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Recouping overpayments of salary

July 2010: Nowadays, most employees get paid directly into their bank account, and don’t notice very often what goes in, and assume that the employer can correctly calculate what they should receive per month. Employers however often get it wrong, and overpayments can go unnoticed, sometimes for years. What happens when the employer suddenly realises the mistake?

 

Section 13 of the Employment Rights Act 1996 states that no deductions may be made from an employees salary without his or her express written consent, or in the employment contract. However section 13 does not apply to deductions from a workers wages to recover an overpayment of wages or an overpayment of expenses. Therefore if the employee is still in employment, the employer can start making deductions to recoup the overpayment, though this should be done subject to consultation with the employee on the amount to be repaid monthly.

 

In  Home Office v Ayres [1992] EAT Mr Ayres received an over payment of sick pay which his employer then sought to recoup.

 

The Employment Appeals Tribunal held that it is possible to defend such a deduction on the grounds of ‘estoppel’ or change of position for the worse which, in accordance with the decision in Lipkin Gorman v Karpnale Ltd [1991].,

 

In Lipkin the House of Lords stated that the argument of estoppel  ‘is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full’.

 

In Home Office v Ayres,  Mr Ayres had spent the money having received it in good faith and without knowledge that there was an overpayment. It could not lawfully be deducted.

 

Although this decision has subsequently been criticised, if an employer seeks to recoup the money from the employee, it may be possible for the employee to argue that s/he spent the money in good faith and without knowledge of there being an overpayment, and that in the circumstances the employer may not then lawfully recoup it from salary.

 

However Courts will not be impressed by an employee who knows he is receiving an overpayment, but spends it anyway. Employees may find that the ‘estoppel’ argument is not the get out of jail card that they were hoping for.

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