During the peak of the COVID-19 pandemic, many businesses found themselves compelled to implement a range of cost-cutting strategies to remain solvent, with salary reductions being a common measure. As the economy recovers, a question arises: Can employees who experienced salary reductions during the pandemic now seek to recover the deducted amounts?The High Court’s decision in Mercury Industries Berhad v Ng Poi Kuan [2023] 1 LNS 1897 answers this question.
Brief Facts
- The Employee was the Human Resources Executive and oversaw employees’ affairs.
- Between 10.6.2020 until 30.6.2022, the Employee’s salary was reduced between 10% – 20% along with other employees.
- The Employee (as Human Resources Executive) herself attended to the salary reduction on behalf of the Company and obtained signatures of all the other employees for this.
- The Employee resigned in June 2022.
- The Employee sued the Company and claimed the arrears from the salary cuts imposed between 10.6.2020 until 30.6.2022 (“Arrears”).
- The Employee’s claim was allowed by the Labour Court.
- The Company appealed to the High Court against the Labour Court’s order.
High Court’s Findings
The High Court allowed the Company’s appeal and set aside the decision of the Labour Court:
- At the time of the salary deduction, the country was going through the COVID-19 pandemic and the Movement Control Order.
- She continued to work with the Company after the reduction in salary. There was no documentary evidence to indicate the Employee objected to or protested against the salary reduction.
- The Employee had instead carried out the actions for the salary reduction exercise to take place company-wide, such as filing PK forms, informing other employees about the salary reductions, and collecting employees’ signatures.
- It can be deduced that the Employee agreed to the salary reduction and she should not be allowed to claim for the Arrears.
Key Takeaways
This case underscores the extraordinary circumstances surrounding the COVID-19 pandemic, which forced many businesses to make difficult decisions to ensure their financial viability. Salary reductions were a common response to these challenges, and it is important to recognize the context in which these measures were taken. Faced with a global crisis, businesses often had to act swiftly to adapt, and this context can significantly affect how the law views such actions.
Another key takeaway is the importance of proper communication and consent in employment matters. Employees who actively and voluntarily participated in certain exercises, without raising objections, may find it challenging to claim otherwise later. Effective communication and transparency during these processes are vital to ensure that all parties involved understand the consequences of such measures. Further, having a well-documented record of employment related exercises is crucial.
As businesses and employees continue to navigate the post-pandemic economic landscape, the Mercury Industries Berhad case serves as a reminder of the legal principles governing salary reductions. It emphasizes the importance of context, consent, communication, and documentation in salary reduction processes, demonstrating the critical role these factors play in shaping the outcome of disputes related to pandemic-induced salary cuts.
***
This article was written by Leow Ho Eng (Associate) from Donovan & Ho’s employment law practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.
