Salary overpayments

Case ref: 1.2/ March 2004

Summary of case

Member was given temporary promotion from November 1999 to September 2000. On returning to her substantive grade she received letters confirming her change in salary and that her pay was correct.

In September 2003 the employer discovered she had been overpaid for 3 years. As a result measures were imposed to recover salary in phases over a period of time.

Advice requested

Whether or not the employer is legally entitled to recover the overpayment and reduce current salary.

Key advice provided by Thompsons

In commenting on the application of the law in these cases Thompsons advised that they were sympathetic to the member's situation. However, the advice letter went on to say: -

"there is a general right to recover money paid by mistake. Section 13 of the Employment Rights Act 1996 covers the right not to suffer unauthorised deductions. Deductions for overpaid wages is specifically excluded from protection by the Act and therefore, an employee cannot being a claim in the Employment Tribunal for deduction of wages in these circumstances, as set out in section 14 (1)(a) of the Act. X would need to bring any claim to a County Court.

"The employer is entitled to recover the overpayment, subject to estoppel - the principle that if two parties proceed on the basis of an assumption, where that assumption proves to be incorrect, neither party can go back on it without there being potential damages. Where an employer overpays an employee by mistake the courts will normally bar recovery if the employer led the employee to believe that she is entitled to treat the money as her own, not reasonably expect her to notice overpayment, that the employee has spent the money in good faith and the overpayment was not caused primarily by the fault of the employee".

In another similar case, where advice has been received, Thompsons make the following comments which may assist officials dealing with overpayment cases: -

"There have been cases where a defence has succeeded where an overpayment occurred as a result of a mistake of fact and the individual has not had to make a repayment.

"For example, in County Council of Avon v Howlett 1983 the Court of Appeal held that an overpayment of sick pay of £1,000 was not recoverable because the worker was not to blame for the mistake and he had altered his position in good faith before the Council had claimed repayment.

"Although this decision was before the judgement in Kleinwort, I think it is still possible to make out a defence depending on a particular individual's circumstances. For example, where an employee has spent the overpayment, held a genuine belief it to be theirs and it would be inequitable for the employer to reclaim the money. This is the principle of estoppel. In these circumstances it may be possible for an employee to make out a defence or alternatively lodge a counter claim against the employer in the County Court."

The Leinwort case referred to above concerned a restitutionary claim for monies paid. The House of Lords decided that the mistake of law rule which had been widely used by TUs in dealing with recovery of overpayment cases, should no longer form part of English Law.

Legal department comment

Hopefully the above brief provides officials with enough information to deal with requests for advice on overpayment cases without the need to refer the matter to Thompsons.

The key message is that although the law is not as favourable to our position as it has been in the past, every effort should continue to be made via internal procedures to persuade the employer to write off overpayments or at the very least to agree recovery arrangements which are acceptable to members.

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