Court of Appeal Rules on Piercing Corporate Veil in Employment Disputes – Paradigm Shift in the Powers of the Industrial Court?

Executive Summary

The Court of Appeal in the recent case of Hubline Berhad v. Intan Wazlin Ab Wahab & Ors & Another Appeal [2025] 10 CLJ 761 (“Hubline“) considered whether third parties, such as related or parent companies, can be made liable for unfair termination claims in the Industrial Court, notwithstanding that they are not the employers of the dismissed individual, on the basis that the actual employers have become insolvent or have no assets.

In rejecting an application to add or substitute third parties (who were not the employers) as respondents to an unfair dismissal claim, the Court of Appeal in Hubline held that:

1. The doctrine of separate legal entity applies uniformly across all legal fora, and the Industrial Court cannot override this doctrine on the grounds of justice.
2. The mere fact that the actual employer is wound up or devoid of assets does not justify imposing liability on third parties who are legally distinct and not privy to the employment contract.
3. Claimants seeking to make third parties liable must show that these parties were responsible for the termination of employment.

The Court of Appeal’s extensive grounds of judgment closely examine the powers of the Industrial Court to pierce the corporate veil and make third parties liable in unfair dismissal cases, while balancing these considerations against the statutory duty of the Industrial Court (which is distinct from that of the civil courts) to act according to “equity, good conscience and the substantial merits of the case without regard to technicalities and legal form”^[1]. 

Facts of the Case

The Claimants comprised 36 employees of either Hub Shipping Sdn Bhd (“Hub Shipping“) or EM Shipping Sdn Bhd (“EMS“), who were retrenched sometime in 2015 and subsequently filed representations claiming unfair dismissal.

In the course of the proceedings, the Claimants realised that Hub Shipping had been wound up and a liquidator was appointed in February 2016.

The Claimants therefore filed a Substitution and Joinder Application under section 29(a) of the IR Act to:

1. substitute Hub Shipping with Hubline Berhad (“Hubline Bhd“); and
2. join another company, Highline Shipping Sdn Bhd (“Highline“), as party to the proceedings.

In support of the Substitution and Joinder Application, the Claimants argued that:

1. Hub Shipping and EMS were subsidiaries of Hubline Bhd.
2. Hub Shipping and Hubline Bhd shared the same registered and business addresses.
3. Hubline Bhd was the only shareholder of Hub Shipping, EMS and Highline.
4. Hub Shipping, Highline and Hubline Bhd had common directors.

Hub Shipping and EMS opposed the Substitution and Joinder Application, claiming that the Claimants had not disclosed any ground for the application besides the fact that Highline shared common directors and shareholders with Hub Shipping and EMS.

On 8 January 2019, the Industrial Court allowed the Substitution and Joinder Application, holding that the Claimants had presented a prima facie case that there was a factual and legal nexus between the entities.

High Court

Dissatisfied with the decision of the Industrial Court, Hubline Bhd and Highline filed applications for judicial review to the High Court. On 24 January 2022, the High Court upheld the decision of the Industrial Court and dismissed the application for judicial review.

Court of Appeal

Hubline Bhd and Highline then filed an appeal to the Court of Appeal. On 21 October 2025, the Court of Appeal allowed the appeal and overturned the decision of the High Court and Industrial Court, with its findings summarised below.

Power of the Industrial Court to add or substitute parties in proceedings

The Court of Appeal remarked that while section 29(a) of the IR Act gave the Industrial Court the power to add or substitute parties in ongoing proceedings, it was broad and did not specify limits or criteria for doing so.

The Court of Appeal then revisited previous judgments on the issue, and considered whether what it deemed as the “more expansive” reading of joinder and substitution adopted in the landmark cases of Hotel Jaya Puri Bhd v. National Union Of Hotel, Bar & Restaurant Workers & Anor [1980] 1 MLJ 109 (“Hotel Jaya Puri“) and Asnah Ahmad v. Mahkamah Perusahaan Malaysia & Ors [2015] 3 CLJ 1053 (“Asnah“) had stretched statutory interpretation and the principles of corporate law beyond what the IR Act authorised.

For those not familiar, it is useful to recall the facts and principles outlined in Hotel Jaya Puri and Asnah.

Hotel Jaya Puri

In Hotel Jaya Puri, several workers employed by Jaya Puri Chinese Garden Restaurant Sdn Bhd were retrenched when the restaurant had to close due to losses. The business of the restaurant was carried on in premises belonging to Hotel Jaya Puri Berhad. The hotel and restaurant shared the same managing director, and the restaurant was a wholly owned subsidiary of the hotel.

The workers (through their union) challenged the retrenchment. The union sought to have the hotel joined as a party to the proceedings, alleging that the workers were in fact employees of the hotel.

The Industrial Court ultimately ruled that the workers were employees of the hotel, not the restaurant, and ordered the hotel to pay compensation to the workers.

