Payroll is an important function for both employers and employees alike, and unfortunately, mistakes can happen during the payroll process. When an employee is underpaid, they often are quick to bring it to the employer’s attention. In our experience, though, when the mistake is in the employee’s favor, it often goes unfixed until the employer notices it. Overpayments can happen in several different ways. For example, an employee could be paid an hourly wage that is higher than required for a period of time; a departing employee could receive a severance check based on a wrong calculation; or an employee leaves, but payroll forgets to take her off the payroll. In each situation, it is well settled that the employee does not get the benefit of the employer’s mistake, and the employer is entitled to repayment of the overpaid money. Recent cases demonstrate that employers can and should seek recovery of any overpayments.
Before addressing the court cases, note that overpayments made to current employees can be repaid by the employee without a lawsuit or court order. In that situation, the employer should not just start deducting money from the employee’s paychecks. Instead, the employer must obtain an authorization from the employee on a form approved by the Department of Labor before starting any deductions for reimbursement of the overpaid amount.
In the event that the employee will not agree to repay the money, two recent cases demonstrate that recovery is still possible through the court system. In the first case, a municipal employer terminated an employee, who then mistakenly continued to receive paychecks for several months. Once discovered, the employee refused all of the employer’s efforts to contact her and establish a repayment schedule. The employer then sued her in the Superior Court for the full amount due. The employer also argued that the employee’s failure to respond demonstrated willful conduct on her part, and that she was therefore responsible for the employer’s attorney’s fees. The employee never responded to the lawsuit, so the court granted the employer judgment in the amount of its overpayment and its attorney’s fees.
The second case was recently decided in the federal District Court. In that case, the employee took an extended leave of absence from work, and was mistakenly paid during that leave. Although he had paid some of that amount back when he returned to work, he then walked off the job while still owing a substantial amount of money. When the employee sued for discrimination, the employer asserted a counterclaim for repayment of the overpaid salary. The court granted the employer’s motion for summary judgment, dismissing the discrimination claim and ordering the employee to reimburse the employer for the overpaid salary on a schedule to be approved by the court.
Although employers should work to avoid overpayments to employees, these cases provide reassurance that courts will hold employees accountable for overpayments and that a careful strategy for seeking reimbursement can lead to an award of attorney’s fees for employers.