Employee who Applied for Voluntary Redundancy had to Repay Company Loan
An employee who applied for voluntary redundancy had to repay a company loan. There was no implied term that he did not have to repay the loan in the case of voluntary redundancy.
An employee who applied for voluntary redundancy had to repay a company loan. The loan agreement provided that the employer would waive repayment if he remained employed for five years. The Privy Council ruled that there was no implied term that he did not have to repay the loan if he was dismissed as a result of applying for voluntary redundancy.
The Privy Council implied a term that the employer would not do anything of its own initiative to prevent the employee from providing five years’ service (other than in the case of dismissal for repudiatory breach), and that if it did, it would be required to waive repayment of the loan. However, the employer had not breached that implied term as the employee had freely volunteered to be dismissed.
In Ali v Petroleum Company of Trinidad and Tobago, Mr Ali’s employer gave him a scholarship to study for a degree abroad. It also gave him a monthly living allowance in the form of loan and expressly agreed that it would write off the loan if he worked for five years following completion of his degree.
Eighteen months after his return, Mr Ali’s employer sought volunteers for redundancy from those with five or more years’ service whose jobs it had identified as redundant. Mr Ali applied and his application was accepted. His employer deducted the loan from his redundancy payment (which would have been £28,000), leaving him with nothing.
Mr Ali issued proceeding in the Trinidadian courts, arguing unsuccessfully that he was not contractually obliged to repay the loan. He appealed to the Privy Council, arguing that a term should be implied into the loan agreement which precluded his employer from dismissing him for five years, or which required it to waive repayment if it did so.
The Privy Council rejected his appeal. It refused to imply a term that the employer would not dismiss Mr Ali for five years. It implied a term that the employer would not do anything of its own initiative to prevent him providing five years’ service (other than in the case of dismissal repudiatory breach), and that if it did, it would be required to waive repayment of the loan. However, it ruled that the employer had not breached that implied term as Mr Ali had freely volunteered to be dismissed.
Privy Council decisions are not binding, and it is possible that an employment tribunal considering similar arguments would have a good deal of sympathy for an employee in this situation. At the end of the day, Mr Ali was dismissed as the result of a process initiated by his employer and there is no indication that his employer warned him that his application for voluntary redundancy would result in him having to repay the loan. If he had not applied for voluntary redundancy and his employer had made him compulsorily redundant, the term implied by the Privy Council would have required it to write off the loan.
Employers often enter agreements with employees to fund training costs, which require some or all of the money to be repaid if the employee does not remain in employment for a specified period. Similarly, employers often require employees to repay enhanced maternity pay if they do not return for a specified length of time. It is important that these agreements deal expressly with the circumstances in which repayment will be required, as this will help to avoid costly disputes. If repayment is required in the case of voluntary redundancy, this should be stated.
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