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The Court of Appeal recently (03.12.2024) released its Grounds of Judgment in Woon Kim Choy v Acexide Technology Sdn Bhd [2024] MLJU 3109. I acted as Counsel for the 2 Appellants and we secured 2 Judgments with a combined value of ~RM2.4m (including interest).
The CA’s decision dealt with several matters. At the forefront would be a consideration as to whether a Company’s directors (as per its Board of Directors) could also be employees.
The facts
Mr Woon and Mr Chang established a company called Acexide Technology Sdn Bhd (Acexide) together with one Mr Lim. This was done in 1996.
Along the way, Lim’s son (Jovi Lim) joined Acexide. Lim and Jovi held 54% of the shares of Acexide, whereas Woon and Chang collectively held 46%.
As a result of this shareholding, Lim and Jovi Lim controlled the appointment/removal of directors.
In addition to their position as directors, Woon and Chang were also employees of the company. The company listed them as its Project Director and Technical Director. They drew salaries, enjoyed EPF contributions from Acexide and in filings with the IRB, Acexide consistently held itself out as their employer.
Lim was also an employee of the company. He was listed as its “Managing Director” and likewise, drew a salary.
Woon and Chang did not have employment contracts.
The removal of Woon and Chang
On 06.11.2019, Lim and Jovi Lim convened an EGM. At this EGM, allegations were levelled against Woon and Chang. They were then removed as directors. Lim specified that “The Company will no longer be paying salaries to CHK and WKC”.
Woon and Chang then initiated an Originating Summons for minority oppression, under S. 346 of the CA 2016. They also filed a complaint for unlawful dismissal as “workmen” of the Company.
Before the Industrial Court and the High Court
At the IC, the Company did not advance any evidence of misconduct. Instead, the Company focussed its attention towards arguing that Woon and Chang were not workmen.
Woon and Chang were unsuccessful before both the Industrial Court and the High Court. Both Courts held that Woon and Chang were not employees as they were purportedly the “directing mind and will” of the Company.
As a result, the IC held that they were not workmen under the Industrial Relations Act.
The HC concurred with the IC. The HC was further minded to consider that Woon and Chang exercised “control” over the Company and were not employees. The HC also considered the minority oppression and held that this proved they were not workmen.
At the Court of Appeal
It was only at the Court of Appeal that the matter was reversed. The CA held that Woon and Chang were conclusively workmen under the Act.
The CA, speaking through Lee JCA, stated that there is nothing incongruous between an executive director and an employed director:
[16] There is nothing incompatible between a person exercising his role as an executive director of the company and at the same time having a contract of employment with the Company. The two positions and their respective roles and responsibilities may co-exist. This is especially so in cases where an employee may have started off in a junior capacity and was promoted, through the years, to the highest position as an employee and at the same time assuming the position of an executive director or managing director of the company.
[18] It is thus not uncommon for a director to have a contract of employment with the company, whereby their removal as a director would mean they cease to hold that position but continue in their designated role as a high-ranking senior employee. Whilst he may be removable as an executive director by current or new shareholders, his status as an employee would remain intact unless he is dismissed on misconduct.
The CA also noted that there were various indicia of employment, none of which had been rebutted by the Company:
[41] For self-employed and business owners, they may contribute towards their own retirement funds under the EPF Act by virtue of the regulation which has a cap of maximum RM5,000.00 per month at the material time. This is an exception rather than the rule. The EPF Statements of both Woon and Chang (See Woon’s appeal record, encl.6, pp.11) show that the contributions were based on a percentage of the salaries for the employer (the Company) and a percentage of the salaries for the employee. Both the employer and the employee contributed their respective portions to the EPF. It is clear that this arrangement is only applicable in an employer-employee relationship.
[43] Again, the Company tried to justify that the contribution for Woon and Chang (See Woon’s appeal record, encl. 7, pp. 8) is a benefit given to its directors but the form prescribed for SOCSO contribution declares the Company to be the employer of the appellants whose contributions are included. Surely, if the Company wants to provide better benefit for its directors, it could have explored other private insurance policies, as usually the claims under SOCSO are much less than usual private insurance policy that is paid by way of premium.
[45] Moreover, there is a monthly deduction of income tax (PCB). It can be seen in the EA Forms submitted to the LHDN, which includes the appellants (See Woon’s appeal record, encl. 7, page 18-23). Such would not be a case for directors who are not under a contract of employment with the Company for they will be earning directors’ fees for their service as non-executive directors. In that case it would not be submission through the EA form under the category of “SG”.
[51] We cannot ignore these three statutory documents which are strong indicia confirming the appellants were employed by the Company under a contract of employment as an employee and such a fact has not been rebutted by the Company on its flimsy excuse of conferring additional benefits to its directors. The fact that Woon and Chang are also directors of the company is not, in the circumstances of this case, in conflict with their roles as employees of the Company. They are no less an employee of the Company and thus qualify as “workman” under the IRA while at the same time discharging their statutory duties as directors who are answerable to the Board.
The CA concludes
The CA then concluded that premised upon the Company’s pleadings, it stood or fell based upon the finding of whether Woon and Chang were “workmen”. The CA then determined that it would not remit the matter for a rehearing but would proceed to order compensation and backwages:
Decision
[65] The Company had pleaded in such a way that it stood or fell based on the defence that the appellants were not a “workman” within the meaning of the IRA and had not adduced evidence in the Industrial Court with respect to misconduct on the part of the appellants.
[66] This Court is of the view that this was not a fit and proper case to be remitted back to the Industrial Court for a rehearing. The Company, in its Statement of Reply (see Woon’s appeal record, encl.6, pp.292) pleaded that Woon and Chang had breached their fiduciary duties, yet no evidence was led to substantiate this allegation. To remit the matter back to the Industrial Court would unfairly afford the Company a second bite at the cherry, particularly when it had chosen to defend the claim on the basis that the Industrial Court lacked jurisdiction by asserting that Woon and Chang were not ‘workmen’.
Key takeaways
From the above, it is clear that directors are able to wear 2 hats. The strongest indicia of employment (even in the absence of an employment contract) would be mandatory statutory deductions.
The Company has moved the Federal Court for leave to appeal. The motion for leave will probably be heard in April 2025 and I will update this article upon the outcome being known.
GAVIN JAYAPAL
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