On appeal, Salleh Abbas FCJ (as he then was), in upholding the decision of the Industrial Court, stated:

“…while the principle that a company is an entity separate from its shareholders and that a subsidiary and its parent or holding company are separate entities having separate existence is well established in company law, in recent years the court has, in a number of cases, bypassed this principle if not made an inroad into it. 

The court seems quite willing to lift “the veil of incorporation” (so the expression goes) when the justice of the case so demands…” (emphasis ours).

Asnah

In Asnah, the claimant obtained an award for constructive dismissal against Sime Securities Sdn Bhd (“Sime“). At the time the award was made, there was a winding-up order against Sime, and Sime’s shares were subsequently acquired by EON Capital Bhd (“EON“), which took over the day-to-day control of Sime.

Following the failure of Sime to comply with the award, the claimant filed non-compliance proceedings in the Industrial Court and applied to join EON, amongst others, in the proceedings.

The joinder application was refused by the Industrial Court and High Court, but allowed by the Court Appeal which stated that:

1. The IR Act is a social legislation.
2. Third parties can be made liable to pay the award, notwithstanding that they were not the employer.
3. Third parties cannot resist joinder or deny liability on the basis that there is no privity or that they are a separate legal entity, when there is a “sufficient nexus” between the party to be joined and the party named in the reference.
4. The threshold to satisfy the Industrial Court in an application for joinder is low. As long as the employee’s complaint is not frivolous, vexatious, or an abuse of court process, there should be no hindrance to permitting joinder if a nexus is shown.

The Court of Appeal in the present case of Hubline held that the approach in Asnah invited judicial overreach and enabled the Industrial Court to circumvent the doctrine of separate legal personality – stating that the mere fact that the actual employer is wound up or devoid of assets cannot justify the imposition of liability on third parties who are legally distinct and not privy to the employment contract.

The Court of Appeal then compared the approaches taken by the Federal Court (Malaysia’s apex court) in Ahmad Zahri Mirza Abdul Hamid v. AIMS Cyberjaya Sdn Bhd [2020] 6 CLJ 557 (“AIMS Cyberjaya“) and Ong Leong Chiou & Anor v. Keller (M) Sdn Bhd & Ors [2021] 4 CLJ 821 (“Keller“), as well as the decision of the Court of Appeal in Law Kam Loy & Anor v. Boltex Sdn Bhd & Ors [2005] 3 CLJ 355 (“Boltex“).

Boltex

Boltex concerned a claim for the transfer of shares owned by the First Defendant in a third-party company, and whether a contract had been concluded.

Boltex was not a case relating to industrial relations or employment – however as the plaintiff was asking the court to lift the corporate veil by relying on a document not signed by the First Defendant (but signed by a third-party company), the Court of Appeal in Boltex considered the position taken in Hotel Jaya Puri, namely whether the corporate veil could be lifted when the interests of justice required it.

The Court held that contemporary cases showed that the view expressed in Hotel Jaya Puri no longer prevailed. However, the Court qualified this statement by stating that Hotel Jaya Puri was concerned with the IR Act, which required the Industrial Court to disregard technicalities and to have regard to equity, good conscience and the substantial merits of a case:

“Accordingly, in industrial law, where the interests of justice so demand, it may, in particular cases be appropriate for the Industrial Court to pierce or to disregard the doctrine of corporate personality. That is what happened in the Hotel Jaya Puri case and no criticism of that case on its facts may be justified” (emphasis ours).

The Court of Appeal in Hubline then went on to consider the two Federal Court decisions in AIMS Cyberjaya and Keller, the facts and principles of which are summarised below.

AIMS Cyberjaya

In this case, the claimant was given a contract for consultancy services by AIMS Data Centre 2 Sdn Bhd (“ADC“) for a fixed term of one year from October 2009 to September 2010. This contract made the claimant eligible to participate in a performance bonus scheme.

After several renewal of contracts with ADC, the claimant received a new 12-month renewal contract from AIMS Cyberjaya Sdn Bhd (“AIMS“) instead of ADC, due to ADC’s phasing out and subsequent consolidation into AIMS.

A year later, the claimant was given another 12-month renewal contract by AIMS from 1 October 2013 to 30 September 2014. However, this time AIMS sought to exclude the performance bonus scheme.

The claimant informed AIMS that he was not agreeable to the offer, after which he received a three-month renewal contract instead from AIMS from 1 October 2013 to 31 December 2012 with the bonus scheme still excluded, which he again rejected.

AIMS then gave the claimant a two months’ notice of expiry of his contract and informed the claimant that they had decided to grant him an early release from his employment. The claimant accordingly lodged a claim for unfair dismissal.

In its decision, the Federal Court in AIMS Cyberjaya took the view that ADC and AIMS were part of the same group as there was an “essential unity of group enterprise“. Hence, the claimant’s contract beginning with ADC before being terminated under AIMS was not a temporary or one-off employment, but rather an ongoing and continuous employment without a break from 2009 to 2013.

