The Privy Council, in the recent case of Ali v Petroleum Company of Trinidad and Tobago, considered whether an employee should repay a loan for training costs where repayment of the loan was to be waived after 5 years’ service but the employee was dismissed before the 5 years elapsed. It held that, if an employer prevents an employee from continuing his employment up to the point when the loan is waived, a term waiving repayment of the loan should be implied into the loan agreement. This decision potentially has significant implications for arrangements where employers require repayment of loans if an employee leaves within a certain period of time or provide other benefits subject to the employee remaining in or returning to work for a certain period (i.e. enhanced maternity pay).
Facts
Mr Ali was an employee of Petroleum Company of Trinidad and Tobago (the “Company”). He received a scholarship from the Company to study a degree. The course fees were paid for by the Company and Mr Ali also received a monthly allowance made in the form of a repayable loan. The letter offering the loan specified that repayment would be waived if he returned and worked for the Company for 5 years.
18 months after completing his degree, Mr Ali was offered and applied for voluntary redundancy and qualified for an enhanced redundancy payment. As he had not worked for the Company for 5 years, the Company sought repayment of the loan and set off the sum due against the whole of the redundancy payment, leaving Mr Ali with nothing
Mr Ali brought a claim and argued that there was an implied term restricting the Company in its freedom to demand repayment.
Decision
The Privy Council (the “PC”), on appeal from the Court of Appeal of the Republic of Trinidad and Tobago, considered the law regarding implying terms into contracts. The PC confirmed that a term is implied only if it is necessary to make the contract work. The PC considered that it was necessary to imply a term that repayment of the loan would be waived if the Company did something of its own initiative to prevent Mr Ali from completing 5 years’ service (other than dismissal for gross misconduct or other circumstances where the Company operated under a compulsion.)
The PC then went on to consider whether, in this case, the Company had prevented Mr Ali from completing the 5 years’ service. Mr Ali had been given a free choice as to whether to apply for redundancy and, importantly on the facts of this case, he knew he would not have been made redundant if he had not volunteered. It was a truly voluntary redundancy. The Company had not therefore prevented him from continuing his employment and the implied term was not triggered. Mr Ali therefore failed in his appeal and had to accept his redundancy pay being reduced to zero.
Implications
Although this is a PC case and so is not strictly speaking binding on the Courts and Tribunals in England and Wales, this decision would be persuasive. This potentially has wide implications for repayment clauses for such things as enhanced maternity pay, relocation expenses or training costs. Employees could now seek to argue that there is an implied term in any repayment provisions that means they do not need to repay if the employer does something to prevent them fulfilling any explicit condition of waiver of repayment.
The PC made it clear that the implied term was subject to the Company having the right to dismiss for gross misconduct or some other compulsion. It is not quite clear what the PC considered "compulsion" to cover. Mentioned in the judgement were changes in regulatory law and intervention of a controlling company or liquidator. It seems likely that this exception is narrow in ambit and even genuine redundancies would not be an exception unless they were truly voluntary, as in this case.
As express terms generally override implied terms, employers should in future include express terms making clear exactly when repayment is required in all loan agreements or in any terms and conditions regarding repayments. In particular, if repayment is required in the event an employee is made redundant, this should be expressly stated.
Frances Rollin