Can a company director be both a decision-maker and an employee at the same time?
The Court of Appeal in Woon Kim Choy v Acexide Technology [2024] MLJU 3109 (“Woon Kim Choy”) has answered this crucial question: Yes, a director can also be an employee if a genuine contract of service exists, even if the contract is verbal or implied.
This decision overturns the older, rigid view that directors are automatically excluded from the definition of “workman” under the Industrial Relations Act 1967 (“IRA”). For employers, it is a reminder that form and title cannot override substance. For directors, it provides legal recognition that their dual role may entitle them to protections ordinarily available to a workman.
Background Facts
The case concerns Acexide Technology Sdn Bhd, a company engaged in fire-lighting, trenchless technology, and transportation services. At incorporation, the company’s promoters, Woon Kim Choy, Chang Heng Keong, and Lim BH, became both shareholders and directors.
On 6.11.2019, Lim BH, acting in his capacity as majority shareholder, convened an Extraordinary General Meeting (“EGM”) which resolved to remove Woon Kim Choy and Chang Heng Keong as directors and to appoint his son in their place
Following their removal, Woon Kim Choy and Chang Heng Keong (“Appellants”) lodged their respective complaints with the Director General of Industrial Relations, alleging unlawful dismissal in their capacity as “workmen”.
The Industrial Court found that the Appellants were not “workmen” within the meaning of the IRA, holding that they constituted the “directing mind and will” of the company and were therefore directors rather than employees.
The High Court upheld this finding, dismissing the judicial review applications and emphasising that statutory deductions such as EPF, SOCSO, and income tax did not conclusively establish an employment relationship.
The Appellants filed their respective appeals to the Court of Appeal to challenge the decision of the High Court.
New Position: Dual Roles Are Legally Possible
In allowing the Appellants’ appeals, the Court of Appeal affirmed that the roles of director and employee are not mutually exclusive. Section 2 of the Industrial Relations Act 1967 defines a “workman” as any person employed under a contract of employment, be it by written, oral, express, or implied.
The Court of Appeal expressly rejected the outdated “Inchcape rule” that directors cannot be employees of their own company (see Inchcape Malaysia Holdings Bhd v RB Gray & Anor [1985] 2 MLJ 297). Instead, it adopted the approach in Gopala Krishnan v. Sealand Marine [2023] 5 CLJ 917, Salomon v A Salomon & Co Ltd [1897] AC 22 and Hoh Kiang Ngan v. Mahkamah Perusahaan Malaysia & Anor [1996] 4 CLJ 68, which recognised that:
- The determining factor is the existence of a contract of service, not the person’s title or shareholding; and
- A director–employee relationship can exist where the company exercises control and pays wages for services rendered.
Therefore, companies and their board of directors should not operate under the assumption that all directors are automatically excluded from employment law protection. In the event a director performs operational duties under supervision, they may still qualify as a “workman”.
Evidence Matters: Substance Over Labels
In Woon Kim Choy, the Court of Appeal examined the totality of documentary and factual evidence in determining whether the Appellants were employees of the company. Some of the key indicators of an employment relationship were:
- The company made EPF and SOCSO contributions on behalf of the Appellants;
- The Appellants’ monthly salary and allowance statements indicated regular wage payments;
- The Appellants were listed in the company’s Register of Employees;
- EA tax forms classified the Appellants under “SG” (salary) rather than “OG” (business income); and
- Payroll slips reflected that the Appellants were paid a “salary” rather than “director’s fees”.
Taken together, these records demonstrated that the Appellants were treated as wage earners, not as independent contractors or passive directors.
Accordingly, employers should ensure consistency across HR, payroll, and tax records. If directors are salaried, the documentation should reflect the true nature of their role. Otherwise, it may be used to support a claim that the director is a workman.
Correct Legal Test: Control and Contract
The Court of Appeal found that both the Industrial Court and the High Court misapplied the legal test by placing too much emphasis on titles and managerial status.
The correct test is not whether a person is called a “director” or has managerial functions, but whether they serve under a contract of service. In particular, the court ought to determine whether the company exercises a degree of control and supervision over its work.
In this case, the court found that the directors performed defined roles, received fixed remuneration, and were integrated into the company’s structure. These factors collectively pointed to an employment relationship.
Therefore, employers should differentiate between board-level decision-makers (who set policy) and executive directors or managers (who execute it). Clear documentation of job scope, reporting lines, and authority will help prevent misclassification disputes.
The Bigger Picture: A Shift Towards Substance and Fairness
The Woon Kim Choy case signals the court’s commitment to a substance-over-form approach in the context of industrial relations. The Court of Appeal’s willingness to recognise implied employment relationships reflects a broader trend towards protecting individuals who perform employee-like functions, even if they carry corporate titles.
The Court of Appeal in Woon Kim Choy reaffirms a crucial principle:
“A director can also be an employee – if there exists a real contract of service.”
This case should prompt both employers and directors to review their contractual and governance structures. A written employment contract, consistent records, and clarity of roles are the best safeguards against costly misclassification disputes.
By Kirthika Padmanapan and Zoey Lee
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
