“Productivity allowance” is a payment typically used to incentivize employees for their availability, readiness, or contribution to business output beyond their basic job scope. In industries like aviation, such allowances are often tied to operational readiness and the ability to perform core functions like flying.
In Jetvalet Sdn Bhd v Lukman Hakim bin Mohd Zaki & Anor, the High Court found that this productivity allowance constitutes part of the employees’ wages and cannot be withheld or deducted without their consent, in line with the statutory protections under the Employment Act 1955.
Brief Facts
The Respondents, both pilots, were employed by Jetvalet Sdn Bhd under fixed-term contracts beginning in 2021. Their employment was closely tied to the operation of a specific aircraft (the Hawker 4000) for which the company had sponsored and trained them in the United States. Their remuneration package included basic salary, a productivity allowance, and a transportation allowance.
In November 2022, the aircraft was grounded due to technical issues. While no longer flying, the pilots continued to report to Jetvalet’s office and received their full salary. However, in August and September 2023, Jetvalet ceased paying the productivity allowance, alleging that the employees had failed to maintain valid flight certifications and medical licenses, thereby disrupting operations.
The Respondents asserted that the productivity allowance was part of their contractual wages, and therefore cannot be withheld or deducted. The dispute was brought before the Labour Court, which ruled in favour of the employees.
Court’s Findings
The High Court affirmed the Labour Court’s decision, emphasising that:
- The “productivity allowance” was part of “wages”, as per section 2 of the Employment Act 1955.
- Section 24(1) of the Employment Act 1955 prohibits wage deductions unless expressly authorised under the Act, or in certain circumstances where the employee consents to the deductions.
- Jetvalet tried to rely on a clause in the pilots’ employment contract, which stated that the employer could make discretionary salary adjustments. However, the High Court held that this clause was not applicable since it was tied to excess leave usage, and not performance or operational issues.
The High Court hed:
“The Employment agreement is just that. An agreement. Any change to the terms of the agreement, in the view of this court, ought to be mutually agreed by parties. It cannot be that one party is allowed to change the terms of the Employment Agreement, particularly when the Appellants have a better position compared to the Respondents. This court further opines that the unilateral reduction of the Respondents wages constitutes a fundamental and repudiatory breach of the contract of employment.”
The High Court therefore upheld the Labour Court’s order for Jetvalet to pay the withheld productivity allowances.
Key Takeaways
In this case, the conditions for the pilots to qualify for the productivity allowance were not specified in their contracts. As such, the pilots maintained that the allowance was a contractual entitlement and not conditional on the serviceability of the aircraft or other operational factors.
This case is a clear reminder that employers must tread carefully when making any changes to remuneration components. This is especially when such components form part of the employee’s “wages” as defined under the Employment Act 1955. Even if there is a clause in the employment contract to allow for discretionary deductions or variations, it cannot override statutory protections under the Employment Act 1955.
To avoid ambiguity and potential disputes, employers should clearly set out the conditions for payment, including whether allowances are performance-based, conditional on business activity, or purely discretionary. This ensures transparency and reduces the risk of legal challenge.
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This article was written by Donovan Cheah (Partner) 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.
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