INDUSTRIAL COURT OF MALAYSIA CASE NO: 26(4)/2-657/08 BETWEEN KESATUAN KEBANGSAAN PEKERJA-PEKERJA HOTEL, BAR DAN RESTORAN SEMENANJUNG

MALAYSIA AND PERANGSANG HOTEL & PROPERTIES SDN. BHD. (QUALITY HOTEL SHAH ALAM) AWARD NO: 1278 OF 2010

Before Panel Members

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AHMAD TERRIRUDIN BIN MOHD SALLEH CHAIRMAN Mr. Chua Kim Lin Mr. Jufri bin Masri - Employer's Panel - Employee's Panel

Venue Date of Reference Dates of Mention Dates of Hearing Representation

: : : : :

Industrial Court Malaysia, Kuala Lumpur 06.11.2008 22.01.2209, 14.04.2009, 14.05.2009, 23.06.2009 02.12.2009 & 05.07.2010 14.01.2010 & 24.05.2010 Mr. Lim Chooi Phoe of National Union of Hotel, Bar & Restaurant Workers, Peninsular Malaysia Representative for the Union Mr. P. Jayasingam with Ms. Jacinta Johnson

of Messrs. Zul Rafique & Partners Counsel for the Respondent/Hotel Reference: The reference of the Honourable Minister of Human Resources, Malaysia is regarding the trade dispute (the dispute) is over the Collective Agreement (the CA) between the Kesatuan Kebangsaan PekerjaPekerja Hotel, Bar & Restoran, Semenanjung Malaysia (the Union) and Hotel Perangsang Hotel & Properties Sdn. Bhd. (Quality Hotel Shah Alam) (the Hotel).

AWARD (NO. 1278 OF 2010)

The dispute referred to by the Minister under section 26(2) of the Industrial Relations Act 1967 (the Act) is over the Collective Agreement (the CA) between Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran, Semenanjung Malaysia (the Union) and Perangsang Hotel and Properties Sdn Bhd (the Hotel).

The dispute is over the proposals terms and conditions of employment to be incorporated in the 6th Collective Agreement (the CA). It is to be noted that the duration for the said CA is from 1 January 2007 to 31 December 2009. Prior to the hearing, parties have informed the court
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that majority of the terms and conditions to be incorporated into the said CA. As such, the only disputed articles are as follows: (a) (b) Article 8(a) Article 10 - Probation and Confirmation - Salary.Structure (Annual Increment and minimun/maximun salary (c) (d) (e) (f) Article 23(a) Article 27 Article 28(b) Article 39 - Paid Leave For Trade Union Courses - Retirement Benefits - Retrenchment and Retrenchment Benefits - Outside Catering Allowance

The case was called for hearing on 14 January 2010, 28 April 2010 and 24 May 2010 in the presence of Mr. Lim Chooi Phoe, Industrial Relations Consultant who was representing the Union and Mr. P.Jayasingham with Ms. Jacinta Johnson from Messrs Zul Rafique & Partners who were representing the Hotel. The Union and the Hotel had both filed their respective pleadings. Other documents tendered and relied on by the parties at the hearing are as follows: (a) (b) (c) Common List of Disputed Articles filed on 1 December 2009 Union's Bundle of Documents (ULB1) Hotel's Bundle of Document (COB)
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(d) (e)

Hotel's Breakdown Expenses from 2009 to 2005 (ULB2) Hotel's Event Order (ULB3)

In the instant case, the sole witness for the Hotel is Jasmine Yew Siew Moy (COW1) and currently the Business Support Manager of the Hotel. It is also germane to note that in this case the Union did not call any witness to testify. At this juncture, the court does not intend to state in full the evidence given by the witness in this case. However, if there is a need the court will highlight it in its evaluation and findings. The court received written submissions from the representatives of the respective parties as regards to the disputed articles. Evaluation and Findings Before proceeding further, it is important to note that in interpreting a CA, the court must consider the environment in which it operates in particular it governs the relationship of an employer, a union and its members.

(a)

Article 8 (a) Probation and Confirmation Under the current CA, it is provided that an employee who is employed by the hotel shall have to serve a probationary period of not exceeding three months and the hotel may extend it for a period not exceeding one month. According to COW1's witness statement (COWS1), the proposal to change
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the probationary period to 3 + 3 months is because to give more time to the employee to improve on his or her performance. Further, she said that the hotel is of the view that the current 1 month is not sufficient to give the necessary training and guidance in the event an employee failed to perform period. In response to this proposal, the Union contends that the hotel did not provide any evidence to show which category of employees needs the 3 + 3 months. Further, it is the contention of the Union also that the positions within the purview of the Union are rank and file employees and they do not need six months to confirm. The representative for the Union also highlighted to the court that in the hotel industry the normal practice was that probationers were only required to serve a probationary period of 3 + 1 months. To support this contention, the Union highlighted the case of Daikoku Company Sendirian Berhad v. National Union of Hotel, Bar & Restaurant Workers (1986) 1 ILR 1144. after the initial 3 months' probationary

