Where an employer deducts an overpayment from an employee's wages, can the employee bring a claim against the employer?

Where an employer that has accidentally overpaid an employee makes a deduction from the employee's wages to recover the overpayment, the employee cannot bring a claim under s.13 of the Employment Rights Act 1996 for unlawful deduction from wages, as this is expressly excluded by s.14 of the Act. However, the employee could bring a claim in the civil courts, under common law principles, arguing that the employer was not entitled to recover the money.

The employee will succeed only where the court determines that he or she has changed his or her position, as a result of the overpayment, in such a manner that it is inequitable for the employer to recover the overpayment. The change of position could be, for example, that the employee spent the money on purchases that he or she would otherwise not have made, having believed that it was money to which he or she was entitled. There must be a causal link between the overpayment and the change of position; the fact that the employee has spent the money is not, of itself, enough to show that it would be inequitable for him or her to have to pay it back. What constitutes a sufficient change of position to render it inequitable for the employer to recover the money will depend on the circumstances of the case. Expenditure that the employee would have incurred anyway in the ordinary course of events is unlikely to be sufficient. If the employer led the employee to believe that he or she was entitled to the overpayment, and the employee relied in good faith on those representations and changed his or her position by spending the money, the court may order the employer to repay the amount it has deducted.

The employer will be in a stronger position to defend the claim if the overpayment was noticed and the deduction made quickly, than if a series of overpayments went unnoticed for a long period of time.