An employee whose loan is guaranteed by the employer to be recovered from their salary but is wrongfully dismissed from their job, is not liable to pay the loan, the court has ruled.
The Court of Appeal upheld an earlier ruling by the Industrial Court in the case of Florence Mufumba vs Uganda Development Bank that one is entitled to relief of the loan that was supposed to be recovered from their salary up to the time of their retirement.
Mufumba ran to the Industrial Court over wrongful dismissal from Uganda Development Bank in 2011 where she was working as the Principal Internal Auditor. She argued she had been dismissed while on leave and was not given any reason for her dismissal. The judges of the industrial court agreed with her that she was dismissed wrongfully.
But among the contentious issues were the two loans that she had been advanced to by the bank, which happened to be her employer. The first was a housing loan of UGX102 million to be recovered in 15 years and ten of which would fall when she is retired.
“In respect to this loan, therefore, she would only be entitled to relief from the respondent (UDB) for only the value of deductions from her salary up to the time, she would have officially retired,” ruled Justice Asaph Ruhinda and Linda Tumusiime in 2014.
She also had been given a UGX25-million car loan but this would be recovered in its entirety before retirement. On this one, the judges said; “Should any of the loans have been intended to be wholly covered by the salary and any other emoluments of the claimant, then, she would be entitled to relief in the whole sum of the loan.”
However, Uganda Development Bank appealed the decision in 2015. But, from the appellant court; justices Keneth Kakuru, Geoffrey Kiryabwire and Christopher Madrama upheld the industrial court ruling, stating that Mufumba is not liable to pay the loan where it’s repayment depended on her being employed at UDB.
If there is any loan amount that was to be repaid when the employee was already in retirement, however, the employee must pay that because they are expected to find alternatives sources of income.
Payments
UDB is also expected to pay Mufumba severance allowance amounting to UGX83 million, general damages totalling UGX150 million and aggravated damages calculated at UGX200 million.
The ruling is one to watch by employers who guarantee loans for their employees. Any dismissal regarded wrongful before they finish paying loans guaranteed by the employer and that their repayment depends on the employee having a job, means the employer pays the loan. Wrongful dismissal includes where the employee is not given reasons for the dismissal or termination, the court said.
