Client Alert – Director vs Workman – Federal Court RM2 Million Award

What Happened

On 24 June 2026, the Federal Court unanimously upheld an award of approximately RM2 million to two founding shareholders and directors of Acexide Technology Sdn Bhd, who were found to have been unfairly dismissed. Woon Kim Choy and Chang Heng Keong had been ousted by a majority‑led EGM in 2019. The company maintained they were merely directors and that removing them ended any connection with it. The two men argued they were also employees, and that their removal amounted to dismissal without just cause. The Court of Appeal had earlier allowed their claims, expressly rejecting the old Inchcape rule that directors could never be “workmen” under the Industrial Relations Act 1967. The Federal Court agreed, holding that the men were indeed workmen and had been dismissed without just cause or excuse.

Why It Matters

• A director can also be an employee. The Court of Appeal rejected the outdated Inchcape rule. The correct test is whether a genuine contract of service exists — not the person’s title or board seat. A salaried executive director who performs operational duties and reports to the board is likely a “workman.”
• Documentary evidence is decisive. The courts examined payroll records, EPF and SOCSO contributions, EA tax forms, and the register of employees. If a company treats someone as an employee for tax and statutory purposes, it cannot later deny that status.
• Removal as a director does not terminate employment. A shareholder resolution can strip a board seat, but if an employment contract exists, a separate just cause is needed to end it.
• A jurisdictional defence, if it fails, leaves no backup. The company fought the case solely on the ground that the Industrial Court had no jurisdiction and led no evidence of misconduct. When that defence collapsed, the Court of Appeal refused a rehearing and awarded compensation directly.

What You Should Do Now

1. Review the status of your executive directors. Identify any individuals who hold both board seats and operational roles. Confirm whether they have written employment contracts and whether they are treated as employees for payroll, EPF, and tax purposes.
2. Align HR and payroll records. Ensure that anyone who draws a salary, receives statutory contributions, and is listed as an employee has documentation that accurately reflects the nature of their engagement. Inconsistency can be used against the company.
3. Separate board removal from employment termination. If a director‑employee is removed from the board, do not assume their employment ends automatically. Follow a proper dismissal process with just cause or excuse, or face an unfair dismissal claim.
4. Reassess litigation strategy. If your defence rests entirely on a jurisdictional challenge, ensure you have a fallback. As this case shows, failure to lead evidence on misconduct can be fatal if the jurisdictional argument fails.

→ Need help reviewing director‑employee classifications or drafting compliant contracts?

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