Summary
The Federal Court recently decided whether company directors can claim unfair dismissal as workmen under the IRA 1967 in Acexide Technology v Chang Heng Keong and Anor [2026].
Introduction – The Sacking
On the morning of 6 November 2019, two men who had helped build a company from nothing were told, in the span of a single shareholders’ meeting, that they were no longer wanted. Not only were they stripped of their board seats; the chairman made it plain that their salaries would cease immediately. For Woon Kim Choy and Chang Heng Keong, the question that followed was deceptively simple: were they merely directors who had lost a vote, or were they also employees who had been unlawfully sacked?
The Facts
These passages reconstruct the atmosphere and context based on the facts recorded in the judgment.
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In 1996, three promoters came together to incorporate Acexide Technology Sdn Bhd, a company specialising in fire-fighting systems, trenchless technology, and transportation. Lim BH, Woon Kim Choy, and Chang Heng Keong each became shareholders and directors on incorporation. It was the classic Malaysian SME origin story: technical skill, pooled capital, and shared ambition. Company documents assigned them functional titles—Lim as Managing Director, Woon as Technical Director, and Chang as Project Director. For more than two decades, they drew monthly salaries, received allowances, and saw statutory deductions for EPF, SOCSO, and income tax reflected in their payslips. Their names sat in the company’s Register of Employees. Annual financial reports listed them under “Staff Costs” and “Employee Benefits.”
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For years, the three men appear to have operated through mutual understanding, making key decisions together without much formal documentation. There were no detailed employment contracts, no leave application forms, and no clocking-in cards for the two respondents. In a small, founder-led firm, the boundaries between ownership, directorship, and employment often blur into habit rather than paper.
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But by 2019, the relationship had frayed. Lim, together with his son Jovin, controlled 54% of the shares. Woon held 10%, and Chang 36%. On 6 November 2019, Lim convened an Extraordinary General Meeting. By simple majority, resolutions were passed under section 206(1)(a) of the Companies Act 2016 to remove Woon and Chang as directors. Jovin Lim was appointed to the board the same day.
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The respondents did not challenge the validity of their removal as directors. Corporate law allows majority shareholders to remove directors; that much was expected. Yet the EGM minutes recorded something more. When asked when the two men should stop their duties and whether compensation would be paid, the chairman stated that the removal would take immediate effect, that Woon and Chang would be “discharged of all their duties in the Company,” and—crucially—that “the Company will no longer be paying salaries” to them. They were told they would retain only their shareholder rights to dividends.
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It was this final sentence—the cutting off of salaries—that transformed a corporate governance dispute into an industrial relations battle.
Within months, both men filed separate references under section 20 of the Industrial Relations Act 1967 (“IRA 1967”), alleging they had been dismissed as workmen without just cause or excuse. The Industrial Court rejected their claims, holding that as individuals who constituted the “directing mind and will” of the company, they could not simultaneously be employees. The High Court agreed on judicial review. But the Court of Appeal overturned both decisions, finding that the respondents were indeed workmen and awarding compensation in lieu of reinstatement and back-wages. Acexide Technology appealed to the Federal Court, which granted leave on eleven questions of law.
The Arguments of the Parties
For Acexide Technology, the case was fundamentally about legal architecture. The company argued that a director, by definition, is the “directing mind and will” of the company—a proposition drawn from the old Supreme Court decision in Inchcape (M) Holdings Bhd v. RB Gray. How could a man be both master and servant? The appellant contended that Woon and Chang were promoters, shareholders, and co-equal directors who made decisions through mutual agreement. They reported to no one; there was no superior-subordinate relationship, no written employment contract, no fixed working hours, and no attendance records. Without these hallmarks of employment, the appellant submitted, the respondents could not be “workmen” under section 2 of the IRA 1967.
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The company also challenged the Court of Appeal’s procedural approach. It argued that the respondents’ judicial review statements under Order 53 rule 3(2) of the Rules of Court 2012 failed to categorise the alleged errors of law under the recognised heads of judicial review—procedural impropriety, irrationality, illegality, or proportionality. Without proper pleadings, the Court of Appeal lacked jurisdiction to conduct a merits review. Furthermore, the appellant complained that the Court of Appeal had improperly awarded compensation and back-wages under Practice Note No. 3 of 2019 without remitting the matter to the Industrial Court for a full merits hearing on whether the dismissal was justified, and without allowing the company to argue for deductions based on post-dismissal earnings or contributory misconduct.
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For Woon and Chang, the defence was that reality mattered more than titles. They pointed to decades of conduct: EPF and SOCSO contributions made under the Employees Provident Fund Act 1991 and the Employees’ Social Security Act 1969; monthly income tax deductions under the Income Tax Act 1967; EA Forms classifying their income as salary; their inclusion in the Register of Employees; and financial statements categorising their remuneration as “Directors’ salaries” under staff costs. They argued that a person can wear two hats—director under company law and employee under a contract of service. The removal under the Companies Act 2016 might be valid, but the simultaneous termination of their salaries and duties amounted to dismissal as employees, which required just cause or excuse under section 20(3) of the IRA 1967.
