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Director vs Workman – Flowchart

Director vs Workman: The Federal Court’s RM2 Million Answer

The legal test that turned directors into employees

⚖️ Industrial Relations Act 1967

In 2019, two founding shareholders and directors were ousted by a majority‑led EGM. The company insisted they were never employees. After a five‑year legal battle that reached the highest court in the land, the Federal Court disagreed. The flowchart below traces the legal test that turned directors into “workmen” — and what it means for companies, directors, and employment lawyers.

The Core Question

Is a director also a “workman” under section 2 of the Industrial Relations Act 1967?

The Court of Appeal said the answer depends on whether a contract of service exists — not on the person’s title.

Old Rule — Rejected

Inchcape rule

Directors are the “directing mind and will” of the company and can never be employees. (Expressly overruled)

New Test — Applied

Contract of service test

A director‑employee relationship exists where the company exercises control, pays wages for services rendered, and a genuine employment contract (written, oral, or implied) is in place. (Gopala Krishnan; Hoh Kiang Ngan; Salomon)

Evidence Considered

Factors that indicated Woon & Chang were employees

  • Monthly salary (not director’s fees)
  • EPF & SOCSO contributions
  • EA tax forms classified as “SG” (salary)
  • Listed in the company’s Register of Employees
  • Defined operational roles (Technical Director / Project Director)
  • Reported to the Board of Directors

Also relevant: the company’s argument that a pending minority oppression action barred the employment claim was rejected — the two actions can coexist.

Conclusion

Woon & Chang were “workmen”

The Industrial Court had jurisdiction. Their dismissal was without just cause or excuse. Compensation was awarded.

Case Timeline

From Industrial Court to Federal Court

  1. Industrial Court – Not a workman → claim dismissed
  2. High Court – Upheld; judicial review dismissed
  3. Court of Appeal – Allowed Woon & Chang’s appeals; quashed the Industrial Court’s dismissal and set aside the High Court’s order; awarded ~RM2 million
  4. Federal Court – Dismissed the company’s appeal; affirmed the Court of Appeal’s decision (the ~RM2 million award stood)

Download this flowchart as a PDF →

© Justiciable. For general information and educational purposes only—not legal advice.

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