Kuwait Court of Cassation principle number 398

Summary: - No more than 10% of a worker’s wages may be deducted in satisfaction of debts owed to the employer, and the employer may not charge any interest thereon. Article 31 of Law No. 38/1964 and Article 59 of Law No. 6/2010 concerning Labour in the Private Sector. The condition for this: that the employment relationship and the worker’s subordination be taken into account in the loan, such that there is a fear of the employer exploiting its authority over the worker and of this being reflected in the loan and its terms. A loan in which the employment relationship is not taken into account is a loan free of the aforementioned restrictions. - Establishment that the appellant is a banking establishment—a bank—engaged professionally in lending according to the nature of its business, and that the loan agreement was concluded between it and the respondent as one of its customers, as shown by the agreement’s terms, its value, and the capacities of its parties established therein, and that the employment relationship was not taken into account in it and no subordination of the lender to the borrower appeared. Its implication: the loan is not subject to the restrictions imposed by Article (31) of the Private Sector Labour Law upon loans granted by an employer to its workers. The challenged judgment’s contravention thereof and its ordering the appellant bank to repay the interest it received render it defective and require its cassation. Rule: Article 31 of Law No. 38 of 1964 concerning Labour in the Private Sector—corresponding to Article 59 of Law No. 6 of 2010 applicable to the facts of the action—provides that: “No more than 10% of a worker’s wages may be deducted in satisfaction of debts owed to the employer, and the employer shall not charge any interest thereon.” This indicates, as established in this Court’s jurisprudence, that the criterion for the application of those provisions to a loan is that the employment relationship be taken into account in it, by its being concluded between the lender in its capacity as an employer and the borrower in his capacity as its worker. It is only in such borrowing, where employment subordination exists and there is a fear of the employer exploiting its authority over the worker and of this being reflected in the loan and its terms, that this authority must be limited by the restrictions in that Article prohibiting the deduction of more than 10% of the worker’s wages in repayment of the loan and prohibiting the charging of interest thereon. If, however, the employment relationship is not taken into account in the loan, even if it is between an employer and its worker, such that neither party’s capacity as such is taken into consideration upon its conclusion, 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 in the independence of its business or induce it to relinquish its return therefrom to its workers. That being so, the appellant is a banking establishment engaged professionally in lending according to the nature of its business. The loan agreement in dispute, as established therein and in its annex, was concluded between it as a bank and the respondent as one of its customers, for a value of KWD 18000, repayable in 120 monthly instalments at annual interest of 5% above the discount rate announced by the Central Bank of Kuwait, with a provision for the appellant bank’s right to adjust the interest rate if the Central Bank adjusted the discount rate. Under it, the respondent undertook to transfer her salary from her employer at the appellant bank to her account with it, and to transfer her end-of-service entitlements to the same account. It also included their agreement on the appellant’s right to deduct these amounts transferred to it from the outstanding debit balance of the loan amount, and on the remaining instalments becoming due immediately upon failure to pay any one of them on time, without notification, formal notice, or any other legal measure. This clearly shows, through the nature of the appellant’s business, the capacities of the parties to the loan upon its conclusion, and the loan’s value, term, and conditions, that it was a loan in which the constraint of the employment relationship between its parties was not taken into account. Neither party’s capacity as employer and worker was taken into consideration upon its conclusion, and no subordination of the borrower to the lender appeared in it. It is therefore a loan free of the restrictions imposed by the legislature in Article 31 of the Private Sector Labour Law—corresponding to Article 59 of Law No. 6 of 2010—explained above, upon loans granted by an employer to its workers. Since the challenged judgment departed from this view and ordered the appellant to repay the interest it received on that loan, based merely on the unqualified assertion that the aforementioned Article prohibits an employer from charging interest on loans it grants to its workers, it is defective in this respect in a manner requiring its cassation on this ground, without any need to examine the remaining grounds of challenge.