As for this proposal, the court, after scrutinizing arguments of both parties finds that there is no reason to depart from the existing clause. The court is of the view that the present probationary period that is 3 + 1 months is sufficient for the company to evaluate the performance and to guide the
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employees since they are only rank and file employees which does not possess high degree of skill. The court also agrees with the Daikoku's (supra) case cited by the Union where it was held as follows:
If he or she, as a waiter/waitress, dish washer, cleaner, bartenders, clerk typist, driver, assistant cooks, cannot be confirmed within a period of four months in his/her occupation which does not require a high degree of skill, he or she becomes more of a liability than an asset to the Company and there is no place for such an employee in the Company. For these reasons, we accept the Union's proposal..

The court is of further view that with the probationary period of 3 + 1 months, the concerned employee will know latest the fourth month whether he/she will be confirmed by the Hotel. However, if we adopt the probationary period 3 + 3 months, the employees has to wait longer and if he/she is not confirmed by the Hotel he/she has lost 2 months of waiting for decision from the Hotel when in actual fact he/she can seek other job elsewhere. As such, the court feels that the proposed article will not be fair to the employees.

Lastly, the court notes that probationary period of

3 + 1

months is an industry norm. Thus, there is no valid

justification for this court to depart from what has been the practice of the hotel industry. (b) Article 10 Salary Structure (Annual Increment & Minimun/ Maximun Salary) As for this proposed Article, the Union suggested that an immediate increment of 10% of basis salary be given to every employee. However, the Hotel did not agree with the proposal put up by the Union because COW1 said the Hotel is certainly not in the financial position to meet the demand for the 10% immediate increments made by the Union but willing to concede if the amount is 4%. This is because based from the financial statements for Perangsang Hotel and Properties Sdn Bhd (Perangsang Group) for the year as at 31 December 2006 (pages 60 to 135 of COB), it is clear that the Hotel' s net profit after tax has declined to 43.42 % from the previous year. Further, she said that for the year 2005 to 2008 there was no dividend declared and there is no prospect of dividend being declared for the year 2009. In addition, COW1 testified that the uncertain global economy in particular the unfavourable climate in tourism due to the present threat of epidemic has seriously affected the hotel's business. It is also the contention of COW1 that although it may appear that the adjustment proposed is low but in actual fact the employees in the Hotel do not earn lower income or take home a lesser pay compared
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to other Hotels. This is because the service points that the employees earn in the Hotel is much higher than the service charge points that the employees earn in other hotels. As for the minimun salary, maximun salary and annual increment, COW1 again stressed that the Hotel does not have the financial capacity to pay RM50.00 increase in the minimun salary, 20 steps as maximun salary and annual increment. In rebutting the contentions put up the Hotel, the Union said that it is not true that the Hotel is not in financial position to meet the Union's obligation. This is because from the said audited accounts (page 60 to 135 of COB), it is clear that Perangsang Group did make profits before tax from the years 2005 to 2008 and for the Hotel it showed that from year 2004 to 2008 the Hotel has been making profits. The Union also claimed that the profits for the Hotel will be much higher if we did not take into account depreciation, renovation, purchase of fixed assets and share options granted under ESOS. This is because these expenses are not operating expenditure. The demand for 10% immediate increment is reasonable claimed by the Union since the CPI is 12.86% and 2/3 of it is 8.6%. Further the request for the said 10% is because the Union has lost out from 1 January 2007 to 31 May 2008.
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Pertaining to the minimun, maximun salary and annual increment, again the Union contends that the Hotel has the financial ability to meet the Union's proposal. The Union also highlighted to the court that it is currently the practice in the hotel industry that the minimun salary range is from RM 350 to RM400. As for the salary steps the Union is of the view that 20 steps is reasonable as compared with Hotel Saujana (Saujana) which has a minimun salary of RM310 and 22 steps. Regarding the annual increment the Union is asking for another band of RM700 and above at RM55 which is in line with Saujana . In the present case, the court has carefully perused all the documents tendered and guided the case of Penfibre Sdn Bhd, Penang v. Penang & S. Prai Textile & Garment Industries Employees' Union [1986] 1 ILR 323 at 329 as follows: It is well established in Industrial Law that in deciding on
the question of wage structure and wage increases, the court has to take into account the following factors: (a) Wages and salaries prevailing in comparable

establishments in the same region; (b) Any rise in the cost of living since the existing wages or salaries were last revised; and

(c)

The financial capacity of the company to pay the higher wages/increases..

