Kuwait Court of Cassation principle number 428

Summary: - The 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. The employment relationship must have been taken into account, such that it is concluded between the lender in his capacity as an employer and the borrower in his capacity as a worker employed by him. The reason therefor. The fear that the employer may exploit his 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 concluding which the capacity of either of them 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 must have been taken into account, such that it is concluded between the lender in his capacity as an employer and the borrower in his capacity as a worker employed by him. It is only in this borrowing, where employment subordination exists, that there is a fear of the employer exploiting his authority over the worker and of this being reflected in the loan and its terms, necessitating restriction of that authority and prohibition of charging interest on that 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 one's capacity as such is taken into consideration when it is concluded, it is then a loan free of those restrictions, because the legislature, in the said Article, did not intend to restrict the employer's authority to exploit his business activity or induce him to relinquish its return to his workers. That being so, and whereas the appellant is a banking establishment professionally engaged in lending by the nature of its activity, and whereas, according to what is established from the loan in dispute, the employment relationship between its parties was not taken into account at all, nor was either party's capacity as employer and worker taken into consideration when it was concluded, and the borrower's subordination to the lender was not apparent therein, the loan is free of the restrictions imposed by the legislature in Article No. 31 of the Private Sector Labour Law, explained above, upon loans granted by an employer to his 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 on the unqualified assertion that the said Article prohibits an employer from charging interest on loans granted to his workers, it contravened the law and erred in its application, requiring its partial cassation in this respect.