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INDUSTRIAL COURT OF MALAYSIA
CASE NO. 1/3-162/10
BETWEEN
KESATUAN KEBANGSAAN PEKERJA-PEKERJA PEWTERDAN KRAFTANGAN SEMENANJUNG MALAYSIA
AND
ROYAL SELANGOR INTERNATIONAL SDN. BHD.
AWARD NO : 946 OF 2011
Coram : Y.A.PUAN SUSILA SITHAMPARAM PRESIDENT
MR. NG CHOO SEONG EMPLOYEES PANEL
PUAN JUNAINI BINTI MOHD. SAID EMPLOYERS PANEL
Venue : Industrial Court Kuala Lumpur.
Date of order of reference : 25 January 2010
Date of receipt of order : 18 February 2010of reference
Dates of hearing : 5 October 201016 May 2011
Date of receipt of written : 26 May 2011submissions from counselfor the union
Date of receipt of written : 31 May 2011submissions from therepresentative for the company
Representation : Mr. A. SivanesanMessrs A. Sivanesan & Co.Counsel for the union.
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Mr. M. V. GopalSenior Industrial Relations ConsultantMalaysian Employers Federationfor and on behalf the company.
AWARD
This is a reference by the Honourable Minister of Human Resources
pursuant to section 26(2), Industrial Relations Act 1967 (hereinafter
referred to as "the said act") arising out of a trade dispute between
Kesatuan Kebangsaan Pekerja-Pekerja Pewter dan Kraftangan
Semenanjung Malaysia (hereinafter referred to as the union) and Royal
Selangor International Sdn Bhd (hereinafter referred to as the company)
pertaining to the reduction of working days from March to May 2009 which
resulted in the affected workmen having to take annual leave or unpaid
leave.
The parties had entered into a collective agreement dated 1 November
2007 (hereinafter referred to as the said collective agreement). There is no
provision in the said collective agreement for the company to compel its
workmen to take annual leave or unpaid leave.
The business of the company is the manufacture and sale of pewter
products. It has a local and overseas market. In 2009, there was a
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reduction in the sale of its products. The company contended that it had to
take cost-cutting measures such as the reduction of working hours so as to
save jobs in the company.
The union contended that certain departments were not affected by
the measures taken by the company on annual leave and unpaid leave and
the affected workmen had been discriminated against. It also contended
that the company had breached articles 2(b), 16(a) and 21 of the said
collective agreement.
The issues arising are whether an employer can instruct its
workmen to take annual leave or unpaid leave; if so, under what
circumstances; and whether the employer must obtain the consent of the
union.
The relevant provisions in the said collective agreement
Article 2(b) read:
(b) During the period of this agreement neither theCompany nor the Union shall seek to vary any ofits terms nor shall any demands or claims bemade on new terms and conditions of employmentsave by mutual agreement, by operation of law oras provided herein and provided that such
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variation shall take effect only after being givencognizance by the Industrial Court.
Article 16(a) read:
ARTICLE 16 - WORKING HOURS
Clause (a)
The normal working hours for employees per weekexclusive of meal breaks shall be as follows:-
(i) In respect of employees working in theadministration, Finance, Design and InternationalMarketing departments, forty-one and one quarter(41.25) hours per week. The normal workinghours will be from 8.00 a.m. to 5.00 p.m.
(ii) In respect of employees working in Manufacturingor areas other than those specified above. forty-three and three quarters (43.75) hours per week.
The normal working hours will be from 7.45 a.m.to 5.15 p.m.
Article 21(a) read:
ARTICLE 21 - ANNUAL LEAVE
Clause (a)
Every employee shall be entitled to paid leave asfollows :-
(i) On completion of twelve (12) months of continuous service - 12 working days.
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(ii) On completion of four (4) years of continuousservice - 17 working days.
(iii) On completion of seven (7) years of continuousservice - 19 working days.
(iv) On completion of nine (9) years of continuousservice - 21 working days.
