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Wages and leave during MCO
Published on: Sunday, April 12, 2020
By: S Vanugopal
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I have been receiving inquiries from colleagues and clients on issues pertaining to payment of wages to their employees during the period of the 2020 Restriction Movement Order (commonly referred to as Movement Control Order (“MCO” or “the Order”).

1.The Order 

1.1 The nationwide Movement Control Order was announced by the Prime Minister on the 16th March 2020, to take effect on 18th March until 31st March 2020.  This Order that was subsequently extended till 14th April 2020 is enforced by the Prevention of Infectious Diseases Act 1988 (“the Act”) and the Police Act 1967.

1.2 Following the announcement of the Order the Prevention and Control of Infectious Diseases (Declaration of Infected Local Areas) Regulations 2020 were made pursuant to section 11(1) of the Act where the Minister declared all States and the Federal Territories to be infected areas.  

Pursuant to section 11(2) of the Act the Minister then promulgated regulations to control or prevent the spread of the Covid-19 virus under the Prevention and Control of Infectious Diseases (Measures within the Infected Local Areas) Regulations 2020 (“the Regulations”) taking effect on 18th March for a period of two weeks.  With the extension of the Order a further set of regulations, the Prevention and Control of Infectious Diseases (Measures within the infected Local Areas) Regulations (No. 2) were made (“the 2nd Regulations”).

1.3 These Regulations have the force of law.  It is an offence under Regulation 7(1) to contravene any provisions of the Regulations which on conviction is punishable by a fine not exceeding RM1,000.00 or to imprisonment for a term not exceeding 6 months or to both.  If the offence is committed by a body corporate, under Regulation 7(2) it’s director, manager or other similar officer may be liable to be charged.

2. Financial Incentives

2.1 Following the Order the Government on 27th February 2020 initiated additional measures to enhance the Economic Stimulus Package (EIP) amounting to RM250 billion to provide immediate relief to a wide range of business activities, households and individuals.  On 6th April 2020 with the extension of the Order the Government further announced an additional stimulus package of RM10 billion to benefit the small and medium enterprises and individual employees.

2.2 The respective Ministries and Government agencies have issued various guidelines on the implementation of the additional stimulus packages as they apply to the respective Ministries or agencies.

2.3 The Ministry of Human Resources (“MoHR”) has announced and issued various guidelines on the implementation of these additional measures or incentives in relation to employment in the private sector.

This brief article current as at 10th April 2020 is intended to explain the Order and its impact in so far as it affects employment and the various incentive programmes announced by the Government to ease the financial burden of employers and to provide security of employment.

3.  The Order and it’s impact on employment

3.1  Under the Order, except for businesses providing “essential services” all other business premises shall remain closed for the period the MCO is in force.  For the purposes of the Order essential services include those services listed in the Schedule to the Regulations.  

The Schedule which initially contained 21 businesses has been reduced to 15 under the Schedule to the 2nd Regulations but now includes transportation, port, dock and airport services; production and distribution of fuel and lubricants and hotel and accommodation.  

The Schedule may be varied by the Minister from time to time.  Any business not providing essential services may by Regulation 5(2) be operated with the prior written approval of the Director General of Health who may impose such conditions as he thinks fit in granting his approval.

3.2 The guidelines issued by the MoHR to regulate employment in the private sector during the period of the MCO includes the following:

(i) Employers shall pay the employees wages in full in accordance with the respective employment contracts that are governed by the Sabah Labour Ordinance (Cap 67) (“SLO” or “the Ordinance”).  In respect of employment falling outside the scope of the SLO employers are also required to pay the wages in full as specified in the respective contracts of employment.

(ii) “Wages” under the SLO means basic wages and shall include all fixed allowances payable under the contract of service.  

While housing allowance would be included in computation of wages, travelling allowances and allowances related to attendance shall be excluded from its computation.  The rationale for payment of wages during the period of the Order is that the employees are ready and willing to provide their services but for the Order.

(iii) The employer is prohibited from requiring the employees to utilize their annual leave or to go on unpaid leave during the period of the MCO.  The announcement by the Government on 6th April 2020 however encourages negotiations between the employer and employee on options for salary reduction and unpaid leave. More shall be said of this later.

(iv) In respect of employees in the essential services the employer shall not be obliged to pay their wages if the employee fails or refuses to turn up for work during the period the Order is in force.  

The employer would be entitled under section 12(2) of the Ordinance to terminate the services of such employee for wilful breach of contract.  Such termination would not attract payment of termination benefits under the law.  

However section 13(3) of SLO entitles an employee to terminate his contract of employment where he is immediately threatened by danger to the person by disease which the employee did not contract to undertake to run.  The employee may then consequently claim constructive dismissal.

(v) The employer may require the employees in the non-essential services to work from home where this is possible and facilities are made available.

