Malaysia’s Federal Court holds service charge cannot be utilised to pay minimum wages

28 April 2021

Crystal Crown Hotel & Resort Sdn Bhd v Kesatuan Kebangsaan Pekerja-pekerja Hotel, Bar & Restoran Semenanjung Malaysia (Civil Appeal No. 02(f)-4-01-2018)

In Crystal Crown Hotel & Resort Sdn Bhd v Kesatuan Kebangsaan Pekerja-pekerja Hotel, Bar & Restoran Semenanjung Malaysia, the employees in question were employed under individual contracts of employment with the employer (“Hotel”). Their remuneration comprised a basic salary and as a service charge. In October 2011, the National Union of Hotel, Bar and Restaurant Workers (“Union”) invited the Hotel to commence collective bargaining in respect of the terms and conditions of employment to be contained in the parties’ first collective agreement. As the Hotel was not willing to do so, the dispute was referred to Malaysia’s Industrial Court (“IC”) for adjudication under section 26(2) of the Industrial Relations Act 1967 (“IRA”), where the Union proposed the retention of the service charge system together with a salary adjustment of 10%.

In summary, all the courts below held that a service charge cannot be utilised to pay minimum wages, primarily because “minimum wages” in the National Wages Council Consultative Act 2011 (“NWCCA 2011”) are defined as “basic wages” which do not encompass the element of a service charge.

The two questions of law before the Federal Court were:

  • Whether under the NWCCA 2011, hoteliers are entitled to utilise part or all of the employees’ service charge to satisfy their statutory obligations to pay the minimum wage; 
  • Whether having regard to the NWCCA 2011 and its subsidiary legislation, a service charge can be incorporated into a clean wage or utilised to top up the minimum wage.

In answering the two questions of law in the negative, the Federal Court held as follows:  

  • The object and purpose of the NWCCA 2011 and the Minimum Wages Order(s) from 2012 to 2020 (“MWO 2012”) is to enhance and alleviate the plight of labour, more particularly the “working poor”. The IRA cannot and ought not to be construed so as to read down or abrogate the purpose, object and effect of the minimum wage legislation. 
  • The interpretation of the IRA in conjunction with the minimum wage legislation should be done in such a way that the exploitation of labour by capital, of workmen by their employers, is suppressed. 
  • Section 2 of the Employment Act 1955 defines “wages” as “basic wages” and does not include any payments in cash “payable to an employee for work done in respect of his service”. 
  • Where the quantum of “basic wages” under a contract of service or collective agreement is less than the “minimum wage” under the MWO 2012, section 24(2) of the NWCCA 2011 requires the employer to increase the “basic wage” to meet the “minimum wage” prescribed under the MWO 2012. 
  • It was not open to the Hotel to complain of its increase in costs and proceed to insist that a contractual benefit in the form of service charge be appropriated and utilised to assist it in meeting its mandatory statutory payment obligations.