Kuwait Court of Cassation principle number 429

Summary: - It is impermissible to deduct more than 10% of a worker’s wage in satisfaction of debts owed to the employer, and the employer may not collect any interest thereon. Article 31 of Law 38/1964; Article 59 of Law 6/2010 concerning Labour in the Private Sector. Condition: the employment relationship and the worker’s subordination must have been taken into account in the loan, such that there is apprehension that the employer will exploit his authority over the worker and that this will affect the loan and its terms. A loan in which the employment relationship is not taken into account. A loan free of the aforementioned restrictions. - It being established that the appellant is a banking establishment—a bank—professionally engaged in lending in accordance with the nature of its activity, and that the loan agreement was concluded between it and the respondent as one of its customers, as is apparent from the terms and value of the agreement and the capacities of its parties recorded therein, and that the employment relationship was not taken into account therein and no subordination of the lender to the borrower appeared. Its implication. The loan is not subject to the restrictions prescribed in Article (31) of the Labour Law in the Private Sector concerning loans granted by an employer to his workers. The challenged judgment’s departure from this and its ordering the appellant bank to repay the interest it received. This renders it defective and requires its cassation. Rule: The provision in 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 case—that “No more than 10% of a worker’s wage may be deducted in satisfaction of debts owed to the employer, and the employer shall collect no interest thereon” indicates—as established in the jurisprudence of this Court—that the criterion for applying those provisions to a loan is that the employment relationship was taken into account therein, by its being 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 such borrowing, where employment subordination exists and there is apprehension of the employer’s exploitation of his authority over the worker and its effect on the loan and its terms, that it is necessary to restrict that authority by the restrictions prescribed in that Article, prohibiting the deduction of more than 10% of the worker’s wage in satisfaction of the loan and prohibiting the taking of interest thereon. If, however, the employment relationship is not taken into account in the loan, even if it is between an employer and a worker employed by him, such that neither party’s description as such is taken into consideration upon its conclusion, 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 in the independence of his activity or induce him to relinquish its return to his workers. That being so, and the appellant being a banking establishment professionally engaged in lending in accordance with the nature of its activity, and the loan agreement in dispute, according to what is recorded therein and in its annex, having been concluded between it as a bank and the respondent as one of its customers, in the amount of KD 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 amend the interest rate if the Central Bank amends the discount rate, and the respondent having undertaken therein to transfer her salary from her place of employment at the appellant bank to her account with it and to transfer her end-of-service entitlements to the same account, and it also having included their agreement on the appellant’s right to deduct these sums transferred to it from the remaining debit balance of the loan amount, and for the remaining instalments to become due immediately upon failure to pay any one of them on time, without notification, warning, or any other legal procedure: this clearly shows, through the nature of the appellant’s activity, the capacities of the parties to the loan upon its conclusion, and the loan’s value, duration, and terms, that it is 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 considered upon its conclusion; and the borrower’s subordination to the lender was not apparent therein. It is thus a loan free of the restrictions imposed by the legislature in Article 31 of the Labour Law in the Private Sector—corresponding to Article 59 of Law No. 6 of 2010—set out above, on loans granted by an employer to his workers. Since the challenged judgment departed from this view and ordered the appellant to repay the interest it had received on that loan, on the basis merely of the unqualified statement that the said Article prohibits an employer from taking interest on loans granted to his workers, it is defective in this respect, requiring its cassation on this ground without the need to examine the remaining grounds of appeal.