4. Incentives under the Economic Stimulus Package

The Government has introduced several incentive programmes as part of the Economic Stimulus Package related to employment which are carried out through the MoHR.  The two principal incentives benefitting the employer and the employee are the Wage Subsidy Programme and the Employee Retention Programme.

4.1 Wage Subsidy Programme

(i) The Wage Subsidy Programme (WSP) which took effect from 1st April 2020 and which shall remain in force for the next three months would benefit some 4.8 million employees in the private sector for which a sum of RM13.8 billion has been allocated to the MoHR through the Employment Insurance System (EIS).  Perkeso is the implementing agency.

(ii) The primary objective of the WSP is to provide job security to the employees through direct financial assistance to the employers who have suffered revenue reduction of at least 50% as of 1st January 2020 (“Revenue Reduction criteria”).

(iii) Employers whose employees are registered with and contribute to the EIS shall qualify for wage subsidy and the subsidy ranges from RM600.00 to RM 1,200.00 per employee per month up to a maximum of 200 employees for each qualifying employer.

(iv) For purposes of the WSP the monthly wage level of RM4,000.00 is with reference to the definition of “wages” under the Social Security Organisation Act 1969.

(v) An employer with up to 75 employees shall qualify for a monthly wage subsidy of RM1,200.00 per employee.  If the number of employees employed is between 76 and 200 the monthly subsidy is RM800.00 per employee.  

If the number employed is 201 and above the monthly subsidy is RM600.00 per employee up to the maximum limit of 200 employees.  The Revenue Reduction criteria however is not applicable in respect of employees with up to 75 employees. 

(vi) This incentive is not without post conditions.  Employers who benefit from the WSP must ensure that for a period of three months after the last payment of the subsidy they do not terminate the services of their employees or order the employees to go on annual leave nor would they be permitted to reduce the wages of the employees during the period the Order is in force and three months thereafter.

(vii) Employers will not qualify for this wage subsidy in respect of employees whose services have already been terminated as at the date this Programme came into effect.

(viii) Though the Government had announced that this Programme will benefit some 4.8 million employees, based on MoHR’s FAQ guidelines dated 7th April 2020 applications for the WSP must be made by 15th September 2020 and approvals shall depend on the availability of the allocation. 

(ix) The subsidy shall be credited directly to the employer’s account.

(x) During the period the employers receive the wage subsidy, they shall continue to pay all statutory contributions such as EPF and Socso that they are required to do during the normal period.  However in consultation with the EPF, deferment, restructuring or rescheduling of payment of the statutory contributions may be allowed.  Employers are exempted from contributing the levy to the Human Resources Development Fund for a period of 6 months from April 2020.

(xi) An employer who even with the consent of his employee makes deductions from the employee’s annual leave or reduces his salaries or requires him to go on unpaid leave will not be entitled to receive this Subsidy.

(xii) The WSP is only applicable to Malaysian citizens.

4.2The Employment Retention Programme (ERP)

This is the other part of the Economic Incentive Package in respect of employment for which the Government has allocated RM120 million (RM60 million from the Government and RM60 million from Perkeso).

(i) While the WSP benefits the employer the ERP benefits the employee directly.  This financial assistance in the sum of RM600.00 per month is given to the employee who voluntarily agrees to go on no pay leave for a minimum period of 30 days in circumstances where the employer’s business is adversely affected by the Covid-19.

(ii)However both the WSP and the ERP incentives cannot be made on the same month for the same employee.

(iii) The ERP is for a maximum period of 6 months from 1st March 2020.

(iv)  This incentive is available to both full time and part time employees whose monthly wages do not exceed RM4,000.00 and who are registered with and contribute to the EIS.  This financial assistance is dependent on the period of unpaid leave the employee is asked to take.

(v) The sum is credited directly into the employer’s account and who is required to credit it to the employee’s account within 7 days of receipt of the payment from Perkeso.

(vi) Employees who are not called back to work after the expiry of the Notice Without Pay shall consider themselves to have ceased employment and shall be eligible for the benefits under EIS.

 It would appear that such employees may also consider themselves to have been unjustly terminated from their services and accordingly lodge their complaint with the Labour Department or the Industrial Relations Department under section 20(1A) of the Industrial Relations Act (IR Act) within 60 days of termination of services.

5.     Guidelines in respect of essential services

The MoHR has issued the following guidelines in respect of employees in the essential services who are required to work during the period of the Order.  The employer is obliged to take the following measures:

(i)     Reduce the number of employees to the minimum level or 50% of the total number employed;

(ii)     Ensure the restricted movement of the employees;

S(iii) Provide protective equipment to and take the body temperature of the employees each day as well as provide hand sanitizers among other measures including the observance of the guidelines on social distancing.

6. The legality of the guidelines issued by MoHR

As an extraordinary situation calls for extraordinary measures and demands full cooperation of all to minimize the impact of the pandemic however as a matter of law the legality of several of the guidelines of MoHR must be addressed.  Guidelines do not have the force of law.

