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Service charge not part of wages

Crystal Crown Hotel & Resort Sdn Bhd v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia


The Federal Court confirmed today that service charges cannot be used or incorporated into the wages of employees in the hotel and hospitality industry for the purposes of satisfying minimum wage obligations.

Speaking for the apex court, Nallini Pathmanathan FCJ considered, among other things, the spirit and intent behind the introduction of the minimum wage, to wit, to raise the standards of living among Malaysians and that the service charges collected by hotels was never money from their own pocket, in other words, the hotels received that money as trustees for distribution to eligible employees.

The Federal Court further observed that the broad powers reposed upon the Industrial Court under the Industrial Relations Act 1967 could not be used in a manner which, in effect, nullified the mandatory provisions of the National Wages Council Consultative Act 2011, and the two must be read in harmony. The learned Judge stated:

"It is therefore not tenable to construe or apply sections 26(2) and 30(4) IRA otherwise than to ensure that the purport and object of the NWCCA 2011 and MWO 2012 are met. Put another way, it is not open to the Hotel to complain that its costs have increased several-fold and then go on to insist that a contractual benefit in the form of service charge be appropriated and utilized to assist it, in meeting its mandatory statutory payment obligations. That would run awry of both the NWCCA 2011 and MWO 2012, as well as the IRA."

Bearing the above in mind, the Federal Court took the view that service charge could not be used to "top-up" or "substitute" any part of the minimum wages payable to employees, being a separate and distinct contractual entitlement from basic wages. Moreover, given that the service charge collected never belonged to the hotel, it could not be appropriated or utilised by the hotel to meet or offset its statutory obligations.

The apex court concluded in holding that its decision, being based primarily on constructions of law, should apply universally across the applicable industries.

Accordingly, it is key for employers in the hotel and hospitality industries to take heed of the Federal Court's pronouncements and ensure that appropriate steps are taken to meet minimum wage obligations without impinging upon service charges as a means of meeting any shortfall.

The Federal Court's Grounds of Judgment on the case can be read here.

Grounds of Judgment - 02(f)-401-2018
Download PDF • 796KB


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