Introduction
The recent decision of the Federal Court (Malaysia’s highest court) in the case of Acexide Technology Sdn Bhd & Anor v Chang Heng Keong & Another Appeal [2026] CLJU 2221 has reaffirmed the principle that being a company director does not preclude a person from concurrently being an employee of the company (and consequently, being able to make a claim for unlawful dismissal), even when there is no written employment contract.
Facts
Primarily engaged in the business of installing and maintaining fire-lighting systems, trenchless technology, and transportation, the appellant Company was incorporated in 1996. Each of the three promoters (Lim, Chang, and Woon) became a shareholder and a director of the Company. At the material time, the two respondents (Chang and Woon) were directors of the appellant Company and held 36% and 10% of the shareholding, respectively, with the remaining 54% held by the other director (Lim) and his son.
At the behest of Lim, an extraordinary general meeting (“EGM“) of the Company was convened, where Lim, by virtue of his majority shareholding held with his son, passed resolutions to remove the two respondents as directors. The two respondents first moved to initiate a minority oppression action against Lim and his son, but at the same time, also filed a reference with the Director General of Industrial Relations under section 20 of the Industrial Relations Act 1967 (“IRA“) alleging unlawful dismissal as “workmen” by the appellant Company.
Rulings of the Industrial Court , High Court and Court of Appeal
After hearing evidence, the Industrial Court ruled that the respondents did not fall within the definition of a “workman” under the IRA (and thus could not claim to be unlawfully dismissed), finding that individuals who were the directing mind and will of a company, such as directors, do not qualify as employees. The respondents’ application for judicial review to the High Court was similarly unsuccessful.
The Court of Appeal, however, overturned the decisions of the lower courts, holding that the respondents were indeed employees, and the fact that there was no written contract of employment did not mean that an oral contract of employment could not subsist between the Company and each of them.
Ruling of the Federal Court
The Federal Court, having granted leave to the Company to appeal against the decision of the Court of Appeal, ultimately upheld the Court of Appeal’s decision.
In upholding the decision of the Court of Appeal, which determined that the respondents were employees of the Company, the Federal Court relied on the conduct of the parties, including the fact that:
- The Company had made statutory contributions in respect of the Employees’ Provident Fund (EPF) and Social Security Organisation (SOCSO) on behalf of the respondents.
- The respondents’ monthly salary and allowance statements indicated regular wage payments.
- The respondents were listed in the Company’s register of employees, as project director and technical director, respectively.
- The relevant EA tax forms (the employees’ annual remuneration statement) classified the respondents under the label “SG” (salary) rather than “OG” (business income).
- The relevant payroll slips recorded that the respondents were paid a salary instead of director’s fees.
In reply to the Company’s argument that the statutory concept of a “workman” is predicated upon a contract of employment in which the employee is answerable to a superior employing authority (and that as directors of the Company, the respondents were not subject to any supervision and/or a superior-subordinate relationship), the Federal Court held that:
- As the respondents held the functional titles of project and technical director, respectively, they must have reported to either the managing director or the board of directors as a whole. The fact that the respondents were themselves members of the board was irrelevant.
- By being answerable to the board of directors as a whole, the respondents were subject to the superior-subordinate/employer-employee relationship, thus fulfilling the definition of a workman under the IRA.
As to the Company’s argument that there was no evidence of the respondents’ dismissal as employees, the Federal Court found this to be incorrect, since the minutes of the said EGM which recorded that both the respondents were removed as directors, also stated that they were relieved of all their duties and that the Company would no longer pay “salaries” to the two respondents, underscoring the fact the Company had treated them as its employees.
Concluding Words
This case reaffirms the principle that being a company director does not preclude a person from concurrently being an employee of the company. It also illustrates the need for careful management of legal relationships between companies and their directors, and the necessity for recording agreements and employment arrangements in writing. This also serves as a reminder that the applicability of statutory protections in employment law is typically determined by substance, not form.
If you have any queries on the above, please reach out to our team set out on this page. For regional employment matters, please see Rajah & Tann Asia’s Employment Practice for more information.
Contribution Note
Written by Partner Sivaram Prasad of Christopher & Lee Ong.
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