Ask the law: Employer faces legal dilemma over loan to employee
Company owner grapples with legal ramifications as indebted employee quits
Question:
I am the owner of a private company. Four (4) months ago, I gave one of my employees an interest-bearing loan. A month ago, this employee submitted his resignation from work, and he currently refuses to work during the warning period, which is 3 months, and also refuses to return the debt. According to this employee, the employer does not have the legal right to lend interest to the worker. My question is: What is the appropriate action to take against this employee? Please advise.
Answer:
I would advise the questioner that: Usury interest between natural people is considered a criminal act according to Article 458 of the Federal Law Decree No. (31) of 2021 Promulgating the Crimes and Penalties which states that (“A penalty of incarceration for a period not less than one year and a fine not less than (Dh50,000) fifty thousand AED shall be imposed on any natural person who deals with another natural person by usury interest in any kind of civil or commercial transaction, whether such interest is express or latent.
“Latent interest shall include any commission or benefit stipulated by a creditor, if such a commission or benefit has no corresponding real legal benefit or service provided by the creditor as a consideration. A principal debt and latent interest may be proved by all means available. If the perpetrator takes advantage of the debtor's need, weakness or passion to commit the crime stipulated in this Article, this shall be considered an aggravating circumstance.”)
But the interest between a company and a natural person does not lie under the above same Article. Which means that in case the loan was given by your company to the employee, then you can claim the loan with the interests and leave the matter to the court to decide about it. In case the loan was given by you personally, then it is better to claim the original loan without the interests and use any mean to prove that the employee took the loan, including but not limited to, the bank transfer instead of using the loan agreement signed (if such agreement is existed).
Regarding the 3 months’ notice, you are entitled to claim them in all cases because the employee should pay them as per Article 43 of the labour law (“The party who did not abide by the notice period shall pay to the other party compensation, which is called notice period allowance, even if the absence of notification does not cause damage to the other party and the compensation shall be equal to the worker’s wage for the full notice period or the remaining part.”)