Malaysia: A director can also be considered a workman for the purpose of filing a claim for dismissal without just cause or excuse

The Malaysian Court of Appeal in Gopala Krishnan Chettiar a/l Muthu v Sealand Marine Inspection and Testing (M) Sdn Bhd 2023] 4 MLJ 445 recently ruled that a director can also be considered a workman if they in fact carry out functions and duties as a workman, enabling them to file a claim for dismissal without just cause or excuse under the Industrial Relations Act 1967 (Act).

Background

The appellant (Appellant) joined the employer company (Company) on 3 November 2016, was appointed to the board of directors and granted 20% of the Company's shares. In March 2018, a series of events led the Appellant to consider himself as constructively dismissed:

• some employees resigned, attributing their departure to undue pressure from the Appellant;
• a meeting was held where serious allegations were made against the Appellant, including offering money for an employee to assault another, physically assaulting an employee to force them to resign, and causing an employee's miscarriage due to work pressure. The Appellant denied these allegations;
• two Company directors presented the Appellant with a pre-written resignation letter to sign;
• the Appellant’s office access card and email were deactivated, and he was removed from work-related WhatsApp groups; and
• the Company informed third parties that the Appellant had been "removed/terminated" from the Company with effect from 12 March 2018.

Section 20(1) of the Act allows workmen to file a representation for reinstatement to the Director General if they believe they were dismissed without just cause or excuse. The Appellant exercised this right. The Industrial Court ruled in his favour, determining that despite his roles as a director and shareholder, he was performing duties as a workman in his capacity as 'operations director'.

The Company sought a judicial review from the High Court, which concluded that the Industrial Court had made a legal error in classifying the Appellant as a workman, and quashed the award. The Appellant appealed to the Court of Appeal.

The Court of Appeal's Decision

The Court of Appeal upheld the appeal and reinstated the Industrial Court's award.

The central issue was whether the Appellant, despite being a director and shareholder of the Company, also qualified as a "workman". Section 2 of the Act defined a "workman" as "any person … employed by an employer under a contract of employment to work for hire or reward…".

Determining whether a claimant was a 'workman' employed under a contract of service (or an independent contractor engaged under a contract for services) was a mixed question of law and fact. This depended on the nature, degree, and extent of control over their duties and functions. The assessment was not limited to contractual terms but also considered the conduct of the parties at all relevant times.

The Court of Appeal considered the following:

• the Appellant did not perform essential duties of a director as outlined in the Company Act 2016, and the Company failed to show that the Appellant was the brain and controlling mind of the Company. For instance, he reported to the Finance Director for financial matters and was not responsible for recruitment, as he never hired any employee;
• the Appellant’s slip dated 25 January 2017 showed that he was paid RM20,000 as ‘director fees’ but the slips dated 27 February 2017 and 28 March 2017 indicated that the RM20,000 was paid as ‘Basic Pay’. The Company could not explain the ‘Basic Pay’ description;
• the Company deducted Employees’ Provident Fund and Social Security Organisation contributions from the RM20,000 paid; and
• the Company's reference to the Appellant being 'removed/terminated' must have implied removal or termination as an employee, as there was no evidence of his removal as a director.

The Court of Appeal concluded that the evidence presented to the Industrial Court clearly showed that the Appellant, although a shareholder and director, was in fact an employee performing executive functions as the director of operations.

Having established that the Appellant was a workman, the next issue was whether the dismissal was indeed without just cause or excuse.

The Court of Appeal agreed with the Industrial Court's finding that the Appellant was not given an adequate opportunity to respond to the allegations. Instead, he was "ambushed" and "cornered" in a meeting where he faced a barrage of allegations and was asked to resign.

The Court of Appeal ultimately determined that the High Court had misdirected itself in overturning the Industrial Court’s factual findings, warranting appellate interference.

Key takeaway

This case underscores the importance of understanding the dual roles an individual may hold within a company. A director, despite their title and shareholding, can also be considered a 'workman' if they perform duties akin to those of an employee. This classification allows them to file a claim for dismissal without just cause or excuse under section 20(1) of the Act.

The case also highlights the necessity for companies to ensure fair and proper procedures when dealing with allegations against employees, including those in directorial positions. Failure to do so may lead to legal repercussions.