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On procedure, the respondents maintained that their Order 53 statements were sufficient, and that the appellant was raising technical objections for the first time at the Federal Court after failing to do so in the courts below.
Authorities and Laws Considered by the Court
Statutes and Subsidiary Legislation
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Industrial Relations Act 1967, ss 2, 20(1), 20(3), 30(6A) and Second Schedule
Section 2 defines “workman” as any person employed under a contract of employment, whether oral or written, express or implied. Sections 20(1) and 20(3) govern references for reinstatement and the standard of “just cause or excuse” for dismissal. The Second Schedule and section 30(6A) guide the calculation of back-wages and compensation, including deductions for post-dismissal earnings and contributory misconduct. -
Companies Act 2016, ss 2, 206(1)(a), 210, 211(1), 212, 230(1), (2) and Third Schedule
These provisions define “director,” govern board proceedings, regulate the removal of directors by ordinary resolution (s 206(1)(a)), and set out how directors’ fees and benefits must be approved (s 230). -
Rules of Court 2012, O 53 rr 1, 3(2), 5 and 7
Order 53 sets out the procedure for judicial review applications, including the requirement for a statement setting out grounds (r 3(2)), the court’s power to award damages (r 5), and the power to amend statements (r 7). -
Employees Provident Fund Act 1991; Employees’ Social Security Act 1969; Income Tax Act 1967
These statutes were examined as contextual evidence of an employment relationship, given the appellant company’s compliance with employer obligations under each.
Case Authorities
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Hoh Kiang Ngan v. Mahkamah Perusahaan Malaysia & Anor [1995] 1 MELR 1; [1995] 2 MLRA 435 (Federal Court)
Established that an employer-employee relationship exists where the company exercises control and pays wages for services. The Federal Court confirmed this test remains applicable and must be assessed holistically. -
Inchcape (M) Holdings Bhd v. RB Gray & Anor [1985] 1 MELR 1 (Supreme Court)
Previously held that directors, as the “directing mind and will” of a company, could not be workmen. The Federal Court in the present case noted this decision was formally overruled in Kathiravelu Ganesan and is no longer good law. -
Kathiravelu Ganesan & Anor v. Kojasa Holdings Bhd [1997] 1 MELR 10; [1997] 1 MLRA 372 (Supreme Court)
Formally overruled Inchcape, clearing the path for the recognition that directors may also be employees. -
Gopala Krishnan Chettiar Muthu v. Sealand Marine Inspection And Testing (M) Sdn Bhd [2022] MLRAU 303 (Court of Appeal)
Affirmed that being a company director does not preclude concurrent employment status. -
Chong Kim Sang v. Metatrade Sdn Bhd [2004] 1 MELR 4; [2004] 1 MLRA 241 (Court of Appeal)
Held that an employee of a company can be appointed a director, and the two roles remain distinct. Also emphasised that EPF contributions are strong indicia of an employment relationship. -
Southern Foundries (1926) Ltd v. Shirlaw [1940] 1 AC 701 (House of Lords)
Established that removal of a director under articles or statute does not override a separate service contract; damages may be claimed for breach of the employment contract. -
R Rama Chandran v. Industrial Court Of Malaysia & Anor [1996] 1 MELR 71; [1996] 1 MLRA 725 (Federal Court)
Set out the principles for judicial review of Industrial Court decisions and confirmed that superior courts may award compensation where a dismissal is found to be without just cause or excuse. -
Perbadanan Pengurusan Sunrise Garden Kondominium v. Sunway City (Penang) Sdn Bhd & Ors [2023] 3 MLRA 44 (Federal Court)
Held that courts retain discretion to consider issues of illegality or legal error even if not previously raised by the parties. -
Sunway University College v. Mahkamah Perusahaan Malaysia & Anor [2019] MLRAU 80 (Court of Appeal)
Cited by the appellant for the proposition that generic averments in an O 53 statement are insufficient; distinguished by the Federal Court on the facts.
The Court’s Decision – Plain English Explanation
The Federal Court unanimously dismissed Acexide Technology’s appeals and affirmed the Court of Appeal’s decision. Its reasoning can be distilled into seven key points.
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First, on judicial review procedure: The Court held that while an Order 53 statement should ideally categorise errors of law under the recognised heads of judicial review (illegality, irrationality, procedural impropriety, proportionality), the respondents’ statements were compliant when read with proper emphasis on substance and form. The statements referred to errors of law and unreasonableness, and the appellant had never raised this objection in the courts below. Non-compliance with Order 53 rule 3(2) does not automatically deprive a court of jurisdiction.
