Case Study – Salary Overpayment Collected from Former Employee

Recovering overpayments to former employees can be an easy process that need not result in large legal costs. To illustrate the options a company may have, let us consider a recent case. 

The Parties

In this case, a former employee of an award-winning outsourcing company based in London was overpaid in excess of £8,000. Unfortunately, the company did not discover the overpayment until after the employee had already left their employment. In preparing its annual accounts, the company became aware that the former employee had been overpaid and became concerned that the money would not be recovered. The company consulted Lovetts to determine its legal options to recover the salary overpayment to its former employee. 

The Challenge

Lovetts informed the company that they were entitled to recover the overpayment from the former employee. However, the company was facing a former employee that was refusing to engage with no certainty as to whether they had the current address for the former employee. 

The Solution

Lovetts were able to trace and confirm the former employee still lived at the address the company had on record. Accordingly, Lovetts sent a letter before action requesting the return of the salary overpayment. The former employee failed to engage with Lovetts and did not respond to the Letter Before Action. As a result, Lovetts promptly filed a claim for the amount of the overpayment plus legal costs and interests. The former employee filed a defence alleging that she had never received correspondence from her former employer or Lovetts notifying her of the overpayment and that she was completely unaware that she had received an overpayment. The former employee further stated that because it was her employer’s mistake, she was not liable to return the overpayment in any event. Lovetts were able to respond and present a clear paper trail which included all previous demands from the company to the former employee. It also clearly set out all payroll records showing the overpayment that had been made and received by the former employee. The Court accepted the evidence showed an overpayment and rejected the defence that former employee was not required to return the overpayment due to the Company making a mistake. 

The Outcome

The Court ordered the former employee to return the overpayment of salary and to also make payment of the legal costs and interest. The former employee subsequently made payment of the Judgment amount within 14 days of the hearing and avoided enforcement action.  

Having overpayment issues?
If the overpayment has been made to a current employee, you have certain rights under the Employment Rights Act 1996 to deduct the overpayment from the next payroll process. However, what happens if the overpayment relates to a former employee? The first step is to write to the former employee requesting payment of the overpaid sum. If you are not sure what to include in your letter, please download our free guide which provides you with template letters.