High Court clarifies Section 31 of the Employment Act 1955

In Perwaja Steel Sdn Bhd (In Liquidation) v RHB Bank Berhad and 789 Others [2019] 5 AMR 342, the Receiver of the plaintiff sought directions from the High Court pursuant to section 384 of the Companies Act 2016 (‘CA’) on two questions, namely:
  1. Whether, the Receiver in the sale of properties pursuant to a charge (‘charged lands’) which is a place of employment owned by the plaintiff is obliged under section 31 of the Employment Act (‘EA’) to apply any part of the proceeds of sale to pay wages due to former employees of the plaintiff if none of the employees was working on the charged lands at the time of sale thereof by the Receiver (‘1st Question’); and
  1. Whether the maximum amount payable to any former employee of the plaintiff who is eligible to be paid from the sale proceeds of the charged lands is to be limited to wages for four consecutive months work only and whether such payment is to exclude termination and lay-off benefits, annual leave pay, sick leave pay, public holiday pay and maternity allowance (collectively ‘statutory payments’)(‘2nd Question’).
The questions turned on the interpretation to be given to section 31 and the definition of ‘wages’ in section 2(1) of the EA, extracts of which are available here.
The High Court answered the 1st Question in the affirmative. According to Darryl Goon J, section 31 of the EA is a specific provision. It gives priority to employees for payment of their wages and statutory payments out of the proceeds of the sale of their place of employment. This provision gives such employees priority even over a secured creditor’s debt. Section 31, being the specific provision, is to apply over the general provisions of priority of unsecured debts under the CA;
The High Court answered the 2nd Question in the negative. By reason of section 31(2) of the EA, “wages” in the second proviso to section 31(1) of the EA does not include statutory payments.
The effect of the High Court’s decision is as follows –
  1. under paragraph (a) to the second proviso to section 31(1) of the EA, the total amount due to an employee who enjoys priority is limited to four months of wages (excluding statutory payments); and
  1. statutory payments are not subject to the limit imposed under paragraph (a) to the second proviso and there is no limit as to the amount of statutory payments payable to an employee who enjoys priority under section 31(1) of the EA.
In addressing the 1st Question, the learned judge also made the following findings in respect of section 31 of the EA –
  1. the provision applies even if a company had been wound up;
  1. section 31 is not subject to section 392 of the CA; it is therefore immaterial whether the charged lands are secured under a floating charge or a fixed charge; and
  1. section 31(1) does not require an employee to be working at the place of employment at the time when the place is sold; what is required is that the employee to whom wages are due under section 31(1) “was employed or worked at the time when such wages were earned or such money accrued due …”; in other words, the requirements are “when and where the wages in question were earned rather than whether the employee was still working at the place of employment, at the time of its sale.
This decision provides guidance as to how a secured creditor is to deal with wages and statutory payments due to employees under section 31 of the EA when it disposes of a security held over property which is a place of employment.