image

Employer can retrieve overpaid wages if done correctly

Mistakes with pay can happen. Often the mistake goes unnoticed for a long time, resulting in the employee receiving a substantial overpayment. Can the employer demand the employee to repay the money and reduce the employee's pay back to the correct rate, or does the erroneous rate become a term of the employee's employment contract that can only be reduced by consent?

In a recent case, the Employment Court held that erroneous rate of pay does not become a term of the employee's employment. The employer is therefore entitled to reduce the employee's pay back to the correct rate and demand the employee to repay the overpayment. The employer must however, be careful not to be heavy handed in the way in which it demands repayment. It may not for example, threaten to lay criminal charges in an effort to force the employee to repay the money. If it does so, then the employee may bring a personal grievance claim.

The case involved the Elizabeth Memorial Home, which employed Iunesi Kumar as a nurse.

In November 1996, Ms Kumar signed a new employment contract that increased her pay from $10 per hour to $10.25 per hour. Due an administrative error, Ms Kumar was paid $12.25 per hour. This error went undiscovered for almost a year. By this time, Ms Kumar had been substantially overpaid.

Upon discovering the error, the Home's principle nurse/manager, Mr Collins, met with Ms Kumar and demanded that she repay the amount of the overpayment. He also advised her that her pay would be decreased to $10.25 per hour.

Later, the Home's lawyer, Mr Cooper, threatened Ms Kumar that if she did not repay the money, a complaint of theft would be laid with the Police.

Ms Kumar brought a personal grievance against the Home alleging that it was not entitled to demand repayment, nor reduce her pay to $10.25 per hour. She argued that being paid $12.25 per hour had become a term of her employment and that this rate could not be reduced without her consent.

She also claimed that the threat made by the Home's lawyer, Mr Cooper, was unjustified and had caused her humiliation and distress.

Before her personal grievance was heard, Mr Collins overhead a conversation which led him to believe that Ms Kumar had stolen some carpet from the Home. He hired a private investigator to investigate the matter, and laid a complaint of theft with the Police.

The Police investigated Mr Collins' complaint, but found there was no substance to it. The Police wrote to Mr Collins criticising him for failing to make proper inquiries before making the complaint. The Police also said that the private investigator's report that accompanied the complaint was misleading, and expressed concerns about being used to assist with recovering the amount of the overpayment. Ms Kumar brought another personal grievance against the Home regarding its inept handling of the theft complaint.

The Employment Tribunal found that the rate of $12.25 was not a term of Ms Kumar's employment contract as the Home had never consciously agreed to pay it. The Home was therefore entitled to reduce her pay to $10.25, and request that she repay the amount of the overpayment. However, the manner in which the Home had gone about demanding repayment (ie: threatening to lay criminal charges) was heavy handed and unjustified. The Tribunal awarded Ms Kumar $3000 compensation for this.

The Tribunal dismissed Ms Kumar's personal grievance regarding the inept way the Home had handled the complaint regarding the theft of carpet, as this had not disadvantaged her in her employment.

Both parties appealed, but the Employment Court dismissed their appeals.

More employment law

Employment Law
Ace Payroll does not give legal advice but these employment law articles may assist more..
Minimum Wage
From 1st April 2016 the minimum adult rate is $15.25 an hour, and applies to all workers 18 years and over more..
90 Day Trial Periods
New employees can be on a trial period of up to 90 days more..
Daylight Saving
Daylight saving dates and handling related employment issues more..
Redundancy must be genuine
An employee can only be made redundant if their position no longer exists more..
Dismissal procedural fairness
An explanation of the meaning and importance of procedural fairness when terminating employees more..
Employee or contractor
Use this checklist to clarify the difference between an employee and a contractor more..
Contractors minimum wage
Contractors are not entitled to the minimum wage more..
Employee interview honesty
An employee must be honest at a job interview or risk subsequent dismissal more..
Employee deductions
Cannot make deductions without employee consent more..
Retreiving overpaid wages
An employer can retrieve overpaid wages if done correctly more..
Employment relationships
Make it clear when and how an offer of employment will be made more..
Terminated before started
Resigned from old job, then told new job no longer available more..
Video surveillance
The use of video surveillance by employers is common and legal more..
Host responsibility
Think about the safety of employees affected by alcohol at work functions more..
Failure to meet targets
An employee can be justifiably dismissed for failing to meet targets more..
Change pay frequency
Pay frequency can be changed if properly managed more..
Abandonment of employment
Must inquire into circumstances of worker's absence more..
Changed working hours
Redundancy possible if employee does not agree more..
Drivers license
Truck driver loses license. Dismissal fair and reasonable more..
Internet usage
You would be wise to have a policy for personal internet usage more..
Absent employees
Some tips on dealing with absent employees more..
Payment for Jury Service
There is no obligation on an employer to pay for jury service more..
Recruitment health questions
Health questions employers are entitled to ask prospective employees more..
Holiday And Leave Contents
Holiday pay, public holidays, sick and bereavement leave information more..
Alphabetical Index
The Ace Payroll alphabetical index provides links to all documentation more..
Ace Payroll FAQ Contents
All the most common Ace Payroll questions grouped by categories in a short table of key words more..