The Gopala Krishnan Chettiar a/l Muthu Case: Court Of Appeal Rules That The Director Was An Employee
Recently, the Court of Appeal in Gopala Krishnan Chettiar a/l Muthu v Sealand Marine Inspection and Testing (M) Sdn Bhd & Anor [2023] 4 MLJ 445 provided some insight as to whether a director and shareholder of a company is also a ‘workman’ in accordance with the definition in Section 2 of the Industrial Relations Act 1967 (IRA 1967).
The issue in this case was whether a person who holds a position as a director and shareholder of a company is entitled to initiate a claim for unfair dismissal as an employee.
Background Facts
This was an appeal by the Appellant against the High Court’s decision in allowing an application for judicial review and granting an order of certiorari to quash the Industrial’s Court award. The Appellant had been involved with the logistics and shipping industry since 1998 and was experienced in marine cargo surveying and loss adjusting. The Appellant’s experience was relevant to the company’s core business, which was marine cargo surveying and inspection.
In 2016, the Appellant was appointed to the board of directors of the company and was given 20,000 shares in the company. The Appellant was paid RM20,000 per month which was subject to deduction for statutory contribution to the Employees’ Provident Fund and the Social Security Organisation. In 2018, the company alleged that the Appellant was responsible for the resignation of several staff as indicated in their resignation letters. However, the Appellant was not provided with a copy of the letters. The Appellant approached the other directors of the company to seek clarification on this matter but to the Appellant’s surprise, he was given a ‘pre-prepared resignation letter’ to sign. The Appellant refused to sign the letter.
The company later terminated and barred the Appellant from entering the premises of the company. The Appellant was aggrieved by the events that occurred and considered himself to have been dismissed without just cause or excuse. The Appellant initiated the statutory process by lodging a complaint with the Director General of Industrial Relations under Section 20 of the IRA 1967.
Industrial Court
The Appellant claimed that he was a ‘workman’ and that he had been dismissed without just cause or excuse by the company and entitled to reliefs as provided under Section 20 of the IRA 1967. The Industrial Court found that although the Appellant was a director and shareholder of the company, the Appellant was carrying out duties of a workman in his capacity as “operations director” and was not the controlling mind of the company.
The Industrial Court ruled in favour of the Appellant awarded the following:
(a)That the Appellant was a ‘workman’ per the definition in Section 2 of the IRA 1967.
(b)That the Appellant had been dismissed without just cause or excuse.
(c)That the company be ordered to pay a sum of RM320,000 as back-wages and compensation in lieu of reinstatement.
High Court
The company then applied to the High Court to quash the Industrial Court’s award. In reversing the decision of the Industrial Court, the High Court held that the Appellant was a director and therefore, was not entitled to the statutory protection under the IRA 1967. The High Court concluded that the Industrial Court had committed an error of law in holding that the Appellant was a workman and quashed the award. One of the factors considered by the High Court was the fact that the Appellant’s monthly remuneration was described as a director’s fee rather than a salary and that he was the second largest shareholder of the company.
Court of Appeal
Aggrieved, the Appellant appealed to the Court of Appeal. The issue for consideration was whether the Appellant, although a director and shareholder of the company, was also a ‘workman’ under the definition in Section 2 of the IRA 1967.
The Court of Appeal considered the Federal Court case of Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor [1995] 3 MLJ 369, where the court held that the meaning of the term ‘workman’ in accordance with Section 2 of the IRA 1967 should be interpreted liberally and not restrictively. The flexible and correct approach to determine whether a person is a workman under the IRA 1967 is to ascertain whether it is a contract of service or for services. In determining whether a contract is one of service or for services, the degree of control which an employee exercises over a person is an important factor. In Hoh Kiang Ngan, the Federal Court held that it is incorrect to state in absolute terms that a company director can never be a workman. An examination of the function of the director is necessary in deciding whether he is a workman.
The Court of Appeal found that the High Court was misdirected when it reversed the Industrial Court’s findings of fact and allowed the appeal. The Court of Appeal was of the view that the Appellant was a workman in accordance with Section 2 of the IRA 1967 on the following basis:
(a)Although the Appellant was a director and shareholder, the Appellant was carrying out functions and duties of a workman in the capacity of an operations director by being present at the work place every day and performing numerous site visits.
(b)The Appellant was not the “main brain and controlling mind of the company”. If the Appellant was truly in control of the company, the Appellant would not be forced to resign by the other directors.
(c)There was no position of “director of operations” in the board of directors”. Based on the evidence presented to the Industrial Court, the Appellant, although a shareholder and a director, was in reality an employee carrying out executive functions as a director of operations.
Conclusion
The Court of Appeal’s ruling in Gopala Krishnan Chettiar a/l Muthu upholds the general principle that being a company director does not necessarily preclude a person from carrying out the functions and duties of an employee. In some circumstances, a person can simultaneously occupy two roles, namely that of a director and an employee. In such circumstances, the court will look at the role and function of the person to determine if it is a contract of service (employee) or a contract for services (independent contractor).
28 November 2023