Kuwait Court of Cassation principle number 386

Summary: - Application of the provisions of Article 31 of the Private Sector Labour Law to a loan granted by an employer to a worker. Its prerequisite: that the employment relationship be taken into account therein, such that it is concluded between the lender in its capacity as an employer and the borrower in their capacity as its worker. The reason for this: apprehension that the employer will exploit its authority over the worker in its terms, and the prohibition on charging interest on this loan. Example: concerning a loan in which the borrower’s subordination to the lender was not apparent, and in the conclusion of which the capacity of either as employer and worker was not taken into consideration. Rule: It is established—in the jurisprudence of this Court—that the prerequisite for applying the provisions of Article No. 31 of the Private Sector Labour Law to a loan granted by an employer to a worker is that the employment relationship be taken into account therein, such that it is concluded between the lender in its capacity as an employer and the borrower in their capacity as its worker. It is only in such borrowing, where employment subordination exists, that there is apprehension that the employer will exploit its authority over the worker and that this will be reflected in the loan and its terms, necessitating the restriction of this authority and the prohibition on charging interest on this loan. However, if the employment relationship is not taken into account in the loan, even if it is between an employer and a worker, such that neither party’s description in that capacity is taken into consideration when it is concluded, it is then a loan free of those restrictions, because the legislature, in the aforementioned Article, did not intend to restrict the employer’s authority to exploit its business activity or to induce it to relinquish its return to its workers. That being so, the appellant is a banking establishment professionally engaged in lending by the nature of its business, and the loan in dispute, according to what is established from it, took no account whatsoever of the employment relationship between its parties. Neither party’s capacity as employer and worker was taken into consideration when it was concluded, and the borrower’s subordination to the lender did not appear therein. The loan is therefore free of the restrictions imposed by the legislature in Article No. 31 of the Private Sector Labour Law, as explained above, on loans granted by an employer to its workers. Since the challenged judgment departed from this view and ruled that the respondent was entitled to recover the interest on that loan collected by the appellant bank, merely stating in general terms that the aforementioned Article prohibits an employer from charging interest on loans it grants to its workers, it violated the law and erred in its application, requiring its partial cassation in this respect.