03/11/2014

In the current economic climate, it is prudent to take time out to explore possible ways to bolster your organisation's existing cash levels. One possible option is to undertake a review of salary records of current and former employees to seek to establish whether your organisation has mistakenly overpaid the salaries of any individuals.

Entitlement to recover overpaid salary payments

The law of restitution affords an organisation the right to be repaid monies it has overpaid to a current or former employee in error on the basis that the individual in question has been unjustly enriched at the organisation’s expense.

In broad terms, to bring a claim for restitution, an organisation which is seeking to recover monies erroneously overpaid to a current or former employee must satisfy the following criteria:

  1. Firstly, that the current or former employee has been enriched, or has received a benefit i.e. has received from your organisation additional monies, above and beyond the individual's normal salary.
  2. Secondly, that the enrichment of the current or former employee is unjust. It is well established in case-law that money paid by mistake constitutes unjust enrichment for the purpose of a restitutionary claim.
  3. Thirdly, that the enrichment of the current or former employee was at the expense of your organisation.

The courts will consider whether, in all the circumstances of the case, it would be unfair to require the individual who has been overpaid to repay, either wholly or in part, the overpaid sum. The main defence to a claim for restitution is a change of position of the person unjustly enriched, for example, where the individual who has received the overpaid monies demonstrates, to the court's satisfaction, that the overpaid monies have been spent or donated to charity. However, case-law dictates that, in general, such a defence is unlikely to succeed.

From our own experience, a Letter before Action setting out a client's claim for restitution often results in overpaid monies being repaid. Therefore, spending a little money at the outset can result in a fruitful outcome. 

Time limit for bringing an action to recover overpaid salary payments

The Supreme Court in the case of AB & Ors v Ministry of Defence [2012] UKSC 9, reaffirmed the position that it is extremely hard to succeed in bringing a claim which is time-barred by statute. However, a six-year time limit to bring a claim for restitution runs from the date you discover the overpayment was made (as opposed to the actual date of the overpayment). This period is known as the "limitation period". Therefore, if you have not yet discovered any overpayments made, it is not too late to act.

So as not to fall foul of the limitation rule, if you find yourself in negotiations regarding an alleged overpayment and you near the six year limitation period (on the basis that your organisation has known for some time that the overpayment was made), it is advisable that you issue a protective claim within, and towards the end of, the limitation period and then apply to the court for a stay of those proceedings whilst negotiations take place.