Tips Cannot Count Towards the Minimum Wage

The Minimum Wages Order 2012 (MWO 2012) went into effect on January 1, 2013. The accompanying guidelines—“Guidelines on the Implementation of the MWO 2012”—made it clear that employers could use payments other than an employee’s wages to count towards the minimum wage and to meet the employer’s payment requirements. In a key court decision, the 2012 guidelines have been held to be ultra vires and unlawful insofar as they allow hotels to count service charges that employees receive towards their wages.

Paragraph 3(v) of the 2012 Guidelines expressly provides that, “for the hotel sector where the service charge collection is implemented, the employer may convert all or part of the service charge meant for distribution to the employee, to form part of the minimum wages.”

The 2012 guidelines also included an example calculation for hotel employers to follow. As a result, some hotels restructured the wages of employees by counting any amounts that employees received in the form of service charges to “top up” basic wages such that they would as count towards the minimum wage requirement. However unions have challenged this so-called “top up” system, which has also become the subject matter of litigation.

In the recent decision in the Crystal Crown Hotel, a Malaysian court of appeal upheld the Industrial Court and the High Court’s decision that minimum wage relates only to an employee’s “basic” wage. Accordingly, employees must be paid the minimum wage over and above any service charges they receive. The court ruled that the terms on salary and service charges are fundamental terms that cannot be unilaterally changed without the applicable union’s consent.

Similarly, in the case of Shangri-la Hotel, the court of appeal held that the 2012 guidelines are ultra vires and should not be used as an aid to interpret “minimum wage” and “basic wage.”

Therefore, hotels that had adopted the 2012 guidelines to restructure wages by using the “top up” system now find themselves in breach of the law and will need to change their practices.

Comment

The Crystal Crown Hotel and Shangri-la Hotel cases are now pending appeal to the Federal Court (the highest court in Malaysia). It remains to be seen what view the Federal Court will take. In the meantime, hotels that had followed the 2012 guidelines find themselves in a conundrum and hope for a swift decision from the Federal Court.

Written by Wong Keat Ching and Teoh Alvare of Zul Rafique & Partners and Roger James of Ogletree Deakins