(v) On completion of twelve (12) years of continuousservice - 23 working days.
(vi) On completion of fifteen (15) years of continuousservice - 24 working days.
The financial position of the company
The financial statements of the company for the financial year ending
30 June 2009 was tendered videBundle COB1, pages 58 to 88. There was
a net loss of RM4.421 million vide income statement, Bundle COB1, page
64. Its net current assets was RM104,332,000 videbalance sheet, Bundle
COB1, page 63. Its trade receivables was RM35,810,000 vide Bundle
COB1, page 77. The directors fees was RM108,000 and the directors'
remuneration was RM548,000 videBundle COB1, page 82. The number of
employees was 562 videBundle COB1, page 81.
The financial statements of the company for the financial year ending
30 June 2008 was tendered videBundle COB1, pages 89 to 119. Its net
profit was RM1.009 million vide Bundle COB1, page 95. Its net current
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assets was RM109,668,000 videbalance sheet, Bundle COB1, page 94. Its
trade receivables was RM34,478,000 vide Bundle COB1, page 108. Its
directors' fees was RM108,000 and directors' remuneration was RM548,000
vide Bundle COB1, page 112. The number of employees was 634 vide
Bundle COB1, page 114.
The meeting on 20 February 2009
The management of the company informed the union officials at a
meeting on 20 February 2009 that it would reduce the working days from
five days to four days commencing from the first and third week in March
2009.
The union officials were informed that the management of the
company would review its weekly sales and decide whether to continue with
the four day week. The showrooms and the corporate sales department
would not be affected by the reduction in working days. The company
would consider employing persons who were fluent in English or Mandarin
for is showrooms for instance at the Kuala Lumpur International Airport
videBundle UB, page 16.
The management of the company also informed the union officials at
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that meeting that the services of the foreign workmen could not be
terminated as they were working in the Casting and Buffing sections which
were an essential part of production. The work in those sections was hot
and heavy and the local workmen did not want to do that job. There were
thirty to forty foreign workmen in the company in 2009 until the present.
The union's contention
The union objected to the company's proposal as it entailed the
utilisation of annual leave or having to take unpaid leave by the affected
workmen. It raised its objection in writing on 24 February 2009 and 30
April 2009 videBundle UB, pages 13 and 14, 6 to 9.
The union admitted that there was a global economic slowdown in
2009 videBundle UB, page 13. It also admitted that the production of the
products was less and that there were less sales in the company's
showrooms at the branches vide Bundle UB, page 15. One of the cost
cutting measures was that the workmen were not allowed to work overtime.
The union requested the company to consider other cost cutting measures
such as terminating the services of contract and foreign workmen and
reducing the costs in the higher levels of the company's management.
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UW1, the President of the union testified that he had worked in the
company for twenty-seven years. He was a Machine Operator at the date of
the hearing. He explained that the union had agreed that the workmen
take annual leave on 26 December 2008 and 2 January 2009 during a
meeting with the management in November 2008 so as to maintain
industrial harmony. COW2, the Human Resources Manager had informed
the union during that meeting that many of the workmen would be going
on leave on both those days. During that meeting the company had
informed the union that the business of the company had declined but the
company did not give them any financial reports videBundle UB, page 18.
He stated that in 2009, the company took cost cutting measures such
as not allowing overtime for a period of five months. The situation has gone
back to normal and the workmen are presently allowed to work overtime.
During the economic crisis in 1998 and 1999, the company did not
instruct its workmen to take annual leave or to go on unpaid leave. He
admitted that the working days had been reduced for three weeks in the
month of June in 2003 as the business of the company was affected by the
Iraq war and the SARs syndrome vide CO-1. He could not remember
whether the workmen had to take annual leave or go on unpaid leave when
the company shortened its working days for two weeks in July 2003 vide
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CO-2.
