Owners, Shareholders and Directors Can Also Be Employees! Federal Court 2026 Ruling: Being Voted Off the Board Does Not Mean Their Employment Can Simply Be Stopped

Many Malaysia SMEs start the same way: a few friends, family members or business partners set up a company together.

Everyone is a Shareholder, and everyone is a Director. At the same time, each of them runs a different department, draws a fixed monthly salary from the company, and the company pays their EPF and SOCSO.

So here is the question: is this person a boss, or an employee?

If the shareholders fall out one day and vote at an EGM to remove one of the Directors from the Board, can the company also tell that person:

“You are no longer a Director, so there's no need to come in tomorrow, and your salary stops too.”

In 2026, in Acexide Technology Sdn Bhd & Anor v Chang Heng Keong & Another Appeal, the Federal Court gave a very important answer:

Not necessarily.

A person can quite possibly hold two distinct legal capacities at once: the first hat is Company Director; the second hat is Employee / Workman. And the two capacities must be dealt with separately.

The Federal Court unanimously confirmed that although the two respondents were the company's promoters, shareholders and directors, they were also “workmen” under the Industrial Relations Act 1967.

What happened?

Acexide Technology Sdn Bhd was incorporated in 1996. The company originally had three promoters: Lim, Woon Kim Choy and Chang Heng Keong. The three were not only its founders but also its shareholders and directors.

In other words, they did not just sit on the Board of Directors and attend meetings; they also carried out real working duties in the company.

2019: the shareholder relationship breaks down

On 6 November 2019, the company held an Extraordinary General Meeting (EGM). With the majority shareholding behind them, resolutions were passed under section 206(1)(a) of the Companies Act 2016. The result: Woon and Chang were removed as Directors.

Neither of them challenged the company's lawful removal of them from the Board as such. But another question arose:

Did their jobs go too?

The two then filed representations under section 20 of the Industrial Relations Act 1967, claiming that as employees / workmen of the company they had been unlawfully dismissed.

All the way to the Federal Court

1. 6 Nov 2019EGM passes resolutions removing Woon and Chang as Directors
2. Industrial CourtCompany wins: the two were the company's “directing mind and will”, not workmen
3. High CourtJudicial Review application also fails
4. Court of AppealDecision reversed: both were workmen, awarded more than RM2 million in total
5. 24 Jun 2026Federal Court unanimously dismisses the company's appeals, upholding the Court of Appeal

The Industrial Court first said: they are not employees

At the outset, the company actually won. The Industrial Court found that the two were the company's “directing mind and will”. Put simply, they were the very people who controlled and managed the company, so they did not qualify as employees / workmen under the Industrial Relations Act 1967.

The two then applied to the High Court for Judicial Review, and the High Court did not side with them either. Had the case ended there, many business owners might have concluded:

“See? A Director is not an ordinary employee.”

But the case went on appeal.

The Court of Appeal reverses the outcome

The Court of Appeal re-examined the parties' actual working relationship and found many classic employment indicia. Both of them:

• Received a salary
• Had EPF contributions paid by the company
• Had SOCSO contributions
• Were subject to income tax deductions
• Had EA Forms
• Had salary records / payroll slips
• Were listed in the company's register of employees

All of this pointed to one crucial fact: although they were Directors, the company had in practice been treating them as Employees all along. The Court of Appeal therefore held that they were “workmen”.

Federal Court: one person can be both a Director and an Employee

The case finally reached Malaysia's apex court, the Federal Court. One of the most important questions was: can a person be a Company Director and an Employee at the same time?

The Federal Court's answer was very clear: Yes. And the court considered that this legal principle is nothing new.

The Federal Court stressed that the real distinction is between the Position and the Person holding the position. A Director holds a corporate office; whether someone is an Employee depends on whether there is, separately, a contract of service / employer–employee relationship between that person and the company.

So the fact that someone is a Director does not automatically extinguish the Employee status they may also hold.

“A Director has no boss, so they can't be an Employee?”

One of the company's key arguments was that a traditional employer–employee relationship usually involves a superior–subordinate relationship. But these individuals were Directors themselves, so who was supervising them?

The Federal Court did not accept that this meant no employment relationship existed. The court specifically noted that the two served as Project Director and Technical Director respectively. Even though they were also Board members, in performing those functional roles they could still be answerable to the Managing Director or to the Board as a whole.

Being a Director yourself does not automatically mean there is no employer–employee relationship.

No Employment Contract means not an employee?

This is a point SMEs should pay close attention to. Many owners may think: “We never signed an Employment Contract. He's just a company Director.”

But the Federal Court looks at the parties' real legal and working relationship, not simply at whether there is a document headed EMPLOYMENT AGREEMENT. In this case, objective records such as EPF, SOCSO, salary, EA Forms and the employee register all became important evidence of the nature of the relationship.

No written Employment Contract ≠ No employment relationship.

The most important point: Remove Director ≠ Terminate Employee

This is the part JP Asia believes every SME owner should remember. Suppose one person holds both:

Then: taking away Role A does not automatically take away Role B.

