In principle, a debt owed by an employee to their employer is a debt which can be recovered like any other. However, the unique relationship between an employer and employee can provide alternative opportunities for recovery of monies, but can also give rise to added complexities when seeking to recover debts.
Overpayment of wages or other monies to employees is a surprisingly common issue. It can occur for any number of reasons including administrative error, payroll processing delay and employee fraud. Employers may also wish to recoup training costs or advances paid to employees. The best way to do this will depend on a number of factors, including the position under the employment contract, the amount of the overpayment and whether the worker still works for the business.
What is permitted?
The Employment Rights Act 1996 (the Act) prevents employers making deductions from a worker's wages (note these regulations apply to the wider class of workers, as opposed to employees) unless they are:
- Required/authorised by statute
- Permitted by a provision of the employment contract
- Where prior consent has been received from the worker
Where the worker remains in the business, the most convenient way to deal with overpayment of wages is likely to be through deduction from wages. Ideally, an employer should have a contractual provision expressly allowing for deductions from wages. This avoids trying to reach an agreement with the worker after the fact. Without a contractual provision or other agreement by the worker allowing the deduction, any deduction from a worker's wages will amount to a breach of contract and a worker will be able to bring a claim in the civil courts in respect of that breach.
Section 14 of the Act also permits deductions where there has been an overpayment of wages or an overpayment in respect of expenses incurred by the worker in carrying out his employment. However, this exemption from the unlawful deductions regime only applies to genuine overpayments of wages and employers should not use this as a means of recoupling other types of overpayments.
Employers should also be mindful of their implied duty of trust and confidence under the employment contract when taking action and should avoid making deductions without giving any prior notice or making large lump sum deductions which may place the worker in financial difficulty.
Without a contractual provision, or in circumstances where a worker has left the business and there are no further wages from which to deduct the overpayment, an employer can rely on the common law remedy of restitution based on a mistake of law or fact to recover the overpayment in the civil courts.
If you wish to pursue this course of action, it is important to act as quickly as possible to prevent the worker from arguing that they have "changed their position" so that it would be unfair to require them to repay the money. In considering such a defence, the court will consider whether, in all the circumstances of the case, it would be unjust to require the worker to repay, either wholly or in part, the sums which the employer seeks to recoup. This will depend on the facts of each case but, employers will be relieved to note that such a defence has been rejected in cases where workers have known that there was a risk that they may not be entitled to the money but "turned a blind eye".
Review your contracts
In conclusion, employers should review their contracts to ensure they contain mechanisms for recouping overpayments, training costs, etc. Where there is no recourse under the contract or the deduction from wages exemptions, employers should seek advice as soon as possible to maximise their chances of successful recovery.
If you have any questions or would like more information, please contact one of our specialists below.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.