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.