Malaysia Building Society Berhad v Mahkamah Perusahaan Malaysia & Zainol Rashid Bin Norddin (Kuala Lumpur High Court Application for Judicial Review No.: WA-25-371-11/2021)

Generally, employers in Malaysia are legally obliged to make statutory deductions and contributions on employees’ monthly salary. Such statutory contributions include contributions to the Employees Provident Fund (“EPF”), Social Security Organisation (“SOCSO”) and Employee Insurances System Scheme (“EIS”) on the amount of wages paid to employees, whereas statutory deductions refer to monthly deductions made from an employee’s salary which are paid to the Inland Revenue Board to account for the employee’s annual income tax.

However, in the context of Industrial Court awards, there appears to be two school of thoughts in relation to whether monetary compensation attracts the employers’ obligation to pay EPF contributions under the Employees Provident Fund Act 1991. On one hand, it is argued that given that monetary compensation awarded to unfairly dismissed employees are aimed at restoring the employees to the position that they would have been in had they not been dismissed, the Industrial Courts’ common inclusion of the oft-quoted phrase “less statutory deductions, if any” in its awards implies that income tax deductions and EPF contributions are to be made on top of the award sum.

On the other hand, it is argued that as the Industrial Court’s wide powers under the Industrial Relations Act 1967 empowers it to expressly award employers’ EPF contribution on backwages and compensation in lieu of reinstatement, such contribution is not

intended where it is not explicitly ordered. This was the position in the case of Harpers Trading (M) Sdn Bhd v National Union of Commercial Workers [1991] 1 CLJ (REP) 159 wherein the Supreme Court upheld the Industrial Court’s award, comprising of backwages, compensation in lieu of reinstatement, bonus and EPF contributions given that the same were explicitly ordered by the Industrial Court.

The instant matter proceeded for trial before the Industrial Court wherein the learned Chairman in concluding that the employee was dismissed without just cause and excuse, awarded the latter with monetary compensation in the Award No.: 2869 of 2018 dated 8.11.2018 (“Award No.: 2869 / 2018”) as follows:

“The Court orders the Company to pay the Claimant through the Claimant’s solicitors, Messrs N. Saraswathy Devi in the sum of RM (RM200,000-00 + RM160,000-00 = RM360,000-00) less statutory

deductions (if any) within 30 days from the date of this Award.”

The employee then filed an application to the Industrial Court pursuant to section 33 (1) of the Industrial Relations Act 1967, for interpretation of the above provision in Award No.: 2869 / 2018. In his application, the employee contended that the phrase “less statutory deductions (if any)” should be “interpreted” in such a way that the Company is among others, required to pay EPF contributions on top of the award sum of RM360,000-00 (“Award Sum”). Unfortunately, the Industrial Court in Award No.: 1225 of 2021 dated 16.8.2021 (“Award No.: 1225 / 2021”) allowed the employee’s application and held that the phrase “less statutory deductions (if any)” in Award 2869 / 2018 meant that the Company is required to pay EPF contributions and income tax in addition to the Award Sum.

Dissatisfied with the Industrial Court’s decision, the Company applied for judicial review in the Kuala Lumpur High Court to quash part of the Award No.: 1225 / 2021 pertaining the Company’s liability to pay EPF contributions and income tax in addition to the Award Sum. The Company’s judicial review application was essentially on the grounds that the learned Chairlady had erred in law when she:

• Failed to apply the trite industrial relations principle that where there is no specific or explicit provision in an award which requires an employer to pay the employer’s EPF contribution on the monetary compensation awarded, such employer’s EPF contribution is therefore not part of the monetary compensation awarded; and

• Failed to evaluate that the employee’s application for interpretation to add the employer’s liability to pay EPF contributions in addition to the Award Sum was essentially

an application to vary the intention of the Industrial Court in Award No.: 2869 / 2018. Thus, in allowing the said application, she had in essence, varied the intention of the learned Chairman handing down Award No.: 2869 / 2018.