In making this finding, the Federal Court also stated that:

1. Hotel Jaya Puri was still good law.
2. The case of Boltex simply stood for the proposition that while the approach in Hotel Jaya Puri may not be suitable in present times (with regard to the current principles of company law), the practice of the courts in lifting/piercing the corporate veil may still be accepted in the realm of industrial relations as the correct approach to reveal who is the employer in the given case in order to achieve social justice so that the workmen are not adversely affected.
3. In the employment law perspective, the application of the “single economic unit” test or “functional integrality” test was significant in ascertaining the continuity of employment for the scope of dismissal protection.
4. The complexity of modern corporate structures should not be an obstacle to defeat the legitimate entitlements of wrongfully dismissed employees.

Keller

In Keller, disputes arose from subcontracts in a mall development project. The First Defendant, Tony Ong, was a director and shareholder in Perfect Selection Sdn Bhd (“Perfect Selection“), which subcontracted works to PS Bina Sdn Bhd (“PS Bina“) (where Tony Ong was also a director and shareholder) which then subcontracted works to Keller (M) Sdn Bhd (“Keller“).

Over time, PS Bina reversed sums due to Keller (despite Keller’s full performance), and Tony Ong resigned from PS Bina. At trial, the Court held that PS Bina was a sham or facade used by Tony Ong to shield Perfect Selection’s liability, and held that PS Bina, Perfect Selection and Tony Ong were all liable to Keller.

While Keller was not concerned with industrial relations or employment, one of the questions of law posed to the Federal Court in this case was whether the “single economic unit test” in Boltex was confined to Industrial Court matters.

On this question, the Federal Court stated that:

1. The relevant legal principles which had to be applied were the same whether it was in the High Court in civil cases, or in the Industrial Court in relation to industrial law claims.
2. In that regard there was only one law which was to be applied equally in all courts, because there was only one set of principles in relation to fraud, unconscionable conduct and abuse of corporate personality to determine whether or not it was appropriate to look behind or pierce the corporate veil.
3. Boltex was applicable in all courts and was not to be confined to the Industrial Court.

Coming Back to the Case at Hand – the Court’s View of Keller and AIMS Cyberjaya

Drawing the above threads together, the Court of Appeal in Hubline stated that following the Federal Court’s decision in Keller, the doctrine of separate legal entity applies uniformly across all fora, and the Industrial Court is not at liberty to override this doctrine on the grounds of equitable justice or industrial equity.

The Court disagreed with the claimant’s submission that Keller (a commercial case) did not refer to AIMS Cyberjaya (an employment case) and that the principles in AIMS Cyberjaya represented the applicable law, stating that although Keller was a commercial case, it was decided later in time compared to AIMS Cyberjaya, and a question of law specifically pertaining to Boltex was framed in Keller.

The Court further stated that the practice of “dragging in and foisting liability on holding companies, subsidiaries, or directors because the real employer has become financially insolvent, and gone into liquidation, inherently violates settled company law principles“.

In summation, the Court of Appeal held that the test for joinder or substitution is not merely any reasonable factual or legal nexus or connection (per Asnah), but rather that:

1. There must be a reasonable factual or legal nexus between the proposed joinee and the dispute which is before the Industrial Court.
2. The proposed joinee must be responsible (i.e. liable in law) for the termination of employment.
3. If there is an attempt to pierce or lift the corporate veil, the applicant cannot rely on Hotel Jaya Puri and must instead show credible and compelling grounds for the piercing of the corporate veil.

In that regard, the Court of Appeal noted that Hubline Bhd and Highline had stated they were not the employer and were not responsible for the retrenchment of the claimants, and that this position was not rebutted by the claimants.

On that basis, the Court of Appeal held that the Industrial Court ought to have concluded that there was no reasonable factual, legal or any other nexus between Hubline Bhd and Highline and the dispute which was pending before the Industrial Court, and the Joinder and Substitution Application ought to have been dismissed.

The Court of Appeal ultimately allowed the appeal and quashed the Industrial Court’s decisions that had previously allowed the Joinder and Substitution Application.

We understand that the claimants have applied for leave to appeal to the Federal Court.

Key Takeaways

The Court of Appeal has made it clear that the Industrial Court is not exempt from upholding the doctrine of separate legal personality, and that claimants seeking to make third parties (such as parent or related companies) liable in cases of unfair dismissal must show that these parties are somehow responsible for the termination of employment.

For corporations, this decision serves as a timely reminder to carefully manage contractual relations with their employees, so as to minimise the risk of a situation arising in which employees seek to hold them liable for a dismissal, notwithstanding that they are not the employer. Examples of such steps include ensuring clear identification of the employer in employment contracts and retain all correspondence throughout the course of employment.

Going forward, it will be interesting to see whether the Federal Court will grant leave to appeal – and if so, whether the Federal Court will endorse the Court of Appeal’s view that the principles in Keller (a commercial case) can be applied to employment cases – meaning that Hotel Jaya Puri and Asnah would no longer be applicable – and that the corporate veil cannot be cast aside in industrial relations matters merely in the “interests of justice”.

This Legal Update is authored by Partner Sivaram Prasad.

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^[1] Section 30(5) of the Industrial Relations Act 1967 (“IR Act“)