0% salary adjustment in CA – possible?


I have been exploring this area for quite some time and I thought it would be great if I could gather some thoughts from my followers.

Quick introduction to this topic – A unionised company usually negotiates their collective agreement (CA) once every 3 years. Upon expiration of a CA, the union would usually submit a proposal to the company and in this proposal, there will be a clause indicating a % of salary adjustment. Salary adjustment is a component to adjust one’s wages to meet the CPI increase due to inflation over the past 3 years. It should be distinguished from annual increment because increments are appreciation values based on one’s years of service and loyalty to the company. More often than not, the salary adjustment % proposed by a union would be approximately 10% from the employees last drawn salary.

I have been assisting a friend of mine (Company X) on this issue and we have been deliberating on the possibilities of doing away with salary adjustments in their new CA (of course the union does not agree). Our justification for this is due to the fact that Company X had in 2011 conducted an across the board salary adjustment for majority of their employees due to an internal global restructuring and reallignment exercise as required by their parent company. The exercise was conducted notwithstanding the absence of this requirement under the then CA. Further to that, it can also be easily proven that Company X had been suffering losses over the past couple of years.

In my opinion, we stand a fair chance to succeed in this trade dispute. Below are some (just some) points to justify my opinion.

Harun J in Industrial Court Award 117/82 held that salary increases ought to be based on two thirds of the percentage increase in CPI over the preceding three years. This decision has been the benchmark in many other Industrial Court Awards but in the case of Koko Malaysia Sdn Bhd v Kesatuan Pekerja-Pekerja Perkilangan Perusahaan Makanan & Anor [2002] 5 CLJ 535, it was held that the Harun J decision is merely a general rule and may be departed on good grounds.

The Koko case is a case which is directly on point. The High Court mentioned that in cases as such, reference must be made to s.30(4) of the Industrial Relations Act 1967 which states:

30(4) – In making its award in respect to a trade dispute, the Court shall have regard to the public interest and the financial implications and the effect of the award on the economy of the country and the industry concerned and also to the probable effect in related or similar industries. 

The case of Mersing Omnibus Co Sdn Bhd v Kesatuan Pekerja-Pekerja Pengangkutan Semenanjung Malaysia [1998] 2 CLJ (Supp) 354 held that s.30(4) is a mandatory provision and failure to adhere to the said provision renders the impugned award erroneous in law.

Since it is mandatory for the Industrial Court to take into account financial implications of the Company in a trade dispute, it is valid for us to put forth the argument that the Court ought to take into consideration the fact that the company had been running on a loss and further, company had already conducted a similar exercise in 2011. As such, in the event the Court further award salary adjustment over and above what has been done, it would be against the rules of equity in ensuring fairness because employees in Company X would be unjustly enrich through this process. In arguing this case, I go back to the roots of salary adjustment and the intention behind it. What Company X had done in 2011 was to adjust employee’s salary to meet with current inflation and such bona fide act by Company X should not be entirely disregarded in the current CA negotiations.

In a similar case between Sistem Penerbangan Malaysia Bhd v Kesatuan Kakitangan Eksekutif Sistem Penerbangan Malaysia [1996] 1 ILR 704, the Industrial Court held that what should be granted must be fair and equitable taking into account not only the awards of the Industrial Court but also the size and standing of the Company.

Based on the above arguments, we are hoping that an Award would come in our favour but till then, fingers are crossed.

Some other crucial points if you are planning to use the above arguments for your company:

If you are pleading financial incapacity, please make sure that it is genuine. The Court will not only look into the profit and loss statement but the Court will look into other factors as well. For example, if you are pleading financial incapacity and you can show a freeze on bonus & increment for the upcoming year, retrenchment or reorganisation exercise within the whole company, etc then it will be more probable than not that the plea on financial incapacity will be upheld.

Secondly, it is not a guaranteed point that with the above arguments, the Court will do away with salary adjustments in the new CA. More often than not, the Court will look into the facts of each case to decide the appropriate amount. Of late, the trend ranges from 5% – 8%. In Company X’s case, it must be argued that even 5% – 8% is not a proper benchmark due to the exercise conducted in 2011. We gathered that since the across the board adjustment was more than 5% – 8% in 2011, it may be possible to convince the Court to do away entirely with salary adjustment this time around.

In concluding this post, please note that the above is just a brief discussion on this topic. It entails a whole lot more so please feel free to contact me for further questions.