The COVID-19 outbreak has seen many businesses shuttered, as employers and employees continue to suffer the economic impact of the pandemic.
In one of the first few decisions relating to closure of business arising from the COVID-19 outbreak, the Industrial Court in Kesatuan Kebangsaan Pekerja-pekerja Hotel, Bar dan Restoran Semenanjung Malaysia v Ramada Plaza Melaka (MTB Realty Sdn. Bhd.) (Award 1137 of 2021) recently decided that employers must still pay contractual bonus to their employees, even if they have closed their business.
The decision was pursuant to non-compliance proceedings brought by Kesatuan Kebangsaan Pekerja-pekerja Hotel, Bar dan Restoran Semenanjung Malaysia (the “Union”) against Ramada Plaza Melaka (the “Hotel”). It is pursuant to the Hotel’s failure to comply with the contractual annual bonus provisions in a collective agreement set out in Award No. 1628 of 2019 (the “2019 Award”).
- Due to the COVID-19 outbreak and the Movement Control Order on 18.3.2020 (“MCO”) that affected the tourism and hotel industry, the Hotel retrenched its employees and permanently closed its business effective 30.6.2020.
- The Hotel gave notice of the retrenchment on 28.4.2020 and paid termination benefits to its employees.
- Under the 2019 Award, there is a provision for annual bonus under Article 11:
“The Hotel shall pay to each and every employee at the end of each calendar year, an annual bonus as follows:
(i) An employee who is in service with the Hotel for one (1) year or more, shall be entitled to one (1) month’s last drawn basic salary as bonus.
(ii) An employee who is in service with the Hotel for less than one (1) year, shall be entitled to a pro-rata basis of one (1) month’s last drawn salary a bonus.
(iii) Notwithstanding the above, no bonus shall be paid to an employee who is dismissed unless upheld by the Industrial Court, resigns to avoid dismissal or leaves the Hotel in breach of his contract of service”
- However, the Hotel paid no annual bonus (pro-rated or otherwise) to its retrenched employees.
- The Union informed the Hotel that pro-rated annual bonus ought to be paid out to its employees, given that the Hotel’s employees were willing to continue their employment but were prevented from doing so due to the Hotel’s closure.
- The Hotel argued that bonus was not payable because the employees were retrenched effective 30.6.2020 which falls before the end of the calendar year (31 December). As these employees were no longer in service at the end of the calendar year, they were not entitled to any annual bonus.
- The Hotel also argued that the impact of the MCO and the COVID-19 pandemic had negatively affected the Hotel’s revenue, which contributed to the Hotel’s inability to make the annual bonus payout.
The Industrial Court allowed the Union’s claim and held:
- The employees were entitled to the pro-rated annual bonus. It was the Hotel’s decision to close its operations that led to the dismissal of all their employees. The employees were ready to serve the Hotel until the end of the year but were prevented from doing so.
- The Court referred to Progress Castings (1982) Sdn Bhd v Metal Industry Employees’ Union  ILR 250 which held that contractual bonus is not conditional upon the employer making a profit. It is a form of deferred salary payment and employees are entitled to a proportion thereof for the period they worked.
- There is no requirement in Article 11 stating that the employee must be in service until the end of the calendar year for him to have the pro-rated annual bonus.
This decision may not appear to be business-friendly as it requires payment of annual bonus even when the business is in an industry ravaged by the pandemic, that ultimately led to its closure.
It may also seem to starkly contrast with the Court’s earlier position in Kesatuan Sekerja Industri Elektronik Wilayah Utara Semenanjung Malaysia v Panasonic Automotive Systems Malaysia Sdn Bhd (Award No. 1711 of 2020) (“Panasonic Case”), where the Industrial Court rejected the Union’s claim for contractual bonus because the current global crisis does not bode well for bonus payments.
However, the specific facts of this case must be understood:
- In the Panasonic Case, the dispute being determined by the Industrial Court was a deadlock in the negotiations of the first collective agreement. The article on contractual bonus was not yet a part of any collective agreement and the Industrial Court decided against its inclusion due to the economic situation. Here, Article 11 was already in existence through the 2019 Award and the issue was whether there was non-compliance with Article 11.
- The decision here relates to a contractual (not discretionary) annual bonus, and the Court’s interpretation of Article 11. If Article 11 had been worded differently (eg: expressly stating that that an employee must be in employment at the end of the calendar year to be entitled to the bonus, and there would be no pro-rating), the Court’s decision may have been different.
This case also differs from RIH Management Sdn. Bhd. v. National Union of Hotel, Bar & Restaurant Workers, Peninsular Malaysia  2 ILR 549. In that case, the Industrial Court, on a request by the Company, allowed a variation of the Collective Agreement for the increment to be delayed until the Company’s financial situation improves due to the Japanese encephalitis outbreak. In the present case, the Hotel did not plead that they wanted to vary or set aside Article 11 due to the special circumstances (MCO and COVID-19). The Court took the view it could not consider these special circumstances since parties are bound by their pleadings.
Employers should ensure that contractual benefits (such as bonus and commission) have comprehensive terms that clearly spell out an employee’s entitlement and the conditions. Otherwise, if a dispute boils down to interpretation, special circumstances and economic challenges due to the pandemic may be an insufficient reason to justify non-compliance.
This article was written by Donovan Cheah and Zi-Han Lim. Donovan has been named as a Recommended Lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018, 2019, 2020 and 2021, 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.