Case Background & Strategy

A director who is removed from office can claim unfair dismissal in the Industrial Court only if they are a ‘workman’ under section 2 of the Industrial Relations Act 1967 — that is, employed under a contract of employment. Malaysian courts look past labels to the reality of the relationship: an executive director serving under a contract of service can be a workman, while a pure office-holder or controlling director generally cannot.

Office versus employment

Directorship is an office; employment is a contract. The two can coexist in one person, which is why the analysis is functional: Did the director receive a salary with statutory deductions (EPF, SOCSO)? Were they subject to the control and direction of the board? Did they perform day-to-day executive functions distinct from board duties? A managing director on a service contract usually qualifies; a non-executive nominee collecting fees does not.

The controlling-director problem

Where the director is also the controlling shareholder — effectively their own employer — courts are slow to find a contract of service. Control, capital contribution, ability to hire and dismiss themselves, and how they characterised their own income all feed into the assessment.

Strategy for both sides

For companies: removing a director-employee requires running both tracks properly — the corporate removal under the CA 2016 and a fair, due-process termination of the employment. For departing directors: a section 20 IRA representation must be filed within 60 days of dismissal, so the characterisation question has to be confronted immediately, alongside civil claims for the service contract and any oppression remedy as shareholder.

Frequently asked questions

Can a director pursue both Industrial Court and civil claims?

The forums address different rights — reinstatement/compensation as workman versus contractual and shareholder remedies — and election and overlap issues must be managed carefully.

What compensation can the Industrial Court award?

Typically back wages (capped) and compensation in lieu of reinstatement, calculated by reference to salary and length of service.

How Messrs Ng, Zainurul, Seke & Khoo can help: our corporate and commercial litigation team advises boards, directors and shareholders across Malaysia on governance disputes, from advisory and board-level strategy through to trial. Contact us for a consultation.