(i) The most striking issue is the Ministry’s FAQ No. 3 announced on 31st March 2020 that the period the Order is in force will be excluded in calculating the limitation period of 60 days stipulated in section 20(1A) of the IR Act or in calculating the period stipulated in section 9(3) of the IR Act.  Under section 20(1A) the employee who considers himself to have been dismissed without just cause and excuse must make his representation i.e. his complaint of unfair dismissal from his services to the Labour or the Industrial Relations Department within 60 days from the date of his dismissal.  Section 9(3) concerns the 21-day period limited for the employer to respond to the service of claim for recognition by the employees’ Union.  The Courts have given a strict interpretation to the time limited in section 20(1A) and have required strict compliance by the employee of the time stipulated to lodge his representation of unfair dismissal.  [See Sim Kooi Soon v Malaysia Airlines System [2005] 4 MLJ 609; Selinsing Gold Mine Manager Sdn Bhd v Shahariman bin Talib & Amir [2016] MLJU 1450].  Unless extremely good reasons are given the Court will not extend the said limitation period [see Gemilang Makmur Sdn Bhd v Pegawai Kewangan Negeri Pahang [2016] 4 CLJ 100].  As the MoHR guidelines do not have the force of law it would therefore be most prudent for the employee who considers himself unfairly dismissed to comply strictly with the law in section 20(1A) of the IR Act.  Likewise an employer who is served with a claim for Union recognition is well put to comply with the time limited to reply.

(ii) An employee who is forced to take his annual leave or to go on unpaid leave may consider himself terminated and upon serving a notice of protest on the employer walk out of employment and claim constructive dismissal.  An employee intending to pursue such an action must act with all reasonable expediency.

(iii)The announcement by the Honourable Prime Minister encouraging negotiations between employers and employees on salary deductions and unpaid leave as well as MoHR’s guidelines issued as FAQ 3 needs to be cautiously addressed.  The SLO being a beneficent legislation enacted for the benefit of the employees does not allow the employees to contract out of the provisions made for their benefit under the SLO.  Section 9 specifically provides that any term or condition of service or of an agreement that is less favourable to an employee than that prescribed by the Ordinance or rules made thereunder shall be void and of no effect.

7. Can the employer rely on the doctrine of frustration to terminate the contracts of employment when the Order is in force?

(i) Under this doctrine an event of frustration occurs when after the formation of the contract it becomes impossible of performance without the fault of either party to the contract and its effect is that the parties are released from their obligations under the contract.  An event of frustration is usually caused by an intervening event that was neither contemplated by the parties or provisions have been in the contract for such eventualities nor to which either party had contributed.  The outbreak of the COVID-19 is certainly an intervening event that caused the shutdown of non essential businesses.

(ii) The law governing frustration of contracts is found in section 57(2) of the Contracts Act 1950 which when applied to a contract of employment would mean that if it becomes impossible for the employee to render his services which he had contracted to run because of the Order or it would be unlawful for him to perform, the contact would become void.

(iii) If performance however is only onerous and not impossible the contract would not be frustrated in law.  [See Sentul Raya Sdn Bhd v Hariram a/l Jayaram; Pacific Forest Industries Sdn Bhd v Lin Wen-Chih; Tsakirrogolou & Co Ltd v Noblee & Thiru GMBH [1962] AC 93].  In the present circumstances the performance is rendered unlawful with the closure of business premises.

(iv)     The Courts however are unlikely to render the employment contract frustrated on the ground that the Order being only of a temporary nature would only make the contact onerous to perform and not impossible.

8. Employer’s prerogative to retrench employees

(i) The MoHR’s guidelines in FAQ 3 foresees the employer’s prerogative to retrench his employees who are in surplus of the needs of his business subject to the law governing retrenchment.

(ii) Notwithstanding the guidelines of the MoHR an employer who does not avail himself of any incentive under the Economic Stimulus Package and who would therefore not be bound by the condition to retain his employees for the specified period of time may at any time resort to his right to restructure his business and retrench his employees who are found to be in surplus.  In such an event the employer will then be obliged to pay the termination benefits as prescribed in Rule 6 of the Labour (Termination and Lay-Off Benefits) (Sabah) Rules 2008.  Ultimately economics will dictate which course of action the employer will pursue.

(iii) An employer contemplating restructuring his business in view of the Order with the objective of reducing his labour cost must carefully consider this course of action because if the retrenchment is challenged in the Industrial Court he must be able to justify the retrenchment.  Being a Court of equity and good conscience the Industrial Court will likely find the retrenchment unjust unless the employer can justify that the restructuring exercise was warranted by a structural change in his business resulting in employees in surplus to the needs of the business.

The contents of this article in relation to the various guides of the MoHR are current as at this date.



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