An employee who took voluntary redundancy was obliged to repay a company loan which had been paid to sponsor him through university, according to the Privy Council in the case of Ali v Petroleum Company of Trinidad and Tobago.

The Facts

Mr Ali was employed by the Petroleum Company of Trinidad and Tobago (Petrotrin). Petrotrin awarded Mr Ali a scholarship to study abroad for a degree and gave him a monthly living allowance in the form of a repayable loan to assist with living costs. Repayment of the loan was to be waived if Mr Ali worked for Petrotrin for five years after finishing his studies.

In fact, Mr Ali did not complete five years' service after his degree. Eighteen months after his return, Petrotrin invited applications for voluntary redundancy. Mr Ali chose to apply and was successful. When calculating Mr Ali's redundancy payment, Petrotrin deducted the value of the loan from the balance due to Mr Ali. This left Mr Ali with nothing.

The Decision

Mr Ali unsuccessfully argued that the repayment of the loan should be waived, as Petrotrin had terminated his employment within five years of the completion of his degree.

The Privy Council held that repayment of the loan would be waived if Petrotrin had prevented Mr Ali from working for the five year period through no fault of Mr Ali's own. However, Mr Ali had freely chosen to apply for voluntary redundancy. There was no obligation upon him to do so. In these circumstances, it was right that Mr Ali be required to repay the loan.

Best Practice

Privy Council decisions, whilst not legally binding in the UK, are persuasive in UK courts. This decision will therefore be of particular interest for anyone advising on conditional loan repayment arrangements such as enhanced maternity pay schemes or training or educational loans.

This case suggests that employees in true voluntary redundancy situations will be required to repay any loans or similar to the employer. Likewise, employees who are made compulsorily redundant may be excused from repaying outstanding loans.

In order to reduce the risk of such disputes, express wording should be inserted into loan agreements in order to govern repayment in the case of termination of employment before the agreed term.