Employment and Human Capital

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.

A case study - Industrial Court Award No. 950 of 2026

What Happened

The Claimant, a Brunei national, was employed by Schlumberger Global Resources Limited ("SGR Ltd"), a Bermuda company, as international mobile staff. His 2018 employment letter with SGR Ltd contained an express clause (Clause 13) making Bermuda law the governing law and the Bermuda courts the exclusive forum for disputes.

On the same day, SGR Ltd seconded him to work in Kuala Lumpur at Dowell Schlumberger (Malaysia) Sdn Bhd ("the Company"). The secondment letter confirmed that the SGR Ltd employment contract remained valid and unchanged. There was no separate Malaysian employment contract. The Company's role was purely administrative: applying for his employment pass and filing EA tax forms. His salary (in USD) was paid by SGR Ltd throughout.

In 2023, following an alleged assault on a colleague during a pre-assignment visit to Abu Dhabi and a separate internal audit uncovering inflated expense claims, SGR Ltd — not the Company — issued a termination letter dismissing him. The claimant then brought an unfair dismissal claim under section 20(3) of the Industrial Relations Act 1967("IRA 1967") against the Malaysian company.

What the Court Decided

After a trial of the matter, the Industrial Court in June 2026 held it had no jurisdiction to hear the claim, and dismissed it without ever reaching the question of whether the dismissal was with just cause or excuse.

Its reasoning:

One contract, one employer. The secondment letter did not exist independently of the SGR Ltd employment letter and had to be read with it. On secondment, an employee remains employed by the original employer unless that contract ends. Only the original employer (SGR Ltd) could dismiss — and did.

Administrative acts do not make you the employer. The Company's role in applying for the employment pass and filing EA Forms was done purely to satisfy local immigration and tax requirements. These administrative acts did not change who the real employer was.

No extra-territorial jurisdiction. The IRA 1967 is a Malaysian statute with only territorial jurisdiction. Because the true employer, SGR Ltd, was a foreign entity not named as a party, and the claimant had contractually submitted to Bermuda's exclusive jurisdiction, the Court could not hear the claim.

Why It Matters to Employers

1. Local admin does not equal local employer. A Malaysian subsidiary that merely handles immigration paperwork and tax filings for a seconded employee will not, by itself, be treated as the employer under the IRA 1967.
2. Governing-law clauses work. A foreign governing-law and exclusive-jurisdiction clause in the home-country employment contract can prevent the Industrial Court from hearing a subsequent dismissal dispute, provided the true foreign employer is not joined as a party.
3. Get your secondment documentation right. Well-drafted secondment letters that clearly preserve the home-country contract as controlling are an effective way to manage where employment disputes can be brought. All documents — the main contract, the assignment letter, payroll records, and immigration filings — should be internally consistent and should not inadvertently suggest the local entity is the employer.
4. Subsidiaries receiving seconded staff should keep their role limited and documented. If the host entity's involvement goes beyond pure administrative facilitation — for example, issuing a local employment contract or paying salary from its own accounts — the outcome could be very different.

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

In a very important and critical change, the First Schedule to the Employment Act 1955 (“EA”) has been amended by way of Ministerial Order on 12 August 2022. The change now means that…

The EA now applies to all

The salary threshold to limit applicability of the EA has been removed. The EA now applies to:

“1. Any person who has entered into a contract of service.”

There are exceptions

However, there are certain provisions that have been carved out from being applicable across the board.

The table below sets out the items that are only applicable to the following (Non-Exempt Employees):

• those who earn a monthly wage of RM4,000 or less per month; or
• those who, regardless of how much they earn, are covered by section 2 of the First Schedule, e.g. employees who are, engaged in or who supervise manual labour; operate or maintain vehicles; engaged to work on Malaysian registered vessels; and domestic employees.

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With these amendments in place slated to be effective from 1 September 2022, alongside the amendments made under the Employment (Amendment) Act 2022, it is certainly critical for employers to take note of the changes and implement policies and procedures to ensure compliance with the requirements of the Act.

Anticipated Changes to the EA

In a previous article, we have touched on the changes that were passed by Parliament earlier this year.

