Malaysian Industrial Court decision overturned by High Court, reinstated by Court of Appeal
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).
The appellant worker joined the employer company on 3 November 2016, and was appointed to the board of directors and granted 20 per cent of the company’s shares.
In March 2018, a series of events led the worker to consider himself as constructively dismissed:
- Some employees resigned, attributing their departure to undue pressure from the worker.
- A meeting was held where serious allegations were made against the worker, 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 worker denied these allegations.
- Two company directors presented the worker with a pre-written resignation letter to sign.
- The worker’s office access card and email were deactivated, and he was removed from work-related WhatsApp groups.
- The company informed third parties that the worker 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 worker 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 worker as a workman, and quashed the award. The worker appealed to the Court of Appeal.
Definition of ‘workman’
The Court of Appeal upheld the appeal and reinstated the Industrial Court’s award.
The central issue was whether the worker, 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 worker 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 worker’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.
- The company’s reference to the worker 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 worker, although a shareholder and director, was in fact an employee performing executive functions as the director of operations.
Having established that the worker 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 worker 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.
Individual can have dual roles
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.
Fatim Jumabhoy is the Asia Head of Employment, Pensions, and Incentives and Managing Partner of Herbert Smith Freehills in Singapore. Nurul Ayu Fajarani is an associate in the Employment, Pensions, and Incentives practice at Herbert Smith Freehills in Singapore. Herbert Smith Freehills LLP provides access to Singapore law advice through its Formal Law Alliance with Prolegis LLC.
