Directors Can Also Be Employees: Federal Court Settles the "Double Hatting" Question

A case study – the Federal Court’s decision in Acexide Technology Sdn Bhd & Anor v. Chang Heng Keong / Woon Kim Choy [2026] CLJU 2221

What Happened

Acexide Technology Sdn Bhd was founded in 1996 by three shareholder-directors: the majority shareholder and managing director (54% with his son), the technical director (10%) and the project director (36%). All three worked in the business day-to-day.

In 2019, the majority shareholder and managing director used his majority shareholding to remove the two respondents as directors at an EGM. The minutes recorded they were “discharged of all their duties” and the company would stop paying their “salaries” — they would keep only their dividend rights as shareholders.

The two director-employees did not challenge their removal as directors, but filed unfair dismissal claims under section 20 of the Industrial Relations Act 1967 (“IRA 1967”), arguing they were also employees. The Industrial Court and High Court both held they were not “workmen” because, as the “directing mind and will” of the company, they answered to no one. The Court of Appeal reversed. The company appealed to the Federal Court.

What the Court Decided

The Federal Court unanimously dismissed the appeal and held:

"Double hatting" is real. A person can simultaneously be a company director (governed by the Companies Act 2016) and an employee/workman (governed by a contract of service and the IRA 1967). These are distinct legal roles. Removing someone as a director does not automatically end their separate employment.

No need for a single "boss." The argument that co-equal directors answerable to no single person cannot be workmen was rejected. Directors and executive employees are each accountable to the board as a whole — that satisfies the superior-subordinate relationship.

No written contract needed. The IRA 1967 recognises oral and implied contracts. Here, an implied employment relationship was established by: EPF and SOCSO contributions, EA Forms classifying income as salary, inclusion in the register of employees, and financial statements describing payments as "salaries" under staff costs rather than board-approved director's fees.

Removal as director is not dismissal as employee — but stripping "all duties" and stopping "salaries" is. The EGM resolution went beyond removing directorships; it also purported to end the respondents' employment. Since no misconduct was ever proved to justify that dismissal, it was without just cause or excuse. Compensation in lieu of reinstatement was upheld.

The Price Tag: Approximately RM1 Million Per Employee

The Court of Appeal’s award, upheld by the Federal Court, applied Practice Note No. 3 of 2019 of the Industrial Court: compensation in lieu of reinstatement at one month’s salary (plus fixed allowance) for each completed year of service, plus back wages (salary plus allowance) capped at 24 months.

Together, the company was liable for combined awards of more than RM2 million in aggregate. This underscores that getting an executive director’s employment status wrong, and failing to prove just cause or excuse for dismissal, is not a technical or abstract legal point — it is an extremely costly exercise for a corporate employer.

The Federal Court also rejected the employer’s argument that back wages should have been reduced for post-dismissal mitigation earnings or contributory misconduct. The employer never adduced any evidence to support either deduction, and both individuals gave unrebutted evidence that they remained unemployed after their removal. This reinforces that an employer bears the burden of proof on those deductions and cannot rely on generic assertions to reduce what is owed.

Why It Matters to Employers

1. Removing a director does not end employment. If a director also has an employment relationship (even an unwritten one), the company must separately follow fair dismissal procedure — show cause, proper grounds, just cause or excuse — or risk an unfair dismissal claim under the IRA 1967.
2. "Equal" directors are not immune. Companies cannot assume that senior shareholder-directors fall outside employment law merely because no single person visibly supervises them. Accountability to the board as a whole is enough.
3. Your own records will be used against you. How a company treats someone in practice — EPF/SOCSO contributions, EA Form classification, payroll records, and how payments are described in financial statements (as "salary" versus board-approved "director's fees") — is strong evidence of whether an employment relationship exists. Inconsistent documentation is a real risk.
4. Structure non-executive roles correctly from the start. If certain directors are genuinely intended to be fee-only with no employment relationship, their remuneration must be structured as properly approved director's fees (not "salary" through payroll), and statutory filings must consistently reflect this.
5. If you intend to end both roles, justify the dismissal separately. A company that wants to remove a working director and end their employment must have just cause or excuse for the employment dismissal, independently of the validity of the boardroom removal.

This article is for general informational purposes only and does not constitute legal advice.