The question of whether a director is an employee of a company holds an interesting perspective in Malaysian law as the duties and obligation of a director is codified in the statute under the Companies Act 2016. The position of the company if one were to examine the Companies Act would hardly attract the notion that directors are employees of a company due to the vast powers and the ability to make a decision that is able to direct the company’s direction.
The legal issue of whether a director is an employee falls back to the basic jurisdictional question of whether directors are deemed to be “workman” pursuant to the Industrial Act 1967
Earlier Position
The Supreme court in Inchcape Malaysia Holdings Bhd. v R B Gray & Anors. [1985] 2 MLJ 297 held that
“Under the law of director, the respondent is the very brain of the companies or their directing mind determining and formulating the companies’ policy. Thus, we cannot see how in the circumstances of this case, the respondent could be held as workman.”
The Current Position
The Federal Court case of Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor [1995] 1 MELR 1 reaffirmed the contract test set forth in Dr. A. Dutt v Assunta Hospital [1981] 1 MLJ 304 to determine whether a director is also an employee of the company. If a simple term if an individual is engaged under a contract of service, they are deemed as an employee.
A contract of service is predominantly determined by the degree of control one has over the work and also through the terms of one’s contract. Although the degree of control is not the sole determining factor, it is often seen as the primary one to be taken into account by the Courts. While this may not be conclusive, these are some of the other key factors which are typically considered by the courts in assessing the employment status of an individual:
- The degree of control exercised by the employer;
- Whether the worker’s interest in the relationship involved any prospect of profit or risk of loss;
- Whether the worker was properly regarded as part of the employer’s organization;
- Whether the worker was carrying on business of his own account or carrying on the business of the employer;
- The provision of equipment;
- Tax and insurance;
- The parties’ own view of their relationship; and
- The structure of the trade and profession concerned and the arrangements within it.
If the individual works are dictated by a superior, then it is quite possible that he fits the role of an employee as he has limited control over his work. However, the exact determination of one’s degree of control is a question of fact that can only be established on a case by case basis.
The Supreme Court again in KATHIRAVELU GANESAN & ANOR v. KOJASA HOLDINGS BHD [1997] 3 CLJ 777 reaffirmed and clarified the position of directors in an industrial relation perspective that Director can also be employees of a company;
“It is the rather controversial decision of the precursor of this Court in Inchcape (supra). That decision was reviewed at some length by this Court in Hoh Kiang Ngan (supra). No useful purpose will be served by regurgitation of the criticism levelled against it. It is a decision that was plainly wrong, even upon its own facts. It also failed to properly appreciate the judgment of Mohamed Azmi J and of the former Federal Court in Assunta Hospital No. (1). In our judgment, the time has come for this Court to recognise that Inchcape was wrongly decided and is no longer good law. All that is required is to formally overrule it and that we now do.”
In the recent case of Chin Chee Fui Vs Wisma Rakyat Holdings Sdn Bhd [2017] MELRU 1, the claimant was the General Manager of the company who was dismissed due to alleged misconduct. In addition to being the general manager, he was also a director and shareholder of the company. The Court held that in certain situations, a director can also be an employee at the same time, and would be entitled to file a complaint of unfair dismissal in the event he is terminated from employment.
Recently in BINA DARULAMAN BERHAD Vs. YB MENTERI SUMBER MANUSIA MALAYSIA [2014] 1 LNS 1421, Judicial Review was filed to quash the minister’s reference as the claimant was a director of the company to which the court rejected this and reaffirmed judicial precedent and accepted the position in Malaysian Industrial Relation Law that Directors can also be deemed to be an employee of a company
Hence the key criteria to take note in determining whether a director is also an employee of the company?
- Existence of a contract of service?;
- Degree of control?
- Payment of statutory contributions and benefits of an employee?.
In conclusion, the Malaysian Courts and Industrial Relation Jurisprudence have recognized the dynamic changes and development of the role of directors in Malaysia that is no longer confined and restricted to the conventional views and ideas of the role of a “director” with the now accepted view that directors can also be an employee of the company in of the complex and vast development of the modern business landscape.
Premjit Singh is the Managing Partner of Prem & Associates and he can be contacted via email at prem@premlaw.com or mobile at 012-5236755
