No implied term releasing an employee from their obligation to repay a loan in a voluntary redundancy situation

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In the recent case of Ali v. Petroleum Company of Trinidad and Tobago the Privy Council found that there was no implied term waiving an employee's obligation to repay a loan to their employer in a voluntary redundancy situation.

The Facts

Mr Ali had been a long-standing employee of Petroleum Company of Trinidad and Tobago (Petrotrin) when it gave him a scholarship to study for a degree abroad, which involved Mr Ali moving away from his family for a period of five years. Petrotrin paid Mr Ali a living allowance by way of a loan. One express term in the loan agreement was that Petrotrin would not seek repayment of the loan if Mr Ali worked for the company for a further five years following completion of the degree.

Mr Ali returned to work after completing his degree. Shortly thereafter, Petrotrin undertook a redundancy exercise. Mr Ali formed part of the group of "at risk employees" and, along with the other employees in the group who had a minimum of five years' service, was offered the opportunity to take voluntary redundancy. Mr Ali took the voluntary redundancy and would have been entitled to a payment of approximately £28,000. However, Petrotrin then set off the full value of the living allowance loan against this redundancy payment, leaving Mr Ali with nothing.

Mr Ali challenged this, claiming he was not obliged to repay the loan. He asserted that the express term of the loan agreement was subject to the implied term that Petrotrin could not prevent him from completing the subsequent five years of service necessary following completion of the degree. By making him redundant, Mr Ali argued that Petrotrin deprived him of that chance and the loan was not, therefore, repayable.

The Decision

After losing his claim at first instance and on appeal, Mr Ali appealed to the Privy Council who dismissed the appeal by a majority. It held that:

  1. There was no implied term preventing Petrotrin from dismissing Mr Ali within the five-year period during which the repayment provisions applied.
  2. There was an implied term that Petrotrin would not do anything to prevent Mr Ali from working the five-year term (except in circumstances of a fundamental breach of contract by the employee or compulsion). If Petrotrin did prevent Mr Ali from working the term, he would not have to repay the loan.

The judges therefore considered whether a voluntary redundancy counted as the employer dismissing of its own initiative. On the facts, as Mr Ali had freely volunteered to be dismissed, Petrotrin had not prevented Mr Ali from completing the required five years' service. Accordingly, the majority held that the loan was repayable. If the redundancy had not been voluntary, the outcome may have been different.

Comment

Here, the decision went in the employer's favour. Although the case is not binding on UK courts, it is likely to have persuasive authority and be relevant to other conditional loan arrangements, such as enhanced maternity pay schemes or student loans. Employers should include express wording in the terms of conditional loan agreements or enhanced maternity pay schemes etc. which address repayment conditions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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