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When Might Employees Be Considered Consumers

on Friday, 30 November 2018.

Many employers grant loans to employees for different reasons, perhaps for travel loans or share schemes...

... Although employment contracts are not usually regarded as consumer contracts, there are certain circumstances where the relationship of employer and employee may also be that of supplier and customer and therefore be subject to consumer rights protection.

Facts and Background

In Henri Pouvin & Marie Dijoux v Electricité de France (EDF) Mr Pouvin was an employee of EDF. EDF granted a mortgage loan to him and his spouse, Ms Dijoux (the Appellants). The loan agreement included a clause which meant that if Mr Pouvin's employment contract ended the loan became immediately payable in full. Mr Pouvin resigned and the company sued the Appellants. The pair argued that the term was unfair (and unenforceable) under Unfair Contract Terms Directive (the Directive). EDF argued that the Directive didn’t apply because they weren't a supplier and the Appellants weren't consumers.

The case has made its way through the French courts and was referred to the European Court of Justice to determine if the Directive applied to the loan. The first stage in that process is the Attorney General's opinion.

Attorney General's Opinion

EDF argued that an employer can only be regarded as a seller/supplier when acting in the specific field of activity that corresponds to its realm of professional competence. The AG rejected that argument, and said that ancillary activities that facilitate the principal activity of the business may also be covered. In this case, the provision of the loan, served the aim of attracting and maintaining a qualified and skilled workforce, which was conducive to the successful running of the business.

EDF also tried to argue that a recital to the Directive excluded contracts relating to employment. However, the AG noted that recitals are only non-binding supplements to directives that are used to assist interpretation and said that this particular recital merely illustrated the kind of contracts that already fall outside the scope of consumer relationships.

Therefore, in the AG's opinion, EDF was acting as a supplier in providing the loan and the Directive applied to its terms.

The UK Position

The position is more settled in UK law. It is clear that the Unfair Contract Terms Act 1977 (UCTA) does not apply to employment contracts (as was confirmed in the case of Commerzbank v Keen [2006] in relation to bonus clauses). However, where an employer enters into a contract with an employee in granting them a loan the Consumer Credit Act 1974 does apply.

Therefore, when granting loans to employees, employers should consider the Financial Services and Markets Act (FSMA), and the Consumer Credit Act 1974. Rules and guidance can be found in the Financial Services Authority's Handbook and the Consumer Credit sourcebook and in particular be aware of the requirement of reasonableness as regards the terms of the agreement.


For further information on employment issues, please contact Bob Fahy in our Employment Law team, on 01923 919 302.