In short, based on the revisions to the First Schedule, employers must be ready to meet the requirements of the EA in areas that include but are not limited to the following:

• maternity leave;
• paternity leave;
• maximum work hours per day/per week (must at least be reflected in the employment contract to be within EA limits even though overtime may not be payable);
• minimum annual leave entitlement;
• minimum sick leave entitlement (with a standalone 60 days leave if hospitalisation is required);
• flexible work arrangements;
• discrimination complaints;
• ensuring conduct does not constitute “forced labour”;
• application to the DGL for approval before hiring foreign employees;
• creating contracts with a 3^rd party if there is an arrangement for the supply of labour to such 3^rd party as a Contractor for Labour; and
• notice to raise awareness on sexual harassment.

Whilst the date for roll out of these changes have been set for 1 September 2022, there still remain areas of uncertainty, such as the types of orders that the Director General of Labour can make in disputes on discrimination, whether there is any test as to when flexible work arrangements ought to be granted or rejected and what circumstances can constitute forced labour.

Certainly a good time for employers to revisit and review their employee handbooks and policies!

If you have any questions or require any additional information, please contact Yong Hon Cheong or the Zaid Ibrahim & Co partner you usually deal with.

On 25 October 2021, the Human Resources Minister, Datuk Seri M. Saravanan, tabled the Employment (Amendment) Bill 2021 (“the Bill”) to amend the Employment Act 1955 (“the Act”). The proposed amendments, among others, are to bring the Act in line with the standards and practices required by the Trans-Pacific Partnership Agreement, the Malaysia-United States Labour Consistency Plan and the International Labour Organisation.

The proposed amendments are long overdue and contains very critical changes to what is considered one of the main employment legislations in Malaysia.

SUMMARY OF KEY CHANGES

A reading of the Bill reveals substantial and much-anticipated changes. A summary of the key changes are as follows:

Prior approval from the Director General of Labour to hire foreign employees

The Bill introduces a new requirement for the prior approval of the Director General of Labour (“DGL”) in order to hire foreign employees. Previously, there was only a requirement to furnish particulars of foreign employees to the DGL.

The employer’s application for approval is subject to the following conditions:

• there is no outstanding matter relating to any decision, order, or directive issued under the Act;
• there is no outstanding matter or case relating to any conviction of offence under the Act and other specified legislation; and
• the employer has not been convicted for any offence under any written law in relation to anti-trafficking in persons and forced labour.

Failure to obtain the prior approval of the DGL can attract a fine not exceeding RM100,000 or to imprisonment for a term not exceeding five years or to both.

The Bill also provides that where a foreign employee has been terminated (either by the employer, expiry of employment pass, or repatriated or deported), the employer has to inform the DGL within 30 days of the termination. Where the foreign employee terminates or absconds, the employer has 14 days from the date of the termination or absence to inform the DGL.

Creation of a new offence of “forced labour”

The Bill aims to create a new offence of “forced labour”. “Forced labour”, as provided in the Bill, is where any employer threatens, deceives, or forces an employee to do any activity, service or work and prevents the employee from leaving before the activity, service or work is done. The offence carries a penalty of a fine up to RM100,000 or to imprisonment for a term not exceeding two years or both.

Extension of DGL’s power to decide on discrimination in employment

A new section, section 69F, aims to introduce another power for the DGL to inquire and decide on any dispute relating to discrimination in employment, and make an order where necessary. Failure to comply with the DGL’s order is an offence and can result in a fine not exceeding RM50,000, and for offences that are continuing, a daily fine of up to RM1,000 for each day the offence continues.

There is however no definition of what constitutes discrimination, or what protected characteristics are in the Bill or the Act, or whether discrimination in employment is actually considered as an offence. The provision simply provides that failure to comply with the DGL’s order is an offence.

Although the new provision allows for the DGL to make an “order”, there is little or no indication of what such an order could be. In contrast, the existing section 69 of the Act (DGL’s power to inquire into complaints) has extensive provisions indicating the sort of orders that can be made by the DGL.

With such wide powers being given to the DGL and little to discuss what may constitute discrimination and what are protected characteristics, there would be inevitable concerns over the opening of floodgates to claims. Based on the Bill, as it is currently, so long as discrimination is raised in a dispute, it would appear that the DGL will need to carry out an inquiry and make an order. This could inevitably involve the DGL making orders relating to matters that would customarily have been in the hands of the management, such as promotions and transfers etc.

While the section on discrimination is certainly welcomed, greater clarity is needed.