He admitted that the local workmen did not want to work in the
Casting and Buffing sections as the working conditions there were hot and
dusty. He was not aware that the foreign workmen were also instructed to
take annual leave or unpaid leave during the same period as the local
workmen. He also admitted that the company did not retrench any local
workmen in 2008 and 2009.
He also admitted that the Sales and Security Departments were
important within the company. He agreed that the company was justified
in allowing the workmen in those departments to carry working the full
number of working days during the same period the other workmen had to
take annual leave or unpaid leave. He admitted that the number of
workmen had reduced from 634 in 2008 to 562 in 2009 as the company
had not renewed some contracts. He had visited the branches of the
company in Penang and Johore Bahru to assess the situation on company
time and at the expense of the company.
He contended that the company had made a profit before tax of
RM3.8 million over the past three years after taking into consideration its
profit and loss for 2009, 2008 and 2007. In 2007, the company made a
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profit before tax of RM4 million. In 2008 it made a profit before tax of
RM3.3 million. In 2009 it suffered a loss of RM3.5 million.
He stated that although there was no provision in the said collective
agreement on the payment of annual bonus, the company had paid its
workmen an annual bonus or an ex-gratiasum from 2001 until 2007 which
was based on its profits. In 2008 and 2009, the company did not pay its
workmen any bonus or ex gratiasum.
He could not remember whether the management of the company had
informed the workmen of the financial position of the company when it had
its annual dialogue with them. All he remembered was that the
management of the company had informed them when they made losses.
He was not present during the annual dialogue which the management of
the company had with its workmen at the end of the year in 2009. He was
not aware that the workmen had walked out of the meeting when the
management informed them that they would not be receiving any bonus
that year.
He was aware of the provisions in the Code of Conduct for Industrial
Harmony (hereinafter referred to as "the said code") on cost cutting
measures including the provisions that the written consent of the union
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was required before the employer resorted to laying off workers temporarily
and introducing a pay cut.
The company's contention
The company contended that it had received lesser sales orders from
December 2008. It had to introduce a four day week in March as there was
not enough work for the workmen. If it had not done so, it would have had
no choice but to retrench its workmen.
COW1, the Group Financial Controller and COW2 testified that the
financial crisis which the United States of America experienced in 2008 had
affected the sales of the company from July 2008 until June 2009. The
overseas market contributed to fifty per cent of its total revenue. The
management had instructed its heads of department to cut its operating
expenses by at least twenty percent. The company took other measures
such as deferring the purchase of machinery and tools, freezing
recruitment except for sales personnel, cutting down on overtime, enlarging
the job scope of certain personnel and introducing job sharing.
COW1 tendered a bar chart of the costs of overtime from July 2008
until June 2009 videBundle COB1, page 10. Overtime costs was low from
February to May 2009 with the lowest in April 2009. There was a spike in
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overtime in January 2009 as most of the Chinese staff had taken annual
leave during the Chinese New Year period and the factory was closed during
the Chinese New Year.
COW2 explained that the company had been in existence for 126
years. He tendered a chart of the National Production Index which showed
the manufacturing sector was badly affected by the poor economic
conditions vide Bundle COB1, page 3. The company followed the the
Guidelines by the Malaysian Employers Federation on Managing Lay
Off/Retrenchment videBundle COB1, pages 4 to 9. It was less painful for
the workmen to take annual leave where they would be paid rather than be
retrenched or have their pay cut. He had broached the possibility of the
retrenchment of the workmen at the meeting on 20 February 2009 vide
Bundle UB, page 17.
He explained that the period during which the workmen were
instructed to take annual leave or no pay leave was 6 March, 20 March, 3
April, 17 April and 15 May 2009. At no time were union members
penalised. The details appear at Bundle COB1, page 17. The breakdown of
the number of workmen who had to take annual leave or unpaid leave was
as follows:
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For 6.3.2009, 342 union staff took paid leave, while
172 non union staff took paid leave. 6 union staff took
no pay leave while 21 non union staff took no pay leave.
