This post is a product of my recent conversation with a family friend. Apparently, a lot of people agree to act as a guarantor without knowing the implications. There are so many instances that will require you to provide a guarantor. It could be for a loan, or tenancy, or for employment. In this post, I’ll dwell more on acting as a guarantor for an employee, although the principles are all the same.
In some companies, particularly financial institutions, would-be employees are asked to provide a guarantor. This guarantor signs an employee guarantor’s form. Most times, the guarantor sign the forms without going through the fine print, until it backfires.
In my usual way, I’ll always use a story to pass across the message. A lawyer friend acted as a guarantor for her boss’ nephew. She didn’t know the young man personally, only met him a couple of times. He got a job at one of the big banks in Nigeria, and as per usual, he had to provide a guarantor. Her boss brought the form for her to sign, and she, believing it was just a routine document, signed it.
Fast forward to some years later, the young man was asked to resign from his job. Apparently, a huge amount of money was missing and the bank, after carrying out its investigations, resolved that the money was misappropriated by the young man. Without informing him, the bank wrote a letter directly to the guarantor asking her to pay xxx amount of money which was found to be missing.
Panic mode set in. She called all her family members to tell them what had happened. She called her boss and was lamenting and bemoaning her fate. Of course, her boss felt very bad because he was the one that asked her to sign the guarantor’s form.
To cut the long story short, the bank has written another letter to her, and everybody is running around trying to look for ways to resolve the matter. For her, this is a mistake she will never in her life repeat.
Best believe that so many people are like her, signing documents without reading and understanding it. It is even very ironical in her case because she is a lawyer and should know better.
When you sign that employee guarantor form, you are basically entering into a contract with the employee’s employer. You have certain obligations under the contract, and where you fail to fulfil them, you can (and will most likely) be sued.
What are these obligations?
In a standard guarantor’s form, a guarantor will be representing to the company that he knows the employee. He is expected to state how long he has known the employee and if he’s of good behaviour. Most importantly, the guarantor will be agreeing to pay to the company any amount adjudged to be owed by the employee to the company. This means that in the event the employee is found to be indebted to the company, the company can demand that guarantor pay back that money.
Let’s break this down further.
Some people, like the lawyer friend I used in the example above, will admit that they know the employee even when they don’t. This is all in a bid to help the employee get the job. When you say you know someone, what the employer expects is that you know him very well. This knowledge is not in vacuum. You have to state if the employee is of good character, and you can only answer this question if you truly know the employee.
When you misrepresent that you know someone, you can be sued by the company for misrepresentation. As I said earlier, this is a contract between you and the employer.
In all honesty, a good number of people sign a guarantor’s form believing that the employee will be of good behaviour. You can never be certain of this fact.
For high risk companies, like banks, I always advise people to be careful when acting as a guarantor. Not because the employee will steal, but the risk of money missing, due to shortages or double counting, is high. When my cousin worked in a bank, she was always having shortages. She wasn’t stealing the money, but for one reason or the other, it was never complete.
Another thing you will have to assess is if you have the financial capability. When push comes to shove, will you have the money to pay back? In the example I used above, the amount missing was over a million Naira. Obviously, the guarantor does not have that kind of money lying around.
What people fail to understand is, if you don’t pay up, the company will sue you, not the employee. Sometimes, they may sue both you and the employee, but in most cases, they go after the guarantor. When judgement is given in favour of the company, they will come after your assets. Anything belonging to you will be sold to get their money back.
Why don’t they go after the employee? They don’t have to if the guarantor agrees to be a primary obligor. By becoming a primary obligor, you agree that the employers can come directly to you for the employee’s debts. In most cases, the employee and the guarantor are usually primary obligors.
You may not see the words “primary obligor” in the contract. Rather, you will see a clause stating that you agree that the employers/company should come to you first for the debt without the necessity of going first to the employee. It can be rephrased anyway, but this is generally the intent.
Can you ask the employers/company to go after the employee? No, you can’t. Will the employee go scot-free? Not necessarily. You can sue the employee for the money that you’ve paid to his/her employer. Good luck with this if it’s a close friend or family member.
I really tried to make this as simple as possible without using any legalese. Before you agree to act as a guarantor, understand the implications. Also, ask yourself if it is a risk you are willing to take.
Have you had to act as a guarantor for anyone? Was it an easy decision to make?