Reduction in maximum weekly working hours and enhancement of sick leave

The Bill proposes to reduce the maximum working hours from 48 hours to 45 hours in a week.

Sick leave entitlement is also to be amended by removing the proviso where the aggregate of sick leave inclusive of any period of hospitalisation is 60 days. This will entitle employees to 60 days sick leave if hospitalisation is necessary without touching the employee’s normal sick leave entitlement.

Flexible working arrangements framework

In light of the pandemic and many businesses shifting to flexible work arrangements, the Bill has introduced provisions on a flexible working arrangement framework. An employee may apply to an employer for flexible work arrangements including to vary hours of work, days of work or place of work. An application shall be in writing and in the form and manner as may be determine by the DGL.

The Bill does not oblige the employer to approve all applications and just provides that an employer has 60 days, from the date the application is received, to reject or approve the application. If the application is refused, the ground(s) of refusal must be provided.

Enhancement of maternity leave and introduction of paternity leave

Maternity leave has been extended to 90 days from 60 days, in line with that for civil servants. Where a female employee entitled to maternity leave requests to commence work within the maternity leave period, she has to be certified to be fit to resume work by a registered medical practitioner. Further, exceptions to restriction on termination of pregnant employees has been expanded to include willful breach of a condition of the contract of service, misconduct and closure. Previously, the only permitted exception was closure.

Another welcomed introduction is the inclusion of paternity leave. A male employee is entitled to paid paternity leave for a period of three consecutive days for each confinement. Nonetheless, this is restricted to five confinements irrespective of the number of spouses. The conditions for paid paternity leave are that the married employee:

• has been employed by the same employer for at least 12 months; and
• has notified the employer of the pregnancy at least 30 days from the expected confinement, or as early as possible after the birth.

It is interesting to note that the Bill proposes to delete section 44A, which provides that maternity protection, under Part IX of the Act, applies to all female employees irrespective of their wages. This means that the current protection afforded under the Act, extended to cover those that do not fall under the scope of the Act, i.e. female employees earning more than RM2,000 a month, would be removed.  According to the explanatory statement, the rationale behind the deletion is that it is a consequence of the extension of scope of the Act. However, the proposed removal of Section 44A appears to be incongruent with an extension of scope.

Requirement to exhibit notice on sexual harassment

The Bill introduces a requirement for employers to exhibit conspicuously a notice to raise awareness on sexual harassment (similar to health and safety notices). While this is requirement is a positive one, the Bill leaves it open to the employers to determine what should go into the notice.

A puzzling change is the proposed deletion of section 81G, which allows for sexual harassment complaints to be made by any employee irrespective of their wages. The amendments to the requirements for sexual harassment complaints appear to have taken one step forward and two steps back.

Other amendments

• General amendments to update and change the archaic references of “domestic servants” to “domestic employees”.
• The general penalty for offences has been increased from RM10,000 to RM50,000.
• The penalty for non-compliance of the DGL’s order pursuant to an inquiry by the DGL into any dispute between an employer and employee is to be increased from RM10,000 to RM50,000 with the daily fine for continuing non-compliance increased from RM100 to RM1,000 per day.
• The court can order an employer, who has been convicted for an offence relating to wages, to pay any payment that is due to the employee. Failure to comply, the court can issue a warrant to levy the employer’s property for any payments due.
• The Bill provides provisions for the presumption as to who is an employee and employer in the absence of a written contract of service, relating to any category of employee under the First Schedule.

What to look forward to

At the time of publication the Bill is at the second reading stage at the Dewan Negara (House of Representatives). It remains to be seen how much of these amendments will be eventually passed by Parliament.

Whilst many of these changes are seen as timely, questions are abound based on a reading of the Bill. One such question is whether the provisions relating to maternity (section 44A) and sexual harassment (section 81G) still apply across the board to all employees regardless of wage levels as they have been earmarked for deletion. Both these sections were meant to “open” the scope of the Act to be applicable to all employees rather than to the limited scope of coverage in the First Schedule. Therefore, the proposed deletion of both sections, but no widening of scope in the First Schedule seems to be regressive.

This will certainly be an interesting development to follow so watch this space!

If you have any questions or require any additional information, please contact Yong Hon Cheong, Vinhothinii Rajoo or the Zaid Ibrahim & Co partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.