A common and costly mistake - wage and benefit over payment

Mistakes happen. Despite rigorous payroll and HR processes and procedures sometimes the paperwork is delayed, goes astray, or a keying error occurs. If an individual is still employed repayment can be relatively straight forward. But what if they are not?

The law

Over payments often happen as a result of:

• An administrative error;
• Repayable bonuses/ benefits;
• Fraudulent claims, such as expenses.

The law of restitution can provide a remedy for a company, enabling them to recover the over payment even where an individual is no longer employed by the company. In summary, restitution prevents the unjust enrichment of the individual at the expense of the company. The remedy is to restore the position as if the ‘mistake’ had not happened. For a successful claim there are three requirements:

• The individual has been enriched, or has received a benefit;
• The enrichment of the individual  is unjust;
• The enrichment of the individual was at the expense of the company.

The main defence

However, a claim for restitution may be disputed by an individual. The main defence to a claim in restitution is that of change of position, where the individual  can show that they have changed their position for the worse, i.e. spent the money, as a result of the overpayment. In such circumstances, the key issue for the court to decide is simply whether or not it would be unjust to order the individual to make repayment in the particular circumstances of that case.
Relevant factors which the court might take into account when deciding the issue include:

• The size of the sum being sought to be repaid;
• The resources available to the individual from whom payment is sought.

One option for the court would be to order only repayment of the amounts that have not already been spent, if any.

Further case law has established that:

• Not to seek other employment was not sufficient to be treated as a change of position;
• If the individual believed they had been overpaid and a simple enquiry could be made by them but they chose not to, they could not rely on the change of position defence.

In light of the change of position defence it is clear time is of the essence and it is important that companies act as quickly as possible once an overpayment is discovered, to maximise the chances of recovery.

Things to consider

Overpayment of wages can vary dramatically. Ranging from an individual receiving an additional month’s salary as the payroll deadline was missed or the duplication of a bonus payment (as in the case of Commerzbank AG v Price Jones [2003] EWCA Civ 1663 when the sum of £250,000 was paid by mistake). While some sums may seem small, they all add up. It is important that companies identify mistakes quickly and act on them without undue delay if they want to recover the sums. For assistance with recovering overpayments please contact Shoosmiths consumer finance team.