THE UPDATE SCOOP (#16/2024)

Executive Director MAY be an Employee falling within IRA 1967  │  Employment / Company Law

 

By TAY & HELEN WONG – December 9, 2024

 

Can an executive director of a company be considered as being engaged as employee of the company and so qualify as a “workman” under the Industrial Relations Act 1967 (IRA) ? This question arose before the Court of Appeal (COA) in Woon Kim Choy v Acexide Technology Sdn Bhd & Anor[i]. The applicant was a shareholder (minority, at 10%) as well as a director of the Company. He also assumed the post of Technical Director. An EGM was convened to remove him as a director of the Company and the resolution was carried. The applicant then filed an action for minority oppression against the major shareholder and also a complaint under s.20 of IRA for unlawful dismissal.

 

Both the Industrial Court and High Court ruled in favour of the Company. On appeal, the COA set aside the decisions and held for the applicant. In the appellate court’s view, a person can exercise his role as an executive director of the company and at the same time have a contract of employment with the company[ii]. It is a matter of contractual arrangement. The lack of written contract does not mean an oral contract of employment cannot subsist.

 

In the instant case, the applicant’s name was listed in the “Register of Employees” of the Company from inception of its business. In its accounting documents, his remuneration was recorded as “salaries” under the heading “staff costs” rather than as “fees” of directors. As Technical Director, the applicant had specific roles to discharge including onsite monitoring of project works and resolving technical issues that arose during the construction of the projects. EPF Statements showed that the contributions were based on a percentage of the salaries for the employer and a percentage for the employee. Such arrangement was only applicable to an employer-employee relationship. There was also contribution to the Employees’ Social Security Act 1969 (SOCSO) which was only for insured employees who were engaged under a contract of service with the Company. There was also a monthly deduction of income tax (PCB) where the EA Forms were submitted to the LHDN. Such would not be the case for directors who were not under a contract of employment for they would be earning directors’ fees for their service as non-executive directors.

 

The reliefs claimed in a minority oppression action by the applicant as shareholder of the Company did not preclude his claim for compensation in lieu of reinstatement for unlawful dismissal as employee. There was no correlation between the minority action under the Companies Act 2016 and the relief on compensation following an unlawful dismissal claim under the IRA.

 

The applicant was therefore a “workman” within the meaning of the IRA. Since the Company relied solely on the defence that the applicant was not a “workman” and did not adduce any evidence with respect to misconduct on the part of the applicant, the COA ruled that his dismissal was without just cause or excuse. Compensation in lieu of reinstatement and backwages of a maximum of 24 months were awarded together with interest.

 

Following this decision and Gopala Krishnan as well as the Federal Court case of Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor[iii], the Supreme Court’s decision in Inchcape (M) Holdings Bhd v RB Gray & Anor[iv] which held in absolute terms that a director cannot be a “workman” under the IRA appeared to have been relegated to the past.

 

[i] Court of Appeal Civil Appeal No.: W-01(A)-198-03/2024, published on 3.12.2024; heard and decided together with Chang Heng Keong v Acexide Technology Sdn Bhd & Anor, Court of Appeal Civil Appeal No.: W-01(A)-199-03/2024.

[ii] This decision is on the heels of another Court of Appeal decision in Gopala Krishnan v Sealand Marine [2023] 5 CLJ 917 which held the appellant to be a “workman” of a company even when he was holding multiple hats and despite the absence of a letter of employment.

[iii] [1996] 4 CLJ 687, FC. See also Chong Kim Sang v Melatrade Sdn Bhd [2004] 2 CLJ 439, CA.

[iv] [1985] CLJ (Rep) 132, SC

 

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Tags: [employment] [executive director] [employee] [workman] [EPF] [SOCSO] [PCB]