Being a Director Does Not Cancel Your Employee Rights: The Federal Court Confirms It

About this guide: This explainer uses an incident reported on 2026-06-24 as a starting point. The legal rules below are general; they do not decide anyone's guilt, liability or individual case.

What happened

Acexide Technology Sdn Bhd was set up in late 1996. Two of the men who helped start it, Woon Kim Choy and Chang Heng Keong, became shareholders and directors — Woon as technical director, Chang as project director. In November 2019, a fellow promoter with majority shareholding called an extraordinary general meeting and had both of them removed as directors. That much is straightforward company procedure. What followed was not.

Both men filed representations for unfair dismissal under section 20 of the Industrial Relations Act 1967. The first two rounds went badly: the Industrial Court dismissed their claims, and the High Court did not disturb that outcome. The core objection was jurisdictional — the argument that people who sat on the board as directors were not 'workmen', so the Industrial Court had no business hearing them at all. In 2024 the Court of Appeal reversed course, holding that the two were indeed workmen within the meaning of the Act, that the Industrial Court had jurisdiction, and awarding compensation in lieu of reinstatement — reported as RM893,000 to Woon and RM1.15 million to Chang, with interest at 8% a year running from 9 August 2022 until full payment.

On 24 June 2026 a three-member Federal Court bench of Justices Vazeer Alam Mydin Meera, Ahmad Terriruddin Mohd Salleh and Mohd Nazlan Mohd Ghazali dismissed the company's appeals and ordered RM150,000 in costs. Justice Mohd Nazlan confirmed that although the two were directors, they were nevertheless workmen under the Act and had been dismissed without just cause or excuse. The case resurfaced in business reporting on 3 August 2026.

Why does a boardroom fight in a Selangor engineering company matter to anyone else? Because an enormous number of Malaysians sit in exactly this grey zone. A family business, a small SME, a startup where three friends made themselves directors — a title on a Companies Commission form, a salary in the bank, EPF quietly going in every month, and nobody ever wrote down which relationship was which.

The legal insight: what law applies

Start with the word the whole case turned on. Under section 2 of the Industrial Relations Act 1967, a 'workman' is broadly any person employed by an employer under a contract of employment. Notice what is absent: there is no seniority cut-off, no salary ceiling, no exclusion for people with grand titles. The Act protects the general manager the same way it protects the storekeeper.

The second idea is what practitioners call wearing two hats. Being a director is an office under the Companies Act 2016 — a position you are appointed to and can be voted out of by shareholders. Being an employee is a contract of service between you and the company. They are different legal relationships, and the Federal Court's ruling reinforces that removing someone from the first does not automatically terminate the second. If a company wants to end both, it has to end both, properly and separately.

So how does a court tell a real employee from someone who merely holds a title? Not by one magic factor. The inquiry is holistic and fact-specific: whether there was a contract of employment, written or oral; whether a regular salary and allowances were paid; whether EPF and SOCSO contributions were made; whether income tax was deducted through payroll; whether the person appeared in the company's employee records; what executive duties they actually performed day to day; and the overall conduct of the parties. One argument that did not save the employer is worth remembering — the claim that a senior person cannot be an employee because nobody supervises them closely. Executive directors still answer to the board as a collective body, and autonomy at work is not the same thing as being outside employment.

The procedure matters as much as the principle. Section 20 lets a worker who believes they were dismissed without just cause or excuse make a written representation to the Director General of Industrial Relations. The Industrial Relations Department (JPPM) states this must be filed within sixty days of the dismissal, or during the notice period, online through the IRIS system or at the nearest JPPM office. What happens next is conciliation. If it settles, a memorandum of agreement is signed and the file closes; if the Director General sees no likelihood of settlement, the case is referred to the Industrial Court, whose award binds both sides. One quirk surprises people: at the JPPM conciliation stage, advocates and solicitors do not appear for the parties. You can still take legal advice privately; your lawyer simply does not sit at that table.

