FORCED PAY-CUT: IS IT LEGALLY COMPLIANT?

FORCED PAY-CUT: IS IT LEGALLY COMPLIANT?

The recent Co-Vid 19 Pandemic and Movement Control Order imposed by the government have placed most companies under immense financial strain. Companies naturally have to implement cost cutting measure and some companies have resorted to imposing forced pay-cut. Now the question is whether are companies allowed to impose forced pay-cut?

Forced pay-cut is when employers make a decision to impose a percentage of pay-cut on their employees without obtaining the agreement of employees.

EMPLOYMENT ACT EMPLOYEES (EA employee)

Employment Act employees are those that earn RM 2,000.00 below or those doing manual labour irrespective of wages. The Law affords strong statutory protection to EA employees and we shall highlight section 24 of the Employment Act 1955

(1) No deductions shall be made by an employer from the wages of an employee otherwise than in accordance with this Act.
(2) It shall be lawful for an employer to make the following deductions:
(a) deductions to the extent of any overpayment of wages made during the immediately preceding three months from the month in which deductions are to be made, by the employer to the employee by the employer’s mistake;
(b) deductions for the indemnity due to the employer by the employee under subsection 13(1);
(c) deductions for the recovery of advances of wages made under section 22 provided no interest is charged on the advances; and
(d) deductions authorized by any other written law.

Hence, if were to review the whole Section 24 Employment Act 1955, there is no provision that allows an employers to unilateral impose a pay-cut. It is also worthwhile to note the following;

Section 24(8) The total of any amounts deducted under this section from the wages of an employee in respect of any one month shall not exceed fifty per centum of the wages earned by that employee in that month.

POTENTIAL LIABILITY

Civil Claim pursuant to Employment Act 1955

The Labour Department (JTK) has wide ranging power where pursuant to Section 69 of the Employment At 1955 may “inquire into and decide any dispute between an employee and his employer in respect of wages or any other payments in cash due to such employee under” and make any order for re-payment of any such sum unlawfully deducted.

Any order so granted and not complied within the time period stipulated to make payment attracts interest for non-payment and/or also penal consequences as it is an offence pursuant to Section 69(4) Employment Act 1955 of a fine not exceeding ten thousand ringgit; and shall also, in the case of a continuing offence, be liable to a daily fine not exceeding one hundred ringgit for each day the offence continues after conviction.

Penal Offence

The Liability for imposing unilateral pay-cut may be a breach of Section 24 of the Employment Act where Section 24 clear states that “No deductions shall be made by an employer from the wages of an employee otherwise than in accordance with this Act” and if breached pursuant to Section 99A Employment Act 1955, employer can be fined up to RM 10,000.00 for each offence. This Penalty also applies for companies that fail to submit to the notification form (PK Form) at least 30 days prior to the action of implementing pay-cut.

Section 99A General penalty
Any person who commits any offence under, or contravenes any provision of, this Act, or any regulations, order, or other subsidiary legislation whatsoever made thereunder, in respect of which no penalty is provided, shall be liable, on conviction, to a fine not exceeding ten thousand ringgit.

NON-EMPLOYMENT ACT EMPLOYEE (Non-EA employee)

Section 24 EA 1955 however does not apply to Non-EA employee however this would not imply that an employer is allowed to impose unilateral pay-cut.

In Supportive Technology Sdn. Bhd. Vs Chong See Wan [2015] 1 LNS 1291 which dealt with a situation of a shutdown , the High Court upheld the Labour Office decision pursuant to Section 69B Employment Act 1955 in awarding payment of wages that were not paid during a period of shutdown. Section 69B EA 1955 affords the same civil remedy for those wages are between RM 2,000.00 up to RM 5,000.00 where an Order for payment can be ordered and if not complied, it can be registered in court and executed as a civil debt and/or a statutory offence of which shall be liable, on conviction, to a fine not exceeding ten thousand ringgit (RM10,000.00).

CONSTRUCTIVE DISMISSAL

Employers need to be aware that unilateral pay-cut poses another legal challenge by way claims for constructive dismissal. Constructive Dismissal in simple terms is when the employee deems himself terminated due a fundamental breach of the contract of employment.

The Decision that would be most illustrative would be in North Malaysia Distributors Sdn Bhd v. Ang Cheng Poh [2001] 3 ILR 387
“It is the duty of the employee to prove that the employer is guilty of a breach which goes to the root of the contract or if the employer has evinced an intention no longer to be bound by it. In such a situation the employee is entitled to regard himself as being dismissed and walk out of his employment.” The unilateral pay-cut was a clear wilful breach of the employment contract on the part of the company. The salary of an employee being the fundamental factor in a contract of employment has been breached”
However with the recent Co-Vid Pandemic which has brought great economic uncertainties we must also highlight that there are decision that have deemed unilateral pay-cut for a financially distressed company does not justify a claim of constructive dismissal provided it is not done in bad faith. In PENAS REALTY SDN BHD v. CHEE YEW KONG [2001] 3 ILR 13

“Regarding the pay reduction, the company had proved that they were in fact financially distressed and that the option of reducing staff wages instead of its staff was a way of reducing its overhead costs. The claimant was the only staff in his department to refuse the said reduction. There was no evidence of mala fide on the company’s part”

No Company wishes to have to consider such drastic measures but faced with dire situation every company regardless whatever make difficult decision it must make, must never lose sight of complying with the relevant laws in place.

For more information, please contact us by;
Email: enquiry@irlaw2u.my OR
Visit www.IRLAW2U.my | 0172337805

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