Collective bargaining in a difficult economy by siva kumar

Malaysian Law Firm of the Year 2010, 2011, 2013 and 2014 Who’s Who Legal Awards

Siva Kumar KanagasabaiPartner, Skrine

[email protected]

COLLECTIVE BARGAINING IN A DIFFICULT ECONOMY

Siva Kumar Kanagasabai Partner, Skrine

SKRINEADVOCATES & SOLICITORS

Collective Bargaining

• Leads to entering into a Collective Agreement• Definition– IRA 1967: “negotiating with a view to the conclusion of a

collective agreement”• Collective Agreement – Agreement in writing between an employer or a trade union – Relating to terms and conditions of work – Relations between parties


Collective Bargaining

• Scope of Collective Agreement Application– applies to a group of employees represented by the

scope of Union constitution and as defined in the Collective Agreement

– applies to all employees in that category regardless of union membership


Collective Agreement

• Individual workmen are not parties to the Collective Agreement

• Trade Union act as principals and not as agents for its members

• Any term or condition that is less favourable/ in contravention of provisions of any written law is void


Procedure

• Section 13 IRA 1967

– After recognition accorded, collective bargaining can commence with invitation in writing, setting out proposals for collective agreement

– May be initiated by Company or Union– Invitee must respond within 14 days from receipt of invitation,

notifying whether or not to accept invitation– Where invitation is accepted, collective bargaining to begin

within 30 days


Procedure

• Section 13 IRA 1967

– Where invitation is refused/ not accepted within 14 days/ collective bargaining does not commence within 30 days, invitor may notify Director General in writing

– Director General may take such steps as necessary or expedient with a view to bringing parties to commence collective bargaining

– If collective bargaining still fails to take place, this is deemed an existence of a trade dispute.


Expiry of Collective Agreement

• CA – not less than 3 years – effectively allows contract renegotiation every 3 years.

• Continues to be applicable if there is saving clause• Autoways (M) Sdn Bhd v National Union of Employees

in Companies Manufacturing Rubber Products [2006] 3 ILR 1672

• Electrical Power Engineering (M) Sdn Bhd v Electrical Industry Workers’ Union [1989] 1 ILR 545


Expiry of Collective Agreement

• Effect:-– Employees to be paid on the existing terms of the

expired Collective Agreement until a new Collective Agreement is entered into

– Where applicable, benefits under the new Collective Agreement will then be backdated

– But in a case of trade dispute in Court, maximum back dating is 6 months before reference date (s 30(7) IRA 1967).


Principles in Collective Bargaining - SALARY

• Salary increment/ Salary Structure• Penfibre Sdn Bhd, Penang v Penang & S Prai Textile & Garment Industries

Employees Union [1986] 1 ILR 323“It is well established in Industrial Law that in deciding on the question of wage structure and wage increases, the Court has to take into account the following factors:-

a) Wages and salaries prevailing in comparable establishments in the same region;

b) Any rise in the cost of living since the existing wages or salaries were last revised; and

c) The financial capacity of the Company to pay the higher wages/ increases.”


Principles in Collective Bargaining - SALARY

“Company’s financial capacity to pay is the limiting factor in dealing with wage increases and with other employees’ benefits...”


Competing Interest

Company’s desire to make/increase profit by cost reduction

vs

Social justice and fairness to the employee & desire to earn more


Principles in Collective Bargaining –CPI

• Measures the change in cost of living • Basis to provide salary increments (see Malayan

Commercial Banks Association v National Union of Bank Employees [1982] 1 ILR 246

• General rule: not less than 40% or more than 2/3 of CPI in previous 3 years.

• Rarely followed when economy is good/ company doing well, but will it make a comeback during downturn?


Principles in Collective Bargaining – COMPARABLE ESTABLISHMENTS

• In deciding what establishments are comparable:-

• Malayan Agricultural Producers Association v National Union of Plantation Workers Award 8 of 1968

“… In general, rates and wages to be considered are rates and wages prevailing in comparable concerns in the same industry in the same region and not:-i. Concerns in the same industry which are in a different regions; orii. Concerns in the same region which are in different industries; or iii. Concerns which, though they are in the same industry, are not

proper for comparison by reason of their being too large and their having a much bigger capital.”


Principles in Collective Bargaining – COMPARABLE ESTABLISHMENTS

• Similar industries do not necessarily mean that two establishments are comparable

• Depends on market share, market presence, financial capacity, size of company, nature of challenges etc.

• National unions tend to get 1 company to agree to new benefit and then use this precedent as a basis to get all other companies in the same industry to agree.


Principles in Collective Bargaining – FINANCIAL CAPACITY

• Limiting factor: Arab Malaysian Development Berhad v. Perak Textile & Garments Manufacturing Employees Union [1987] 1 ILR 118

• Employers are more likely to use this during downturn.