In the case of Hagemeyer Industries (M) Sdn Bhd v. National Union of Petroleum & Chemical Industry Workers [1983] 1 ILR 325 at 341, it was held as follows:
We agree that we have to take into

consideration the financial capacity of the company when we determine the wage scales. It will not be in the interest of the union that, by fixing a wage scale beyond the capacity of the employer to pay, some of its members are perforced to leave their employment. And it is, in our view, our responsibility to keep the entire work force in employment, especially in times of world economic recessions, and not to make any award which causes unemployment to some..

It is pertinent to note that for purposes of evaluating and deciding whether the Hotel has the financial strength to meet the demand of the Union, the court will only consider audited accounts of the Hotel and not the Perangsang Group. It is not disputed by the parties that from year 2006 to 2008 (page 60 to 135 of COB), the Hotel's net profit after tax has declined from RM498.355 to RM281,506 but at the same time the court must not ignore the request made by the Union despite COW1 pleading to the court that the total cost the Hotel will have to pay for this exercise is RM180,725.00. The is because CPI has
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increased over the years. Therefore, an increment in the salary will at least reduced the impact of increase of CPI on the employees. In the same vein, the court finds that the demand for 10% immediate increment by the Union is unreasonable considering the modest profit made by the Hotel from years 2004 to 2008. With regards to the calculations for CPI, the court agrees with contention by the counsel for the company that is should be based on the actual duration of the CA. Thus, the average CPI for the corresponding period is 9.2% and 2/3 of it is 6.13%, but it is not mandatory for the court to adopt the Harun J.'s formula in the case Malayan Commercial Banks Association v National Union Of Bank Employees [JanJune 1982] MLLR Award 117 of 1982 since it is only a guideline for the court (see: Felda Oil Sdn. Bhd. v. Kesatuan PekerjaPekerja Pekilangan Perusahaan Makanan [1998] 3 ILR 374). Regarding the Hotel expenses for depreciation, purchase of fixed assets and ESOS, the court finds that these expenses are not operating expenses since it does not involved movement of funds. As for renovation cost, the court is of the opinion that it is not fair for the Hotel to use this excuse of financial inability since this cost is unavoidable if the Hotel wants to remain competitive in the industry (see: Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia v Shangrila Hotel (KL) Sdn. Bhd. Award No. 482 of 2010). Therefore, having this in mind and in adhering to the mandatory provisions of section 30(4) and (5) of the Industrial
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Relations Act 1967 (the Act) and in exercising the discretion conferred by Parliament to attain the object and policy of the Act, we are of the view that an adjustment of 5.5 % across the board would be fair and equitable based on the peculiar facts of this case. Regarding the mininum salary, the court notes that the Union is asking for an increase of RM50 across the board from the present structure but the Hotel is only willing to increase to only RM310.00. In determining the minimun salary for the hotel industry, the court is of the view that one must look at the overall wages earned by the employees Hotel at the material time and must make comparisons with the other establishments of equal standing in the same industry. Therefore, in this case the Hotel tendered a comparison tables showing the service charge points earned by the Hotel employees as compared with other hotels (page 7 of COB) but the court finds that the said table is for 2009 and not during the disputed period. As such, the court cannot accept the Hotel's contention that there is no need to increase the minimun salary of the Hotel employees since service charge points that the employees earn in the Hotel is much higher than the service charge points that the employees earn in other hotels in Selangor. The court notes that the practice in the hotel industry for minimun salary is between RM350.00 to RM400.00. As such,
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the court finds that the minimun salary should be increased to RM350.00 to reflect its standing in the hotel industry. In relation to the proposed increase in salary steps, the court has studied at length the salary scales proposed by the Union. The court finds 4 additional steps, thus making a total of 20 steps is reasonable. The court is of the view that the inclusion of the four additional steps would serve as an added incentive to longer-serving employees to continue in service and thus reduce the risk of high turn-over of experienced employees. As for the annual increment, the Union is proposing is to create another salary tier or band for employees who are earning RM700 and above and having RM55 as annual increment. However, the court cannot accede to the Union's proposal because the court is the view that the the salary increment given is already sufficient to cover the employees who are earning RM600 and above. (c) Article 23 (a) Paid Leave For Trade Union Courses The Hotel did not want to maintain the existing clause because COW1 said the Hotel's intention to allow only Union House Committee members to attend the trade union courses is to avoid unnecessary disruption to the operations of the Hotel. The representative for the Union in his written submission submitted that the present clause has been there

