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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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