In the corporate world, the lines between ownership, governance, and employment often blur, particularly in private limited companies where promoters act as both shareholders and directors. A pivotal question frequently arises in industrial disputes: can an individual who sits on the Board of Directors also be considered a “workman” entitled to protection under the Industrial Relations Act 1967 (IRA)?
The Federal Court recently addressed this “recurring question” in the case of Acexide Technology Sdn Bhd & Anor v. Chang Heng Keong & Another Appeal [2026] 5 MLRA 455 FC, providing definitive clarity on the legal status of “working directors”.
The “Two Hats” Principle
The Federal Court affirmed that it is now “settled law” that holding a directorship does not automatically disqualify an individual from being an employee. The court utilized the analogy of “wearing two hats” to describe this dual capacity:
“A person can wear two hats — one as a Director, in the sense of being a member of the company’s Board of Directors, and another, as an employee of the same company, at the same time.”
However, the court emphasized a critical legal distinction: the status of “workman” does not flow from the office of director itself but from a separate contract of service. The court noted:
“Legally, a Director is not an employee, and vice versa… these two legal concepts — Director and employee/workman are mutually exclusive… It is the individual — not the position of Director — who can double-hat and perform both roles.”
Identifying the Employment Relationship
Because the two roles are governed by different sets of laws — the Companies Act 2016 for directors and the IRA 1967for workmen — courts must look at the “factual matrix” of each case to see if a genuine employment relationship exists.
Even in the absence of a written contract, an oral or implied agreement can suffice under Section 2 of the IRA. In the Acexide case, the court found the following “indicia of employment” to be conclusive:
- The inclusion of names in the company’s Register of Employees.
- Functional titles such as “Technical Director” or “Project Director”.
- Payment of remuneration labeled as “salary” rather than “directors’ fees”.
- Statutory contributions to the EPF, SOCSO, and monthly income tax deductions (PCB).
The court warned that companies cannot represent individuals as employees to statutory authorities for tax benefits while denying that status to avoid industrial relations claims:
“The appellant could not, by making those contributions and deductions, represent to the relevant statutory authorities that the respondents were its employees, but now conveniently denied the same for the purpose of the IRA.”
The Modern “Control Test”
A common argument against directors being workmen is the alleged lack of a superior-subordinate relationship, especially when the director is a majority shareholder. The appellant in Acexide argued that as “equal decision makers,” the directors reported to no one. The Federal Court rejected this, stating:
“There can never be an absence of a supervising or controlling authority… As individual board members… they each report to the entire board.”
For senior executives, the court noted that the traditional “control test” (such as clocking in) has evolved into mutual accountability:
“The degree of control test is rather archaic where professionals and technical staff are concerned especially when they are very senior… Control and clocking-in is replaced by mutual accountability and accountability to the Board of Directors in its overall objective of growing the company.”
Termination vs. Removal
Finally, the court clarified that the processes for ending these two roles are distinct. A director may be removed by a shareholder resolution under Section 206 of the Companies Act 2016, but this does not automatically end their employment.
If the company wishes to terminate the individual as a workman, it must demonstrate “just cause and excuse,” typically involving evidence of misconduct. In the Acexide case, the court found that the EGM minutes explicitly “discharged [the directors] of all their duties” and stopped their “salaries,” which constituted a simultaneous dismissal from employment without the required justification.
Conclusion
For businesses and senior executives, the Acexide decision serves as a reminder that the corporate veil does not shield a company from industrial relations obligations if a director also functions as a salaried employee. As the Federal Court noted:
“The fact that these roles coalesce in a person does not warrant a conflation of what must remain conceptually and functionally distinct and separate… the dismissal or cessation of one role, such as an individual’s Directorship, does not automatically affect or extinguish the rights and responsibilities attached to his other roles.”
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified Advocate & Solicitor for your specific legal needs.