“the company's financial capacity to pay is really the limiting factor in dealing with wage increases and with other employees' benefits because when other factors may provide prima facie justification increased wages will normally be awarded only within the limits of the company's financial capacity. If despite the shaky financial position of the company, an award is made to increase the wages in accordance with the union's claim, it may well be a possibility that the company might have to close its business, resulting in the loss of jobs for the employees. And this will not be in the interest both of the company and the employees, particularly during the period of recession and economic slowdown.”


• Financial Capacity is to be considered by looking at period preceding the current Collective Agreement (Prestige Ceramics Sdn Bhd v Non-Metallic Mineral Products Manufacturing Employees’ Union [2004] 1 ILR 1177)

• Makes sense if trade dispute quickly decided due to inability to foresee the future.




• Malayawata Steel Bhd v Kesatuan Pekerja-pekerja Malayawata Steel Bhd [2001] 1 ILR 982 - other matters should be looked at over and above net profit, i.e.:-

“what are the prospects of the industry in the future; has the industry been making profits; and if yes, what is the extent of profits; what is the nature of demand which the industry expects to secure; what would be the extent of the burden and its gradual increase which the employer may have to face..”


• Allowances of a reimbursement nature • Increments depend on market• E.g. If petrol increases 25%, transportation

reimbursement should increase likewise

Principles in Collective Bargaining – SPECIFIC BENEFITS


Profits ↓Future Prospects ↓

Demand ↓Cost ↑

If pay ↓, good employees →

Difficult Economy


vsCost of Living ↑Anxiety/Risk of

unemployment ↑If pay ↓, motivation ↓

• Kesatuan Kebangsaan Pekerja-Pekerja Syarikat-Syarikat Pembuat Keluaran Getah v Goodyear Malaysia Berhad [2009] 2 ILR 159

“The court must also bear in mind of the current global economic financial crisis which just started. The present economic crisis is projected to be of a more severe impact compared to the last 1997/1998 financial crisis. The number of retrenched workers in the country has already numbered in the thousands. The court therefore has the responsibility to ensure the company's entire work force remains in employment and not to make an award which may cause retrenchment.”

Court’s Approach in Recession Periods



• Felda Oil Products Sdn Bhd v Kesatuan Pekerja-Pekerja Perkilangan Perusahaan Makanan [1998] 3 ILR 374

• Union proposed 15% wage increase across the board. Company proposed 5% increase. Court awarded 12% increase.

• Depends on impact of downturn on industry.



“On the other hand, although the profit margins have gradually decreased over the years, the company was still in a position to make some margin of profits, notwithstanding the difficult times. It is common knowledge that the palm-oil industry or palm-oil related industries are able to sustain the depressing periods, and it is a noted fact that agriculture or agriculture-based products are the main-stay of a nation's economy during the recession times.

So, some measure of increase would be justified considering the overall performance of the company.”


Non-compliance

• Court has power to order parties to comply with terms of Collective Agreement

• However, Court not required to enforce terms of agreement or award as they are

• Section 56(2)(c) IRA – empowered to set aside or vary upon special circumstances


Non-compliance

• Decline in business due to economic downturn – valid special circumstances to vary CA

• Prestige Ceramics Sdn Bhd v Kesatuan Pekerja Pembuatan Bukan Logam & Anor [2001] 5 MLJ 289

• Back to square one if balance not achieved and benefits which employer cannot afford given.


Principles in Collective Bargaining

Potential Solution 1: Productivity-linked wage system

• Prestige Ceramics Sdn Bhd v Non-Metallic Mineral Products Manufacturing [2004] 1 ILR 1177


Principles in Collective Bargaining

“Having considered the … circumstances of the case, we find that the company's proposal to replace the annual increments with a system of paying incentives which is linked to the company's performance and productivity is fair and equitable and we endorse it. This system will see the employees rewarded when the performance of the company warrants it in that there is increase in productivity. The company is spared the extra expense in terms of annual increment when there is no value added to the employee's performance which was once thought to be the basis of annual increments. The introduction of this system will further improve productivity and make the country's products more competitive…”


Need to have:-

1) Defined variable component of remuneration

2) Fair measure of performance

3) Link to individual and company performance


Potential Solutions: Productivity/Performance Linked Ways

• Courts have been keen to consider proposals for a productivity linked wage system

• Hume Industries (M) Bhd v Non-Metallic Mineral Products Manufacturing Employees Union (Award No 409 of 1999)


Potential Solutions - Others

1.Increase Employee/Union Engagement to ↑ trust and mutual understanding

2.New strategies to improve business

3.Loans/financial assistance

4.Other cost-cutting measures

5.Redundancy – last resort


Siva Kumar KanagasabaiPartner

SkrineUnit No. 50-8-1, 8th Floor, Wisma UOA Damansara

50 Jalan Dungun, Damansara Heights50490 Kuala Lumpur

W: www.skrine.com


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