Deductions from wages, overpayment in salary

Case ref: 3.4/August 2004

Summary of case

Our member Ms X knew she was to receive a small reduction in her salary at the same time as receiving a pay rise. As a result she did not notice if she had received a salary overpayment. The employer discovered the overpayment and made proposals for repayment. This was rejected by Ms X and revised arrangements were offered.

Advice requested

What is the legal position on salary overpayments.

Key advice provided by Thompsons

Thompsons advised that: 

"There has been a recent Court of Appeal case, Commerzbank AG v Price (21/11/03). In this case the Court of Appeal provided useful guidance in relation to overpayment of wages and the change of position defence. In light of this guidance, over payment of wages cases should in future be analysed by reference to this defence rather than estoppel. 

"As a result of the above case, the following principles should be applied: 

1. Overpayment of wages cases should in future be dealt with on the basis of the defence of change of position. It is for the person overpaid to establish the defence. 

2. The essential question in such a case is whether the position of the person overpaid has so changed that the injustice of requiring her to make restitution, or alternatively to make restitution in full, is greater than the injustice to the payer of not ordering restitution. 

3. A casual link must be established between the change of position and the overpayment. This question is not to be approached as a dogmatic legal rule but the change of position must still, on the evidence, be linked in some way to the payment of the money. 

4. The defence is less likely to be available where the money is still available, for example where it has been put into a savings account, or invested, or used to buy some valuable item. 

5. Even where money has been spent, the defence may still not be available where a person's change of position was due to her own innocent unilateral mistake or misunderstanding, not contributed to or caused by the paying party. 

6. A person may be ordered to re-pay part of the overpayment. It is not an all or nothing defence. This may be particularly appropriate where the person overpaid could have made more enquiries with regard to the amount being paid, had she addressed her mind to the issue, e.g. by checking her pay-slips." 

The solicitor went on to advise on the possible outcomes of the case and options open to Ms X. The letter confirmed: 

"At this stage it would appear that there are two possible outcomes. The Department have made proposals for repayment. It would appear that Ms X does not consent to make the repayments.

"The Department may decide to bring a claim against Ms X in the County Court for recovery of the overpayment. Your member will have to establish a defence that she has changed her position so that the injustice of requiring her to repay the overpaid wages is greater than the injustice of the Department not receiving repayment.

"From the papers provided to me, I consider that Ms X will have to repay the overpaid wages. She is being asked to repay £19.95 a month for 66 months. I consider that a court or tribunal will find this level of repayment does not cause greater injustice than the Department not receiving payment at all. 

"Alternatively, the Department may deduct the overpayment from Ms X's wages without her consent. In this scenario, Ms X could then lodge a claim at the Employment Tribunal for unlawful deduction of wages. The employer will argue that the overpayment was by mistake and that it was entitled to recover overpayment without consent as Ms X should have noticed the overpayment.

"I consider that there are borderline prospects of success for Ms X to win what will be a difficult claim. The deadline for Ms X to lodge her claim will be within three months of a deduction. Where there are a series of deductions the deadline will be within three months of the final deduction. I am providing this information to advise your member of her rights and not because I consider that this claim has reasonable prospects of success."

Legal Department comment

The above case builds on previous advice provided by Thompsons (see dissemination bulletin no 1). The advice we have on this issue is therefore very comprehensive and should be referred to when dealing with any overpayment of salary cases, and should avoid the need to obtain any further written legal advice, although you may still want to telephone Thompsons to clarify a particular point on individual cases.

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