For 20.3.2009, 316 union staff took annual leave while
162 non union staff took annual leave. 5 union staff
took no pay leave while 24 non union staff took no pay
leave.
For 3.4.2009, 335 union staff took annual leave while
169 non union staff took annual leave. 3 union staff
took no pay leave while 15 non union staff took no pay
leave.
For 17.4.2009, 330 union staff took annual leave while
161 non union staff took annual leave. 7 union staff
took unpaid leave while 17 non union staff took no pay
leave.
For 15.5.2009, 318 union staff took annual leave while
176 non union staff took annual leave. 8 union staff
took unpaid leave while 10 non union staff took no pay
leave.
He also explained why COW1's tenure had been extended after he
retired from the company in 2007. The functions which were performed by
COW1 was very sensitive as it involved finance. The first successor of
COW1 lasted for only a year in office. The second successor of COW1 died
in 2008 while he was in the employment of the company. The third
successor of COW1 had been with the company for a year and was being
groomed by COW1. At present, COW1 only worked three days in a week in
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the company. The company was planning not to renew his contract.
The Code of Conduct for Industrial Harmony
In Zaiton Bharuddin v Cegelac (M) Sdn Bhd [2004] 2 ILR 600, the
Industrial Court had expressed that the said code embodied fair and proper
industrial practices and should be followed even though it was not binding.
The provisions on cost cutting measures in the said code read:
Redundancy and Retrenchment
20. In circumstances where redundancy is likely anemployer should, in consultation with his employees'representatives or their trade union, as appropriate, andin consultation with the Ministry of Labour andManpower, take positive steps to avert or minimisereductions of workforce by the adoption of appropriatemeasures such as :
(i) limitation on recruitment;(ii) restriction of overtime work;(iii) restriction of work on weekly day of rest;(iv) reduction in number of shifts or days worked
a week;(v) reduction in the number of hours of work;(vi) re-training and/or transfer to other
department/work.
The economy
The Economic Report for 2009/2010 by the Economic Planning Unit
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gave an account on the decline on the trade performance in 2009 at page
64 as follows:
Trade Performance
Export Performance
Exports remain weak....
Exports contracted since October 2008 in tandem withthe global economic slowdown. During the first eightmonths of 2009, total exports declined 22.8% toRM347.1 billion (January - August 2008: 16.1%:RM449.9 billion) due to weak demand for manufacturedproducts and lower commodity prices. For the year,exports are expected to contract 20.0% to RM530.6billion (2008: 9.6%; RM663.5 billion). Export ofmanufactured goods, which accounted for 76.7% of totalexports are expected to decline 17.8% to RM407.0billion (2008: 3.7%; RM495.3 billion), while exports ofprimary commodities are envisaged to fall 25.4% toRM112.0 billion (2008: 39.0%; RM150.1 billion)
Export of Manufactured Goods
Lower exports...
Exports of manufactured goods contracted 19.2% to272.5 billion (January - August 2008: 9.1%; RM337.1billion). Exports were severely hit by the synchroniseddownturn especially in the major export destinationssuch as the US, Europe and Japan. The downturn inexports was broad-based as reflected by decliningdemand in most sub-sectors.
The law
The powers of the Industrial Court are very wide pursuant to section
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30(5), of the said Act which provides that the court shall act according to
equity, good conscience and the substantial merits of the case without
regard to technicalities and legal form.
Section 30(4) of the said Act provides that the court shall have regard
to public interest, the financial implications and the effect of the award on
the economy of the country, and on the industry concerned, and also to the
probable effect, and also to the probable effect in related or similar
industries.
The rights of workmen/employee to annual leave are protected by the
Employment Act 1955 for those who are covered by the Act. That right
cannot be taken away unless there are express provisions in the law.
