Apex court rules hoteliers cannot use 10% service charge to meet minimum wage requirements

PUTRAJAYA (March 24): The Federal Court ruled today that hoteliers cannot use the 10% service charge paid by customers to meet the minimum wage requirement, and instead must pay their employees the charges collected in addition to their salaries.

Datuk Nallini Pathmanathan, in a summary of her judgement to the press, said the 10% service charge “does not belong to the hotel” and as such, should go to the employees.

“Service charge, being monies collected from third parties, does not belong to the hotel. When it is paid by a customer as part of the bill, ownership in those monies does not vest in, or transfer to the hotel,” she said.

“Ownership of the monies is immediately transferred and lies with the employees who are eligible to receive those monies.”

She said the hotel simply has the task of collecting this money, but keeps it separate from the hotel’s funds.

Thus, the hotels hold the charges collected “effectively in trust for the eligible employees to be distributed on a specific date as provided for in their contracts”.

“This is further evidence of a lack of transfer of ownership of these funds,” she added.

Justice Nallini said the hotel acts as a “fiduciary” or “trustee” who holds the money for employees until it is distributed to them.

“It follows that as the monies did not, at any point in time, belong to the hotel, there is no entitlement in law for the hotel to appropriate and utilise those monies to meet the statutory obligation created by the National Wages Council Consultative Act 2011 (NWCCA 2011) and the Minimum Wages Order(s) from 2012–2020 (MWO 2012)," she said.

Nallini was giving her judgment in a civil appeal between Crystal Crown Hotel and Resort Sdn Bhd and the National Union of Hotel, Bar & Restaurant Workers.

Crystal Crown was seeking a judgement on whether hotels could use the service charge to top up any amount below the minimum wage, in relation to employees earning less than RM1,000 in basic monthly pay.

The hotel had appealed to the Court of Appeal, but was dismissed on July 31, 2017.

“Those monies at all times belonged to the eligible employees. It is in that context that the Court of Appeal likened the top-up structure or the clean wage system as amounting to asking the employees to pay themselves from their own monies.

“Wages, by their very definition, envisage monies belonging to the employer being paid to the employee under a contract of service. It does not envisage monies that are collected for the benefit of the employees being utilised by the employer to offset its own liabilities,” she said.

She said it is illegal for hotels to complain about rising costs, and use the service charge to assist them to meet their payment obligations.

“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 utilised to assist it, in meeting its mandatory statutory payment obligations. That would run awry of both the NWCCA 2011 and MWO 2012,” she said.

She concluded that minimum wages comprise the quantum of monies determined by the government as the minimum sum of money to be paid as a wage under a contract of service or collective agreement.

Nallini was interpreting two questions of law put before the court:

1. Whether under the NWCCA 2011 hoteliers are entitled to utilise part or all of the employees’ service charge to satisfy their statutory obligations to pay the minimum wage.
2. Whether having regard to the NWCCA 2011 and its subsidiary legislation, service charge can be incorporated into a clean wage or utilised to top up the minimum wage.

Both questions were answered in the negative and the appeal was dismissed by the court.

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