Am I obligated to pay back an overpayment of wage?

Typical question

My employer ‘accidently’ overpaid me and is now asking for the money to be repaid
back to them and are threatening to deduct money from my wages. Can I deny paying back the overpayment of wage?

Short Answer:
Under section 324, of The Fair Work Act 2009 (Cth), there are a narrow set of
circumstances where an employer will be permitted to deduct an amount from the
employee’s wages. An employer can only deduct an amount if:

1. if authorised in writing by the employee and the deduction is for the employees’ benefit (i.e. a voluntary superannuation contribution); or
2. The deduction is authorised via an enterprise agreement, modern award or under
   an FWC/court order.

If you do not authorise for the funds to be deducted from your wages then your employer cannot deduct the overpayment from your wages. However your employer may still be able to recover the overpayment from you. Your employer may argue that you have become unjustly enriched from the overpayment.
Your employer must be able to establish that the overpayment was a genuine mistake and not a voluntary payment. If they can, then on the face of it, they have the right to have the mistake rectified and demand that you repay the amount. However you may have counter arguments to make to prevent your employer from claiming the amount.

For more information available to you on the defences to an employer claiming mistaken overpayment of wages read the long answer below, or if you need professional legal advice, please contact our lawyers at McDonald Murholme.

Long Answer:
Threshold question: Was the overpayment a mistake or voluntary overpayment?
For the employer to be entitled to the reimbursement of the overpayment they must establish that the mistake caused the payment. In this sense, the payment must be a genuine mistake by the employer and not a voluntary payment, as voluntary payments do not constitute unjust enrichment.
In David Securities v Commonwealth Bank, the High Court defined a voluntary payment as a payment that a party makes even if they believe that there is no obligation; or hold doubts as to validity of the obligation. Thus, the person making the payment is electing to make the payment irrespective of any legal obligation to do so.¹ In those circumstances, an employer will not be able to claim the funds back.

This differs from a situation where an employer mistakenly pays you. For instance if your employer mistakenly processed two wage payments instead of one due to a technical error, this would not be considered a voluntary payment and you would be liable to repay the money.

Have you detrimentally changed your position on faith of the overpayment?
You may be able to refuse to repay the money if you relied on the payment to your detriment. To argue this you need to be able to establish that you relied on the payment in ‘good faith.’

This means that you have to establish that you genuinely believed that you were entitled to the overpayment. If you receive an overpayment and have no reason to believe that you were entitled to the payment, you are unlikely to be able to rely on this argument to avoid repayment of the monies.

This principle is illustrated in the case of TRA Global Pty Ltd v Kebakoska,² in which an employee was mistakenly paid a redundancy by her employer. The employee disclosed the redundancy payment to Centrelink and was denied unemployment benefits because of the redundancy payment. Ms Kebakoska utilised the redundancy payment for living expenses as she was unemployed for a period of 8 months.

The employer then attempted to recover the overpayment, however the Court found this was unavailable as Ms Kebakoska had genuinely believed that she was entitled to the redundancy payment which led to her being denied unemployment benefits, and therefore her position had changed. Had TRA Global acted sooner in reclaiming the redundancy payment they may have been able to reclaim the funds as Ms Kebakoska’s position would not have changed as much.

Conclusion:
This area of law is complex and it will depend on the facts and circumstances of your individual case. Therefore, if you have any further questions regarding overpayments or other employment law matters, please do not hesitate to contact our lawyers at McDonald Murholme.