Circumstances can affect whether repayment is required
An employer has an implied duty to remunerate an employee for work performed. However, in today’s day and age it has become quite common for employers to make mistakes.
Whether it be because of technical failures in payroll systems or human error, the question remains: Does an employee have to repay any money they were given by mistake by my employer?
The short answer is yes, where the employer inadvertently makes payments over and above the employee’s entitlement, the employer may be able to recover the amount.
However, what happens in instances where the context has changed, and the repayment would be unconscionable or unfair? It’s possible that by the time the employee realized the mistake had occurred they may have changed jobs, made promises and arrangements in reliance of that amount, or even simply already spent the money. This is referred to as a change of position.
Let’s look at some case law.
Employer requests repayment
In Civil Aviation Authority v. Jorm (1994) 56 IT 89, the employee (Jorm) had been overpaid by a large margin. It was established in court that Jorm knew of the overpayment, yet never reported it. Instead, Jorm purposefully changed his position in reliance of the overpayment and then claimed it was unconscionable to request repayment.
The ACT Supreme Court found in favor of the employer. Given the circumstances, it was not unjust for them to recover the amount.
So what is a justifiable instance? Based upon recent case law, a valid change of position is established when a defendant, acting in good faith, irreversibly changes their position in reliance on the receipt of a benefit. This was established in the case of Palmer v. Blue Circle Southern Cement Ltd (1999) 48 NSWLR 31 when an employee relied on a compensation order in his decision not to claim social security benefits. Bell J stated:
“The circumstance that the award payments were applied to meet the appellant’s ordinary living expenses seems to me to overlook the detriment suffered by the appellant in not claiming social security benefits in reliance on the receipt of the workers’ compensation payments. […] The defence of change of position assumes good faith on the part of the recipient.”
Hence, if an employee suspects they have been overpaid, it is always best they first address it with the employer and ensure the mistake is reversed. If they genuinely did not realise the mistake had been made and end up changing their position in reliance of that mistake, they may argue that recovering the amount is unjust.
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