He can do that. Question should be: Can he get away with it?.. Only if you let him. This matter might be best worked out in small claims court, assuming of course, that this deal occurred within a jurisdiction that has small claims court or the equivalence of it. If you live in Kuwait or something like that, I suspect you're out of luck or really naive, because, they don't have taxes in Kuwait... Seriously though, I presume you have small claims court available to you. If you cannot reach an amicable solution to this mess, I suggest that you approach (again) small claims court. The costs are low. If the employer is trying to pull a fast one, the mere suggestion of small claims court should help resolve the issue in your favour. I suspect the employer is unilaterally trying to back out of the deal after discovering he(?) cannot grant personal loans as they represent advances in pay from an accountants point of view,as well as your country's revenue collection service (IRS in the US for instance) and would therefore be subject to with-held income tax. If that's the case, the employer is in a tough spot and much harm could be avoided if the employee approaches the problem afresh, bearing in mind the original good intent implied by the employer granting the personal loan in the first place. I suspect(even more) that there's been a misunderstanding: The employer assumed the employee was asking for an advance in pay, when he was, in fact, truly asking for a personal loan-something the employer obviously does not wish to do or is incapable of doing. Avoid trouble wherever possible and be reasonable.