On remedies, the Industrial Court's primary remedy is reinstatement, but where that is unrealistic it awards compensation in lieu of reinstatement instead. Backwages are not open-ended. The factors in the Act's Second Schedule, now reflected in section 30(6A), limit backwages to a maximum of 24 months' last-drawn salary for a confirmed employee, and 12 months for a probationer. The compensation-in-lieu component is calculated separately.

It is equally important to see what this case does not decide. It does not hold that every director is an employee. It does not merge a shareholder dispute with an unfair dismissal claim — minority oppression proceedings under the Companies Act 2016 run on a completely separate track, in a different forum, with different remedies. And it does not fix a value for anyone else's claim.

How does this impact me?

If you are a 'director' mainly on paper — your uncle's construction company, a friend's Sdn Bhd where you were added to make up the numbers — this case cuts both ways. It does not automatically make you an employee. But if you genuinely work there for a salary, with EPF and SOCSO going in and PCB deducted, the fact that your name sits on the Form 49 does not push you outside the Industrial Relations Act.

Suppose you co-founded a company with two friends. Relations sour, they hold the majority, and they call an EGM to remove you from the board. You get an email saying you are 'no longer a director', your access card stops working, and salary stops. Legally, those are two different events. Ask in writing whether your employment has also been terminated, and on what date. That date is what starts the sixty-day clock, and you cannot afford to be vague about it.

If you run a small company, the mirror image applies. Passing a resolution at an EGM disposes of the directorship, nothing more. If the person was also drawing a salary as an employee, ending that relationship needs its own grounds, a fair procedure and a documented decision. Treating a board removal as though it also fires the employee is precisely how companies end up paying compensation years later — here the removal happened in November 2019 and the final word came in June 2026, more than six years across four levels of decision-making, with costs at every stage.

What this incident teaches us

The broad lesson is that in Malaysian employment law, documents and conduct outrank titles. 'Director', 'partner', 'consultant', 'associate' — none of these labels decide anything by themselves. Look instead at your payslips, your EPF and SOCSO statements, your EA form, your appointment letter and what you actually do all day, because that is the evidence a court will weigh. Almost all of it is created long before any dispute, which is why a vague working arrangement is a problem to fix while relations are still good.

A common misunderstanding worth correcting: many people assume that once you are removed as a director, nothing is left but a shareholder dispute. This case shows the employment claim can survive the boardroom vote entirely intact — and it is governed by its own short deadline, which does not wait for the corporate fight to finish.

The opposite mistake is also common. Some readers will take this as a promise that any ousted director gets paid. It is not. The Federal Court applied a fact-sensitive test to a specific record, and other claimants have failed on that same test where there was no salary, no statutory contributions, no employee records and no real executive duties. The result reflects the evidence in this file, not a general entitlement.

The verdict

The Federal Court's decision on 24 June 2026 settles a point that has quietly troubled a lot of Malaysian SMEs: holding the office of director does not, by itself, put you outside the Industrial Relations Act 1967. Whether you are a workman turns on whether a genuine contract of service existed, judged across the whole picture. If you think you have been dismissed, the sixty-day window under section 20 is the deadline that matters most — and it does not pause while you argue about your shares.

What can I do if this happens to me?

• Fix the date first. Ask your employer in writing whether your employment has been terminated, and from which date — being removed as a director is not the same act. The sixty-day filing window under section 20 runs from the dismissal date, so guessing is dangerous.
• Preserve your evidence now: appointment or employment letter, payslips, bank credits, EPF and SOCSO statements, EA forms, board and EGM minutes, the removal notice, emails showing your duties, and attendance records. Save copies outside company systems before your access is cut.
• File the representation through the Industrial Relations Department (JPPM), online via the IRIS system or at the nearest office — check the current procedure on the official portal at jpp.mohr.gov.my rather than relying on forwarded messages.
• Expect conciliation before anything else. Advocates and solicitors do not represent parties at the JPPM conciliation stage, so prepare your own clear timeline and documents. You can still consult a lawyer privately in the background.
• Do not sign a resignation letter, mutual separation agreement or release under pressure while you are still working out your position. Once signed, these are very hard to unwind, and they can affect whether there was a 'dismissal' at all.