JETVALET SDN BHD v 1. ) LUKMAN HAKIM BIN MOHD ZAKI 2. ) MOHD FARIDZ BIN ABU BAKAR

Case Significance

Holds that a contractual productivity allowance, though distinct from basic salary, is protected as wages under section 24(1) of the Employment Act 1955, and that an employer's unilateral reduction of it is a fundamental repudiatory breach.

This High Court decision at Shah Alam concerns an appeal from the Labour Court (the Director General of Labour) over the unilateral deduction of a productivity allowance from two employees, both of whom were commercial pilots. The employer, an operator of private-jet transport, had recruited the pilots on fixed-term contracts, one serving as Captain and the other as First Officer, and had funded their conversion training in the United States under a seven-year bond. Under their employment agreements each pilot's monthly remuneration was expressed as a basic salary together with a separate productivity allowance. The dispute arose when the employer stopped paying the productivity allowance for two months, and the Labour Court ordered the employer to pay those sums, prompting this appeal.

The governing provision was subsection 24(1) of the Employment Act 1955 (Akta Pekerjaan 1955), which restricts the deductions an employer may lawfully make from an employee's wages. The employer argued that the productivity allowance was not part of "basic wages" and could therefore be adjusted, relying on Industrial Court authority that basic wages do not include allowances. The court accepted that the productivity allowance was not the basic salary, but held that it nonetheless formed part of the pilots' wages. On that footing the employer could not unilaterally rescind or reduce it.

The court went further and characterised the change in contractual terms as a matter of agreement: an employment agreement is an agreement, and any variation of its terms ought to be mutually agreed by the parties rather than imposed by the stronger party. It held that the unilateral reduction of the pilots' wages constituted a fundamental and repudiatory breach of the contract of employment. The appeal was accordingly resolved against the employer. The judgment is a useful statement that a contractual productivity allowance, though distinct from basic salary, is protected as wages and cannot be stripped away by unilateral employer action.