In Golden Hope Plantation (Peninsular) Sdn Bhd (Ladang Sungei
Senarut) v Saraswathy Kathan [2009] 3 CLJ 335, the Court of Appeal held
that a workman who had received a temporary disablement benefit under
the Employees' Social Security Act 1969 was entitled to a payment in lieu
of the annual leave as provided in article 20 of the collective agreement
between Malaysian Agricultural Producers Association and the National
Union of Plantation Workers notwithstanding that she did not work for the
whole of 1999 as a result of an employment injury.
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The court revisited the earlier decisions of the Industrial Court on
annual leave and unpaid leave for workmen. In Dunlop Malaysian
Industries Bhd v Dunlop Industries Employees Union, Case 12-045-82,
Award 76/82, [Jan - June 1982], M.L.L.R. 161, there was a trade recession
in the logging industry which affected the employer which manufactured
tyres for trucks. There was a provision in the collective agreement for the
workmen to take annual leave for up to six days during the annual
shutdown by the employer. The Industrial Court held the employer could
not instruct its workmen to take annual leave or unpaid leave if there was a
cut-down in production. In the absence of any provision in the collective
agreement allowing for the deduction of wages in the event of a cut-down in
production, the employer had to pay the full wages to its workmen even
though they were not required to come to work.
Harun Hashim J, the President of the Industrial Court held at page
162 as follows:
Annual leave is usually taken for personal reasons. It
is intended for leisure, enjoyment and travel. It should
not be enforced on the employee merely to suit the
Company's convenience. In any event, we hold that
annual leave is not intended to cover situations of a cut-
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back in production like the instant case.
In Goodyear (M) Bhd v National Union of Employees in Companies
Manufacturing Rubber Products, July-December 1982, M.L.L.R 105, the
Industrial Court found that the employer had not forced its workmen to
take annual leave during a plant shut down for two weeks to install new
machinery. The Industrial Court ordered the employer to pay its workmen
compensation of half day wages for the period of the plant shut down. The
quantum was decided after taking into consideration that the workmen did
not incur any traveling expenses during that period as they were told not to
report for work and the provision in the collective agreement for the
payment of half-day wages if there was a reduction in working hours due
to a power failure, a machine breakdown or short supply of material. The
workmen should not be kept away from work if they were able and willing
to work. They should be not deprived of an income as they had to provide
for their families.
Decision
The court considered the provisions in the said collective agreement,
the rights of the union and the workmen, the financial position of the
company, the cost cutting measures which had been taken by the
company, the said code and the economic conditions.
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working hours for its workmen in the manufacturing section. Since the
workmen had less work to do, there was no need for them to come to the
factory.
The workmen in the sales department had to come to work as usual
as that was the lifeline of the company. The workmen in the security
section also had to come to work as usual as the property of the company
had to be protected at all times. The affected workman were in the
production section and since there was a cut down in production, there
was less work for them.
The company had a meeting with the union officials on 20 February
2009 just before the implementation of the four day week in March 2009 to
inform them of the proposed reduction of working hours and the reasons
for the reduction of working hours. The company had sponsored the visits
of UW1 to the showrooms at its branches where he observed for himself
the decline in the sale of its products.
The right of a workman to leisure must be balanced with the right of
an employer to manage its business when there is a cut down in
production. The court held that the company could not instruct the affected
workmen to take annual leave or unpaid leave in March to May 2009 even
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though as it had to cut down on its production due to lesser sales of its
products.
The company should have consulted the union officials and obtained
their consent before taking such cost cutting measures. The union had
agreed to an earlier request for the workmen to go on annual leave on 26
December 2008 and 2 January 2009. The essence of industrial harmony
lies in consultation with union officials.
The company shall pay the affected workmen who were instructed to
go on unpaid leave their wages for 6 March, 20 March, 3 April, 17 April and
15 May 2009 at the prevailing rate of wages for that period.
The company need not pay any compensation to the affected workmen
who were instructed to go on annual leave during the relevant period.
HANDED DOWN AND DATED THIS 29th DAY OF JUNE 2011
signed....( SUSILA SITHAMPARAM )
PRESIDENTINDUSTRIAL COURT OF MALAYSIA.
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