The Federal Court’s decision in Acexide Technology Sdn Bhd v Chang Heng Keong answers a practical question for founders and private companies: can one person be both a director and an employee of the same company? The short answer is yes. However, the two roles are legally distinct and must be treated separately, particularly when the relationship ends.
A Company Built by Three Founders
Acexide Technology Sdn Bhd was founded by Mr Lim, Mr Woon and Mr Chang. Each was a shareholder and a director. They received monthly salaries, had EPF and SOCSO contributions made on their behalf, and were listed in the company’s register of employees.
In November 2019, Mr Lim and his son, who together held a majority of the company’s shares, convened an extraordinary general meeting (EGM). Resolutions were passed to remove Mr Woon and Mr Chang as directors. The minutes also recorded that they would be discharged from all duties and would no longer receive salaries. They subsequently brought unfair-dismissal claims under the Industrial Relations Act 1967.
The Industrial Court held that they were not “workmen” under the Act, and the High Court upheld that decision. The Court of Appeal reversed those findings, held that they were employees who had been dismissed without just cause or excuse. The company then appealed to the Federal Court.
Issues Before the Federal Court
The appeals raised 11 questions of law. However, the Federal Court’s decision can be distilled into 3 practical questions:-
- 1. Can a director also be an employee of the same company?
Yes. The Federal Court distinguished between the office of director and the person who holds that office. A directorship is not itself employment. However, the same individual may separately serve as a director under company law and as an employee under a contract of employment. The absence of a written contract was not decisive because an employment relationship may be oral, express or implied and may be inferred from the parties’ conduct.
- 2. How does the Court determine whether a director is also an employee?
The Court looks at the relationship as a whole rather than relying on a person’s title. In this case, Mr Woon and Mr Chang received payments recorded as salaries rather than directors’ fees; they appeared in the employee register; EPF, SOCSO and monthly tax deductions were made for them; their EA forms treated their income as salary; and the company’s audited accounts recorded the payments under staff costs and employee benefits.
No single factor was conclusive. Taken together, however, the evidence strongly supported employment. They were also answerable to the board as a whole, which satisfied the element of control or subordination. Having consistently represented them as employees for statutory, payroll and accounting purposes, the company could not conveniently deny that relationship when a dispute arose.
- 3. Does removing someone as a director also terminate that person’s employment?
No. Removing a person as a director under the Companies Act 2016 and terminating that person’s employment are separate legal acts. A valid shareholders’ resolution ending the directorship does not, by itself, terminate the employment relationship.
The EGM minutes did more than remove Mr Woon and Mr Chang as directors: they discharged the two men from all duties and stopped their salaries. The company had therefore ended both relationships. As it produced no evidence proving the alleged misconduct, their dismissal as employees was without just cause or excuse.
What This Means in Practice
The decision carries 3 practical lessons for business owners and private companies:-
- 1. How a company treats its directors matters. EPF and SOCSO contributions, salary records, tax forms and inclusion in the employee register are not mere administrative formalities. They may provide strong evidence that a director is also an employee considered together.
- 2. Directorship and employment must be dealt with separately. A valid resolution removing a director does not, by itself, terminate that person’s employment. If the company also dismisses the person as an employee, the dismissal must be supported by just cause or excuse. Where misconduct is alleged, the company must be able to prove it.
- 3. Companies should not defend an industrial relations claim solely on the basis that the claimant is not a “workman”. If that argument fails, the company may be left without evidence showing that the dismissal was justified.
A Clear Warning for Founders and Shareholders
Founders in private companies often hold several roles at once. Removing an individual as a director under the CA 2016 does not, by itself, extinguish the rights arising from that individual’s employment. This decision therefore serves as a clear reminder that companies must examine the substance of the relationship and follow the proper process when bringing each role to an end.
Disclaimer: This article is for general information only and does not constitute legal advice or legal opinion. It should not be relied upon as a substitute for specific legal advice. No person should act (or refrain from acting) based on this article without obtaining advice on the specific facts and circumstances. Halim Hong & Quek does not accept responsibility or liability for any loss or damage arising from reliance on this article. Halim Hong & Quek reserves the right to update, amend or withdraw this article at any time. All rights reserved.
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About the authors
Lum Man Chan
Partner
Dispute Resolution
Halim Hong & Quek
manchan@hhq.com.my
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Esther Lee Zhi Qian
Associate
Dispute Resolution
Halim Hong & Quek
esther.lee@hhq.com.my