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Second, on the core issue of double-hatting: The Federal Court ruled that a company director can simultaneously be an employee of the same company. The critical distinction is between the position and the person holding it. A director is not, by virtue of the office alone, a workman. But an individual may perform two distinct roles at the same time: one as a director governed by the Companies Act 2016, and another as an employee governed by a contract of service. The status of employee originates from the contract of employment, not from the directorship.
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Third, on the superior-subordinate relationship: The Court rejected the argument that there was no master-servant dynamic. As directors, the respondents reported to the board as a whole. As executive directors (employees), they equally answered to the board. The control test is not obsolete, but for very senior employees, direct “clocking-in” control is replaced by accountability to the board through performance targets, risk management, and strategic deliverables. The existence of an employment relationship must be assessed holistically; no single factor is conclusive.
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Fourth, on the absence of a written contract: Section 2 of the IRA 1967 expressly includes oral and implied contracts of employment. Here, the conduct of the parties fortified the existence of an oral contract. The company listed the respondents in its Register of Employees, paid them monthly salaries and allowances, made EPF and SOCSO contributions, and deducted income tax—treating them as employees for statutory purposes. The Court found that the company could not represent to statutory authorities that the respondents were employees, only to deny that status in industrial relations proceedings.
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Fifth, on removal as director versus dismissal as employee: The Court agreed that removal under section 206(1)(a) of the Companies Act 2016 is, without more, distinct from an unfair dismissal under the IRA 1967. However, the EGM minutes explicitly recorded that the respondents were discharged from all duties and that their salaries would cease. This demonstrated that they were dismissed simultaneously as employees. Since no evidence of misconduct was adduced, their dismissal as employees was without just cause or excuse.
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Sixth, on the Court of Appeal’s power to award relief: The Federal Court held that the Court of Appeal was entitled to order compensation and back-wages without remitting the matter to the Industrial Court. The merits hearing had already taken place; the appellant had simply chosen to defend the case solely on jurisdictional grounds (denying the respondents were workmen) rather than on the merits. To remit the case would unfairly give the company a “second bite at the cherry.”
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Seventh, on back-wages and deductions: The Court found no error in the Court of Appeal’s application of Practice Note No. 3 of 2019. Under the Practice Note and the Second Schedule of the IRA 1967, it is for the employer to prove that an employee failed to mitigate losses or was guilty of contributory misconduct. No such evidence was led. The respondents’ evidence that they remained unemployed went unrebutted.
Significance and Practical Takeaways
For the parties: Woon and Chang secured substantial awards. The Court of Appeal had ordered compensation in lieu of reinstatement for 23 completed years of service and back-wages for 24 months, calculated on their last-drawn salaries plus allowances. For Chang, this meant 23 months at RM24,500 and 24 months at the same rate; for Woon, 23 months and 24 months at RM19,000. More importantly, they secured judicial recognition that their years of service as paid executives were not erased by their status as shareholders and directors.
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For the wider legal and commercial community: The decision is now the leading Federal Court authority on the “double-hatting” issue in Malaysian labour law. It clarifies that Inchcape is dead law and that the modern position recognises the legal separation between corporate office and employment contract. For SME founders, this means that drawing a salary, contributing to EPF and SOCSO, and holding a functional title can create enforceable employment rights even in the absence of a written contract.
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Practical implications for businesses: Companies should review their governance and payroll practices immediately. If directors are intended to be purely non-executive, the company should ensure they are not listed in the Register of Employees, do not receive salaries subject to statutory deductions, and are remunerated only through director fees approved in accordance with section 230 of the Companies Act 2016. Conversely, if executive directors are intended to be employees, companies should document the employment relationship clearly—whether through written contracts, board minutes, or at minimum, consistent payroll treatment—to avoid disputes upon removal.
The judgment also serves as a caution against “having it both ways.” A company that treats individuals as employees for EPF, SOCSO, and tax purposes cannot conveniently deny that status when an industrial dispute arises.
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For practitioners, the case reinforces that objections to Order 53 pleadings must be raised promptly in the lower courts, and that appellate courts will not permit parties to re-litigate merits they deliberately chose not to contest at first instance. It further confirms that the control test has evolved: while not obsolete, it now accommodates mutual accountability and board-level oversight for senior executives rather than requiring direct micromanagement.
Conclusion
The Federal Court’s judgment in Acexide Technology Sdn Bhd & Anor v. Chang Heng Keong & Another Appeal is a reminder that in law, as in business, form must match substance. Titles and share certificates may place a man on the board, but it is the conduct of the parties—salaries paid, statutory contributions made, duties performed—that determines whether he is also an employee entitled to the protection of industrial relations law. For directors and founders navigating the uncertain terrain between ownership and employment, the message is clear: the two hats can be worn, but they must be worn honestly. If you find yourself at a similar crossroads, seeking proper legal advice at the outset can mean the difference between a smooth transition and a costly dispute.
Disclaimer
This article was written to provide educational content. Kindly refer to a qualified legal professional before making any decision. If you are facing a similar situation, please feel free to reach out for a consultation.