the Covid-19 pandemic as a reason.

In Kesatuan Sekerja Industri Elektronik Wilayah Utara Semenanjung Malaysia v Panasonic Automotive Systems Malaysia Sdn Bhd (Award No. 1711 of 2020) a trade dispute arose between the Northern Electronic Workers Union (“Union”) and Panasonic Automotive Systems Malaysia Sdn Bhd (“the Company”), after a deadlock was reached in negotiations over a Collective Agreement.

20 articles in the Collective Agreement were referred to the Industrial Court for adjudication.  The Union’s position was that its members were entitled to equitable rates of pay and other terms and conditions of service that the Company is under a moral obligation to provide. This was because employees and their families are dependent on wages to provide them with basic necessities of life, and given the rise in the costs of living.

The Company took the approach that the the employees were already being paid equitable rates of pay, and that articles requested by the Union in the Collective Agreement were excessive and unreasonable. The Company did not have the ability and capacity to pay higher wages when the business environment is becoming increasingly challenging.  This was exacerbated by the Covid-19 pandemic and the enforcement of the movement control orders by the Government, which contributed to the drastic decline in business.

The trade dispute was heard at the Industrial Court before a 3 member panel, consisting of an Industrial Court Chairman, a representative from the Employer’s panel, and a representative from the Employee’s panel.

Key highlights of the Industrial Court’s decision are set out below.

Effective Date and Duration of Agreement

The Union sought for the Collective Agreement to take effect from 1 January 2018 so that its members can be entitled to the benefits thereunder such as arrears for salary adjustments in 2018.

Decision:  The effective date of the Collective Agreement is 1.7.2019 because of Section 30(7) of the Industrial Relations Act 1967 expressly provides that an award of the Court cannot be retrospective to a date earlier than 6 months from the date on which the dispute was referred to the Court.

Maternity Leave

The Union sought for an increase to 90 days paid maternity leave, given the statements by the Ministry of Human Resources that the government intended to raise the maternity leave to 90 days beginning 2021. However, the Company took the view that the proposal was excessive because the increase in maternity leave will increase the cost of production, and amendments are needed to the Employment Act 1955 before the increase in maternity leave can take place.

Decision: Maternity leave of employees is maintained at 60 days, in accordance with the existing provisions of the Employment Act 1955.

Retirement Benefits

The Union requested that the Company contribute retirement benefits at the rates of 5% to 10% (depending on y ears of service) in addition to the usual statutory EPF contributions.  The Company took the view that retirement benefits are discretionary incentives to be solely decided by the Company.

Decision: Retirement benefits not granted. The Panel was of the view that retirement benefits are best left to the discretion of the employer.

Retrenchment Benefits

The Union requested a minimum of 2 months’ written notice of termination or payment in lieu of notice for termination on grounds of redundancy, and 2 months’ salary for each complete year of service as termination benefits. The Company’s position was that this was excessive and not supported by any reasons, given that their existing retrenchment benefits were in compliance with the Employment Act 1955.

Decision: The Industrial Court only allowed certain requests – among other things, that the Company must inform the Union of employees to be retrenched 1 month before retrenchment takes place, and comply with “last in first out” when retrenching. Where vacancies arise after the retrenchment, the Company must also offer employment to those already retrenched. The rest of the benefits should be compliant with the provisions of the Termination and Lay-Off Benefits Regulations 1980.

Across the Board Salary Adjustments

The Union requested 10% increase in wages across the board.  The Company said that employees were already given a salary adjustment in 2017 and 2019 which amounted to a 20% increase, and 77% of the rank and file employees who are within the scope of the Union had already benefitted from this adjustment.

Decision: Across the board salary increases are rejected. The Panel held that it is common knowledge that businesses had been generally affected by the Covid-19 pandemic, and the current economic and health situation does not augur well for an across the board salary adjustment.

Bonus

The Union said the Company is in a financial position to give a 1 month contractual bonus. The Company submitted that bonuses are the prerogative of the Company.

Decision: The Court refused to grant a contractual bonus to employees. Bonus is an employer’s prerogative and relates to profitability and productivity. There is insufficient materials before the Court to ascertain this factors. In any event, the current global crisis does not bode well for bonus payments.

Salary Scale and Annual Increment

The Union requested a guaranteed 10% increase of salaries each year, with a higher merit increment for those who have performed well.  The Company claimed that this request was excessive since an annual increment of 5% is more appropriate.

Decision: Annual salary increment shall be fixed at 5% with no additional merit increment.  There is existing caselaw and jurisprudence that fixing annual increment at 5% was reasonable.

Key Takeaways

In its concluding remarks, the Industrial Court stated that its decision was based on the interests of the members of the Union, as well as the financial implications to the Company. This was because of the fragile economic climate caused primarily by the Covid-19 pandemic. As uncertainties loom, the Court wished to remain cautious in its decision with the interests of both parties in mind.

This decision is likely to be hailed by employers as being commercially and business friendly. Unions and employee groups have criticised the decision as having the potential to be abused by employers to deny employees salary increases and benefits.

From a commercial perspective, this decision demonstrates the Industrial Court’s willingness to take into account economic realities in making decisions that are in the interest of equity and good conscience. The functions of the Industrial Court are to resolve trade disputes and promote industrial harmony, and this includes acting fairly to employers and not just employees.

There is little doubt that many businesses are being hammered by the long-term economic consequences of the pandemic. A decision like this goes towards instilling trust that the Industrial Court will strive to balance the interests of both sides of the employer-employee dynamic.

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This article was written by Donovan Cheah. Donovan has been named as a Recommended Lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018, 2019 and 2020, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.

Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory.  Have a question? Please contact us.

 

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