The recent story of an employee who was paid £2,000,000 instead of his usual salary of £2,000 may be extreme, but overpayments of wages or expenses are by no means unusual.
Overpayments can result from many different situations, but often they are a genuine error on the part of the employer. So what can organisations do to try and recover overpayments from employees?
The employee who received £2,000,000 appears to have contacted his employer straight away to repay the money, but in many situations, particularly with smaller overpayments which take place for several months, employees might not be able to repay the whole amount immediately. Often employers will want to make a deduction from wages to recover the amounts due.
Employees are usually protected against unlawful deductions from their wages. However, a deduction is lawful if it is something the employee has agreed to in writing, which is why all employers should ensure that they have a properly drafted deductions clause in their employees’ contracts.
However, even if there is no deductions clause, or if the clause doesn’t cover overpayments, the employer may still be able to make the deductions. This is because there is an exception to the rule on unlawful deductions to allow for the recovery of overpayments.
In some situations employees may attempt to argue that they should not be required to repay the overpayment. This argument may be based on a very old legal concept called ‘estoppel’. There are three main points that are relevant to estoppel in this context, which are:
1) The employer must have done something which led the employee to believe the money was rightfully his (or hers).
2) The employee must have “changed position”, which usually means that they have spent the money.
3) The overpayment was not the employee’s fault.
The courts and Tribunals may take account of the fairness of the whole situation and whether it is right for the employee to have to repay the overpayment. If estoppel applies (which is extremely rare), deductions from wages to recover the overpayment will not be lawful.
In many cases, it is likely to be difficult for the employee to establish the first point. However, there are other cases where the position is much less clear – for example, where an employee is receiving sick pay, and the employer accidentally continues to pay sick pay for weeks or months beyond the employee’s contractual entitlement.
Even where estoppel does not apply and an employer has a legal right to demand full repayment, they should still exercise caution. If they insist on full repayment and this causes the employee financial hardship, then the employer’s actions may be a breach of the duty of mutual trust and confidence, which in some situations could lead to a constructive dismissal claim. That said, generally overpayments can be recovered from employees.
Employers who are dealing with overpayments will need to consider a range of factors. How has the overpayment arisen? It will of course be relevant how big the sum is, relative to the employee’s salary. Generally speaking it is best for employers to sit down with the employee and agree a reasonable repayment plan, but if agreement cannot be reached, then it is worth taking advice to find the best solution.
Are you an employer seeking to recover an overpayment from an employee? We can help. Please contact any member of the Pure Employment Law team (01243 836840 or [email protected])