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Overpayments and other exceptions
A worker cannot bring a claim for unlawful deduction from wages in the employment tribunal if the reason for the deduction is that the employer has made an overpayment (section 14, ERA 96). This is the case even if the error is because the employer had wrongly calculated the amount due.
However, if there is a dispute and the worker genuinely believes they have not been overpaid, a tribunal can decide as a matter of fact whether or not there had been an overpayment which must be repaid.
Often, a worker accepts that they have been overpaid once it is brought to their attention, but has spent all the money and cannot repay it. The law in this area is complex, but in summary, it would be for the employer to bring a claim to recover the money in the civil courts. The worker might succeed by showing, for example, that they had not realised there had been a mistake and had changed position in reliance on the money believing it was theirs, spending it or taking on extra liabilities such as a mortgage on the basis of the money. In Commerzbank v Price-Jones ([2003] EWCA Civ 1663), the Court of Appeal held that an overpayment which was clearly a mistake on the employer’s part could be reclaimed, unless the employee could show that it would be inequitable for them to have to repay it.
Following a TUPE transfer from Woolwich to Barclays Bank, part-time bank worker Mrs Keenan was given new terms and conditions showing her salary as £17,000 (an increase from her pre-transfer salary of £9,500). She assumed that the change reflected a hoped for pay rise in recognition of her long service. In fact, it was a mistake by Barclays, who had forgotten to pro-rata the full-time salary for her post to reflect her part-time hours. She was paid this higher salary for two years, during which Barclays failed to spot its mistake, even when providing a staff loan, an overdraft, a Barclaycard and a mortgage reference.
When it finally noticed its error, Barclays tried to reclaim the money and to cut Mrs Keenan’s salary to its part-time level. Mrs Keenan raised a grievance as a result of which Barclays waived any claim to “historic overpayments” but insisted on cutting her salary. Mrs Keenan brought a tribunal claim alleging an unlawful deduction from wages.
Barclays argued that Mrs Keenan knew or ought to have known she was not entitled to such a high salary. The tribunal judge found for her, concluding that she had not known (and could not be expected to know) of the mistake and that if she had known, she would have told her employer. The judge took into account the bank’s failure to notice its own error for two years. Mrs Keenan was allowed to keep the overpayment and stay on her higher salary. The case is interesting but not binding, as it was a decision of an employment tribunal and Barclays chose not to appeal.
Keenan v Barclays Bank (ET1100791/2009)
Workers in retail employment have additional protection limiting deductions for cash shortages or stock deficiencies to a maximum of 10% of any one pay packet, except for the final one.
Deductions that are made because a worker has taken part in a strike or other industrial action short of a strike are excluded by section 14 of the ERA 96, and cannot be pursued as an unlawful deduction from wages claim in an employment tribunal. However, the tribunal can consider whether there was in fact industrial action (Gill v Ford Motor Co ([2004] IRLR 840). If the worker wants to challenge the amount of pay deducted, this must be done using the civil courts.