The Federal Court drew a clear line between these two legal capacities. A person can lose their directorship while their employment relationship continues. The reverse is also true: terminating someone's employment does not automatically end their directorship. Each is governed by different legal considerations and procedures.

How much did it cost in the end?

The Federal Court ultimately dismissed the company's appeals unanimously. The Court of Appeal had earlier awarded:

The Federal Court upheld those awards and ordered the company to pay RM150,000 in costs.

JP Asia HR & Employment Law Analysis

For SMEs, this case goes far beyond “Can a Director be an Employee?” The real problem is that many SMEs never separate the Shareholder, Director and Employee roles from day one.

For example: three people start a business together, each puts in capital, and all become Directors. A handles Sales, B handles Operations, C handles Finance. Each draws RM15,000 a month, and the company pays their EPF and SOCSO. They have Annual Leave, Medical Benefits and KPIs, they come to work every day, and the company may even have an Employment Handbook.

Ten years later, the shareholders fall out. Only then does everyone start asking: “Is he a Shareholder, a Director, or an Employee?”

The problem is: he may be all three.

5 Director arrangements where SMEs most often get caught out

1 | Founders / shareholders drawing a monthly salary

Don't assume “he's the boss, so he can't be an employee”. If the person also has clearly defined duties, a fixed salary and other employment indicia, they may also have employee status. Owner and employee are not simply an either-or choice.

2 | The company pays EPF and SOCSO for a Director

No single factor automatically decides employee status. But when these factors come together:

1. Salary
2. EPF
3. SOCSO
4. EA Form
5. Employee Register
6. Functional Role

the court may conclude, on the facts as a whole, that an employment relationship exists. Acexide illustrates exactly this.

3 | Shareholders vote a Director out, then HR stops the salary straight away

After this case, this is the situation that calls for particular care. The company should first ask: are we ending his Directorship, or his Employment?

If both capacities exist, each must be dealt with separately. Dealing with Director status under the Companies Act is one matter; dealing with the employment relationship under employment / industrial relations law is another. Do not merge the two into a single step.

4 | Family businesses are most prone to blurred roles

Dad is Managing Director, the son is Operations Director, the daughter is Finance Director. All are shareholders, all draw a salary, all have EPF paid. Yet there has never been an Employment Contract or a formal Job Description.

While family relations are good, there is no problem. The real danger comes when relationships break down. Only then do the arguments start:

“You're a shareholder.” “No, I'm also an employee.”
“You don't have an Employment Contract.” “But the company has paid my EPF for 20 years.”

This is why Corporate Governance and HR Governance cannot wait until a dispute arises.

5 | Assuming no Employment Contract means you are safe

This is one of the most dangerous misconceptions. When deciding whether an employment relationship exists, the court will not look at a single piece of paper; it may look at the whole relationship between the parties:

• Who pays the remuneration?
• Is it a salary or a director’s fee?
• Is the person on the payroll?
• Are there EPF and SOCSO contributions?
• Is there an EA Form?
• Is the person on the employee register?
• What work does the person actually do?
• Who do they report to?
• How has the company classified this person in the past?

Just because it isn't written down doesn't mean the legal relationship doesn't exist.

JP Asia's advice: if a Director also works in the company, separate at least 3 roles

All three roles may exist at once, but that does not mean they start and end at the same time. That is the most valuable lesson SMEs can take from Acexide.

If the shareholder relationship breaks down, what should the company do first?

Don't make your first move telling HR: “Cancel his access card tomorrow and stop his salary.” First, establish:

Shareholding

Has his shareholding changed?

Directorship

Has the directorship been lawfully terminated?

Employment

Is there a separate employment relationship? Is there an Employment Contract?

Payroll

What do the payroll records show? How are EPF / SOCSO being handled?

EA Form

How is the EA Form classified? How does the company's Employee Register record him?

Role

What are his actual job duties? Who does he report to?

Grounds

If the company intends to terminate his employment, on what grounds?

Until these questions are answered, what looks like a simple “Remove Director” can end up as an Unfair Dismissal Claim.

A final reminder for business owners

For many SMEs, the biggest HR risk is not a lack of paperwork. It is that what the company actually does differs from the legal relationship the owner thinks exists.

In court, what matters is not what the owner calls this person today, but what the real relationship between the parties is.

The Federal Court's decision in Acexide Technology is another reminder to businesses: don't just look at a person's title; look at how many “hats” they are actually wearing. Each hat can carry different legal rights and obligations.

Further reading: 27 People Interviewed, Still RM358,400 to Pay: BFM Media Industrial Court Award 1630/2026
Can You Dismiss an Employee Who Tests Positive for Ketum? Industrial Court Award 1671/2026

Disclaimer: This article is based on the publicly available Federal Court judgment and case materials, and is intended solely for educational purposes in business management, HR, Employment Law and Corporate Governance. It does not constitute legal advice on any specific case. Whether Director, Shareholder and Employee status co-exist must be assessed independently on the actual facts, company documents, relationship between the parties and applicable law in each case.

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