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All a matter of deduction

How do you deal with that awkward situation when an employee (or former employee) owes you money?

How do you deal with that awkward situation when an employee (or former employee) owes you money?

One step you might take is to be practical. If you still have wages which you are due to the employee, you take off what they owe you and you pay them any balance. Everybody happy?

According to the latest employment tribunal statistics everybody is not happy. In fact, last year there were 51,200 claims for unlawful deductions from wages. That’s more claims than the tribunal received for unfair dismissal (at 46,300 claims). The statistics also tell us that it is the sort of claim that claimant’s are least likely to settle and the chances of winning a claim for unlawful deductions of wages is nearly twice that of unfair dismissal. So what are employers getting wrong?

The law tells us that it is unlawful for an employer to make a deduction from a worker's wages unless:

  • the deduction is required or authorised by statute or a relevant provision in the worker's contract; or
  • the worker has given their prior written consent to the deduction.

A "relevant provision" means one that is set out in a written contract which has been given to the worker before the deduction was made, or an express or implied term the existence and effect of which have been notified to the worker in writing before the deduction is made.

The contractual provision must make it clear that the deduction may be made from the worker's wages and the employer must also be able to demonstrate that the event justifying the deduction has occurred.

If you are going to rely on written consent, the consent must be given before the event giving rise to the deduction, not just before the deduction itself. The consent must make it clear that the deduction may be made from the worker's wages. If you want to recover season ticket or other loans, training costs, enhanced maternity pay and the like, get a proper agreement in place.

If you make the deduction and you have not complied with the rules, you lose the chance to recover that money by other means – so it’s important to get right.

Be aware though that employment legislation does not prevent recovery of an overpayment of wages or expenses. This means that, if you recover the overpayment from an employee’s later wages, he or she cannot complain to an employment tribunal of an unlawful deduction. A worker could, however, sue the employer in a civil court (usually the small claims court). The prospects of success of that claim would depend on whether it was unfair and unreasonable for you to recover the overpayment. In the employer’s favour is the principle of “unjust enrichment” – a general view taken by courts that a person should not benefit from another’s mistake. In the employee’s favour is the principle of “change of position” – that the employee’s circumstances do not make it reasonable for the money to be recovered, for example, because they queried the payment, they were told that it was correct and spent the money in the belief that they were entitled to it.

But what if the money owed is something that you did not foresee or is not an overpayment? Last year, employee theft cost UK retailers £1765M according to the Centre for Retail Research. In employee theft cases your first port of call will probably be the police. It is equally important to speak with both an employment lawyer and also a fraud lawyer with a view to stopping any stolen funds being dissipated or moved. This may be done by obtaining a freezing order, which restricts the movement of assets by the employee. Once the assets are frozen, a civil recovery action may then be formulated.

Remember though that if you need to sue the employee to get money back, you will have to prove on the balance of probability that the money is owed, so don’t just rely on a police investigation or be casual about the quality of evidence that you need to gather. Weightmans has a specialist debt recovery team which can offer a fixed scale of charges and works with a professional, efficient, and process driven approach. If you do find yourself having to frequently recover sums from former employees, please do let us know as we will be able to assist you.

Kevin McKenna, Associate,