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Repayment of loans to employees

By February 24, 2017January 29th, 2021Employment for You

More and more employers are agreeing to fund training and educational courses on behalf of employees.  As a result of this, more enquiries are being made by employers seeking to draft agreements requiring employees to repay all or a proportion of the course fees if they leave within a certain period of time after having completed the course and to enforce the terms of this type of agreement where an employee has left during the course or shortly after having obtained the qualification. A recent decision of the Privy Council (the Court which hears appeals from Crown Dependencies and British Overseas Territories) this month has addressed an issue which often tends to arise in this type of situation namely: if an employer prevents an employee from reaching the date when they are no longer required to repay the course fees, is an agreement of this nature subject to an implied term that repayment would then be waived?In the case of Ali v Petroleum Company of Trinidad and Tobago (Petrotrin), Mr Ali agreed to study for a degree abroad during which he received a living allowance paid to him as a loan. The loan agreement expressly stated that repayment would be waived if Mr Ali returned to work for Petrotrin for 5 years upon completing his degree. Mr Ali successfully obtained his degree and returned to work for Petrotrin for 18 months, at which point he applied for voluntary redundancy and was dismissed.  He would have been entitled to receive a redundancy payment of approximately £28,000.00 but received nothing as a result of Petrotrin deducting the full value of the monthly allowance loan repayments from this sum.Mr Ali issued a claim arguing that he was not contractually required to repay the loan. He argued that there was an implied term in the agreement that Petrotrin would not do anything to prevent him from accruing 5 years’ service (except for instance where he committed an act of gross misconduct) but that if it did, any obligation to repay the living allowance loan would be waived.  Otherwise, Petrotrin could recover the full amount at any time during that 5 year period by simply terminating his employment.Mr Ali’s appeal failed on the grounds that as he was free not to put himself forward for voluntary redundancy, he had not been prevented from accruing 5 years’ service, he chose to leave after 18 months of his own volition.  The Court did however acknowledge that where an employer did dismiss an employee before they had the opportunity to accrue a certain period of service, they would have a good argument that there was an implied term not to repay the loan as they had been prevented from completing the requisite period of service.The decision in this case is of wider relevance especially to those employers who provide enhanced maternity pay schemes which usually require an employee to repay any salary they have received (less statutory maternity pay) if they fail to return to work for a certain period after maternity leave.  The case confirms that if they accept voluntary redundancy (or choose to leave of their own volition) they will still be obliged to repay the loan.  The case however leaves open the possibility of employees arguing that they do not have to repay the loan if their employer takes the decision to terminate their employment, such as in the case of a compulsory redundancy or performance related dismissal. Of course to avoid any dispute in the first place, it would be worthwhile setting out in detail situations where a loan of this nature would and would not be repayable. This way, both parties know where they stand and are able to make an informed decision where one is looking to terminate the employment contract.

Russell Brown

Author Russell Brown

Russell is a Partner and Head of Glaisyers' Employment Team.

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