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for the past 15 years without any problem so there should not be there any change. The court is of the opinion that the present clause should be maintained because the court accepts the Union's contention that this clause has been is existence for the last 15 years without any problem. The court notes that the Hotel contends that the proposed article is to avoid unnecessary disruption to the operations of the Hotel but the court finds that it is unfair to deny the employees the right to attend courses especially courses which will benefit the employees and the Hotel. It is the view of the court also that to minimise the disruption of the operations of the Hotel that parties involved can planned the courses in advance so due notice can be given to the Hotel. (d) Article 27 Retirement Benefits The dispute is regarding the Union proposal to claim 4% in excess of the EPF statutory rate instead of the current 2%. According to the Union the rationale behind this proposal is because Saujana is giving 4% in excess of the statutory rate and the basic salary in the hotel industry is relatively low. The Hotel refused to accede to this proposal and COW1 said the Hotel did not have the financial capacity to meet the said demand. Secondly, the present extra 2% is equitable and a

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fair recognition of the employee's contribution to the Hotel. Thirdly, this amount is comparable with other hotels. Although the court agrees with the Hotel' s contention that the present rate is in excess of the Hotel' s contribution to the EPF but to enhance greater commitment and loyalty from its employees, the court is of the view that the amount should be increased to 3%.

As for the retirement age, the Union is claiming 56 years old retirement for male and female employees. However, the Union said that they are willing to accept if the retirement age is 55 years for all the employees. This is because to be fair and consistent with Saujana. Further, if the retirement age is set at 55 years the employees can withdraw all their savings in the EPF and for the purposes of income tax the employees will be exempted from tax if the retirement benefit is in lump sum provided that the said employees have worked for 10 years and above. The Hotel raised objection to this proposal by stating that the Hotel is unable to meet the Union's demand because being in the service industry certain job functions will not be suitable for female employees above the age of 50. In this aspect, the court feels that there should not be any sex discrimination pertaining to the retirement age and based on
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the hotel industry norm the retirement age should be 55 years.

(e)

Article 28 (b) Retrenchment and Retrenchment Benefits In this matter, the Hotel proposed to change the existing clause by allowing the Hotel to depart from the LIFO principle. The Union did not agree to this proposal because they claimed that the existing proposal has been working well for over 15 years.

The court agrees with the Hotel's proposed amendment to the existing article. This is because it is not mandatory for the employer to follow LIFO (see: Supreme Corporation Bhd v Doreen Danial Victor Daniel & Anor (1987)(Rep) 769. )

(f)

Article 39 Outside Catering In the existing clause it is provided that an employee who performs outside catering services within the normal hours for that day shall be paid RM4.00 per hour but the Hotel is proposing to change it to RM25.00 per occasion. This is because COW1 confirmed to the court that the Hotel does not have the financial capacity to meet the demand or even to maintain the current clause. She further explained that the Hotel is losing out to other Hotels in the Klang Valley in terms
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of outside catering because the Hotel charge higher costs and this one of factors in the outside catering allowance. To the Hotel the RM25.00 is fair, competitive and in line with the prevailing rates given by other hotels. In countering this, the Union contends that the RM25.00 is not reasonable as the employee losses out from the existing quantum of RM4.00 per hour and if RM25.00 is divided by 8 hours it gives a figure of RM3.12 per hour which unfavourable that the existing rate.

As for this, the court accepts the Hotel's proposal that outside catering allowance should be capped at RM25.00 per occasion. This is because court agrees with COW1 that by maintaining the prevailing rate the Hotel is losing out to other hotels in the Klang Valley in terms of outside catering since their cost in particular outside catering allowance is higher than the other hotels. Further, based on comparison table tendered by the Hotel (page 18 of COB), it is clear that proposed rate is fair, competitive and in line with prevailing rates given other hotels.

Conclusion In handing down its award this court did, as is required by section 30(4) of Act, in its deliberations, "have regard to the public interest, the financial implication and the effect of the award on the economy of the
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country, and on the industry concerned and also the probable effect in related or similar industries"; and did also as required by section 30(5) of Act, "act according to equity, good conscience and the substantial merits of the case". For this court to be extravagant in its awarding of increased monetary benefits to the employees of a Hotel it would not only have a detrimental effect on the Hotel itself but also on its workers as well as on the hotel industry generally. However, the court at the same time must also taken into consideration the public interest. This court in deliberating on the award was unanimous in its decisions. The parties may now draw up their CA incorporating the articles that were either not in dispute or which were agreed to by the parties together with the award of this court on the disputed articles. The parties are urged to take care to be consistent with regard to both terminology as well as the numbering of the articles and clauses when drawing up the new CA.

HANDED DOWN AND DATED THIS 5 DAY OF OCTOBER 2010 SIGNED AHMAD TERRIRUDIN BIN MOHD SALLEH CHAIRMAN INDUSTRIAL COURT

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