INDUSTRIAL COURT OF MALAYSIA CASE NO.

1/3-162/10
BETWEEN KESATUAN KEBANGSAAN PEKERJA-PEKERJA PEWTER DAN KRAFTANGAN SEMENANJUNG MALAYSIA AND ROYAL SELANGOR INTERNATIONAL SDN. BHD.

AWARD NO : 946 OF 2011

Coram :

Y.A. PUAN SUSILA SITHAMPARAM MR. NG CHOO SEONG PUAN JUNAINI BINTI MOHD. SAID

PRESIDENT EMPLOYEES PANEL EMPLOYERS PANEL

Venue

Industrial Court Kuala Lumpur. : : : : 25 January 2010 18 February 2010 5 October 2010 16 May 2011 26 May 2011

Date of order of reference Date of receipt of order of reference Dates of hearing Date of receipt of written submissions from counsel for the union

Date of receipt of written : submissions from the representative for the company Representation :

31 May 2011

Mr. A. Sivanesan Messrs A. Sivanesan & Co. Counsel for the union.
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Mr. M. V. Gopal Senior Industrial Relations Consultant Malaysian Employers Federation for 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 collective agreement. said

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 the Company nor the Union shall seek to vary any of its terms nor shall any demands or claims be made on new terms and conditions of employment save by mutual agreement, by operation of law or as provided herein and provided that such
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variation shall take effect only after being given cognizance by the Industrial Court.

Article 16(a) read:

ARTICLE 16 - WORKING HOURS Clause (a) The normal working hours for employees per week exclusive of meal breaks shall be as follows:(i) In respect of employees working in the administration, Finance, Design and International Marketing departments, forty-one and one quarter (41.25) hours per week. The normal working hours will be from 8.00 a.m. to 5.00 p.m. In respect of employees working in Manufacturing or areas other than those specified above. fortythree and three quarters (43.75) hours per week. The normal working hours will be from 7.45 a.m. to 5.15 p.m.

(ii)

Article 21(a) read:

ARTICLE 21 - ANNUAL LEAVE Clause (a) Every employee shall be entitled to paid leave as follows :(i) On completion of twelve (12) months continuous service - 12 working days. of

(ii) (iii) (iv) (v) (vi)

On completion of four (4) years of continuous service - 17 working days. On completion of seven (7) years of continuous service - 19 working days. On completion of nine (9) years of continuous service - 21 working days. On completion of twelve (12) years of continuous service - 23 working days. On completion of fifteen (15) years of continuous service - 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 vide Bundle 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 vide balance 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 vide Bundle COB1, page 82. The number of employees was 562 vide Bundle COB1, page 81.

The financial statements of the company for the financial year ending 30 June 2008 was tendered vide Bundle 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 vide balance 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 vide Bundle UB, page 16.

The management of the company also informed the union officials at

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 vide Bundle UB, pages 13 and 14, 6 to 9.

The union admitted that there was a global economic slowdown in 2009 vide Bundle 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.

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 vide Bundle 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

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

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-gratia sum 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 gratia sum.

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 vide Bundle 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 vide Bundle 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. leave. For 3.4.2009, 335 union staff took annual leave while 169 non union staff took annual leave. leave. For 17.4.2009, 330 union staff took annual leave while 161 non union staff took annual leave. leave. For 15.5.2009, 318 union staff took annual leave while 176 non union staff took annual leave. leave. 8 union staff took unpaid leave while 10 non union staff took no pay 7 union staff took unpaid leave while 17 non union staff took no pay 3 union staff took no pay leave while 15 non union staff took no pay 5 union staff took no pay leave while 24 non union staff took no pay

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 an employer should, in consultation with his employees' representatives or their trade union, as appropriate, and in consultation with the Ministry of Labour and Manpower, take positive steps to avert or minimise reductions of workforce by the adoption of appropriate measures such as : (i) (ii) (iii) (iv) limitation on recruitment; restriction of overtime work; restriction of work on weekly day of rest; 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 with the global economic slowdown. During the first eight months of 2009, total exports declined 22.8% to RM347.1 billion (January - August 2008: 16.1%: RM449.9 billion) due to weak demand for manufactured products and lower commodity prices. For the year, exports are expected to contract 20.0% to RM530.6 billion (2008: 9.6%; RM663.5 billion). Export of manufactured goods, which accounted for 76.7% of total exports are expected to decline 17.8% to RM407.0 billion (2008: 3.7%; RM495.3 billion), while exports of primary commodities are envisaged to fall 25.4% to RM112.0 billion (2008: 39.0%; RM150.1 billion) Export of Manufactured Goods Lower exports... Exports of manufactured goods contracted 19.2% to 272.5 billion (January - August 2008: 9.1%; RM337.1 billion). Exports were severely hit by the synchronised downturn especially in the major export destinations such as the US, Europe and Japan. The downturn in exports was broad-based as reflected by declining demand 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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The company was financially solvent for the financial year ending 30 June 2009. However, the company had suffered a loss of RM3.5 million in 2009 due to the decrease in the sale of its products. In the previous two years, the company had made profits.

The company had taken cost cutting measures in 2009 such as not allowing overtime work except in the Sales and Security Departments for five months and not renewing the contracts of seventy-two workmen in 2009.

Whilst there are provisions in the said code on the reduction of working days as part of cost cutting measures which may be taken by an employer so as to avoid the retrenchment of workmen, there is no mention of the employer compelling its workmen to take annual leave or unpaid leave. The company had followed the steps recommended in the said code such as the reduction of overtime and the reduction of working hours.

The present case illustrates the impact of economic forces on a manufacturer which has an overseas market for its products. The Malaysian economy is interlinked with the global economy. With less sales, the company had to cut down on its production. It had to reduce its

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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 ) PRESIDENT INDUSTRIAL COURT OF MALAYSIA.

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