IT has been a week of lockdown – staying at home – so I assumed that everyone gets to spend quality time with their family at home, all chilled and relax.
Instead I have been inundated with texts from small and medium enterprise (SME) owners who are worried sick at the total shutdown of economic activities in this country.
Do we have to pay the employees or can we ask them to utilise their annual leave or ask them to take unpaid leave?
The Human Resource Minister said we must pay, the Malaysian Employers Federation (MEF) differs and the National Union cries foul. It is only for 14 days for god’s sake, the employees pleaded. We can’t survive on half month’s salary!
Out come the lawyers with their different interpretation and the legal avenues available to all concerned. So I seek out an opinion from a very senior lawyer and his opinion is stated below:
The movement control order (MCO) issue is not governed by the Employment Act (which applies only to to employees earning RM2,000 or less per month and manual labourers or daily wage etc) but one of contract.
So it is a contractual issue between the employer and employee as stated in the terms of employment. The employment contract will normally state that salary must be paid. Unless the contract says salary must be paid for work done, then there may be an argument for not paying.
If there is force majeure or frustration (argument by MEF) in common law and Contracts Act, the remedy is to terminate – not suspension of pay. Some may say the underlying foundation of the employment contract is that the employee works.
However, the present circumstance is not that the employee is not willing to work. He/she is unable to work through no fault of theirs. The employer may likewise say the same.
Again, as a matter of contract law, it does not allow for suspension of pay. If at all, it is an issue of termination. If the business is ongoing, then selective termination amounts to redundancy or retrenchment issues.
In view of the above, the direction from the government regarding employment and salaries is not relevant.
The government cannot promulgate or change the law by issuing guidelines and orders, unless emergency is declared under the constitution and certain laws are suspended. It is based on and governed by existing legislation, and more pertinently in this scenario, by the law of contracts.
To all the SME employers, my advice to you is to pay your employees for the two weeks of MCO. This is not the time to argue who is right or who is wrong. Unless you do intend to reduce your staff count, then do a proper retrenchment exercise.
Then the announcement from our Prime Minister – that there could be an extension of one to two weeks to the current MCO. What are we to do? Based on the above argument, I am afraid employers will have to continue paying the salaries or retrench.
My lawyer friend then text me to say that her small practice will see a drop of 90% in business as there will be no activity, no production for four weeks.
Can’t have meetings, can’t see clients, land office closed, no litigation, conveyancing or corporate works. On top of that, being an employer, her firm still has to contribute to the employees’ EPF accounts. She is not sure how long her cash reserves will last.
All SME’s face the same problem as my lawyer friend. How long will my cash reserve last?
My accountant friend, who audits many SMEs, told me that most of his clients will not last more than six months if sales drop by 50% or more. Most SME’s will have to start rightsizing (a better word than retrenchment) their staff organisation chart starting April if no government assistance is forthcoming.
So far, Bank Negara has released RM30bil of liquidity into our banking system via the reduction of statutory reserve requirement (SRR).
Our Finance Minister (an ex-banker) has announced a RM3.3bil SME loan fund for those who are qualified (no idea on the qualifications – ask your bankers) and our commercial bankers have started deferring loans repayments etc to ensure the loans/facilities do not fall into non-performing loan (NPL) status.
These steps taken by Bank Negara and the Finance Minister will ensure that sufficient liquidity is available to the SMEs but only for those who qualify.
To date, most of the stimulus measures introduced by our government do not emphasise on job retention by SME employers. Only a RM600 payment a month for employees is introduced if they lose their jobs.
The withdrawal from EPF savings by individuals is a joke, it is not a government assistance. The RM2.2bil development fund is reserved for bumiputra small contractors.
The RM130mil fund for 13 state governments to disperse to petty traders means that RM10mil per state, which is laughed at by the Chief Minister of Sarawak, the only state government to-date to have announced a comprehensive stimulus and assistance programme to its citizens. Kudos to Sarawak.
If you compare our fiscal stimulus programme with that of other governments’ worldwide, France has allocated 13% of its GDP, United Kingdom 12%, Germany 9.9%, the Netherlands 7.7%, the United States 9.3% and Japan 2.5%. Malaysia and Singapore at 1.2% of GDP thus far. I understand that Singapore will be announcing its new stimulus initiative today while our Prime Minister will announce a comprehensive fiscal stimulus on March 30.
If you look at all the fiscal stimulus programme announced so far, the main thrust of the policies is to maintain employment – via direct subsidy on payroll – to encourage employers not to retrench. I am done shouting my voice hoarse at the Economic Action Council to act fast and decisively to save our biggest employers, the SMEs, and to encourage a continuous employment for our workforce.
If the government is broke and cannot afford a direct subsidy, then help the SMEs reduce their cashflow that is necessary to maintain their continuous operations. For just six months, suspend all EPF payments, all Inland Revenue Board prepayments (which is based on past year profits), sales and service tax, taxes by local governments etc. Make sure our SMEs can survive for the next six months.
Our Finance Minister, who is an ex-banker, must surely understand the systemic risk to our financial institutions and our economy should we fail to save the economic backbone of the country. Not to mention the human sufferings when mass unemployment occurs.
To our Finance Minister and the Economic Action Council, search your conscience.