Can Employers Recoup Overpayments of Salary from Employee’s Wages?

S13 of the Employment Rights Act 1996 states that no deductions may be made from an employees salary without his or her express written consent, or in the employment contract. This statutory provision however does not apply to deductions from a workers wages to recover an overpayment of wages or an overpayment of expenses.

In Home Office v Ayres [1992] IRLR 59, [1992] ICR 175, EAT Mr Ayres received an over payment of sick pay which his employer then sought to recoup. The Employment Appeals Tribunal held that it is possible to defend such a deduction on the grounds of ‘estoppel’ or change of position for the worse which, in accordance with the decision of the House of Lords in Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, [1992] 4 All ER 512, ‘is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full’. In this Mr Ayres had spent the money having received it in good faith and without knowledge that there was an overpayment. It could not lawfully be deducted.

Although this decision has subsequently been criticised, if an employer seeks to recoup the money from the employee, it may be possible for the employee to argue that s/he spent the money in good faith and without knowledge of there being an overpayment, and that in the circumstances the employer may not then lawfully recoup it from salary.

In any event, pursuant to the Employment Act 2002 (Dispute Resolution) Regulations 2004 the employer should follow a fair procedure before making any such deductions, which in summary consists of having a meeting with the employee on notice and considering any points the employee may have before reaching any decision. The employee should also be given the right to appeal if the decision is unfavourable to him or her.