In July’s HR Breakfast Club Forum, Rebecca Richardson of the Employment Law & Investigations team discussed when and how employers can recover debts from employees.
Employees have a duty to obey their employer’s lawful and reasonable directions that are within the scope of employment. If an employer has overpaid an employee, the employer can direct the employee to repay money if the direction is reasonable. This would not be a deduction from the employee’s wages. It would be a separate arrangement between the employee and the employer.
Section 325 of the Fair Work Act 2009 (Cth.) states that an employer can only direct an employee to make payments if the direction is reasonable or the employer does not benefit from the payments.
The employer must be careful to ensure that their direction is reasonable. They should consider:
Deductions are governed by s 324 of the Fair Work Act. An employer can only deduct money from an employee’s wages if the deduction is:
The employee’s written authorisation must specify the amount to be deducted and can be withdrawn at any time. A clause in an employment contract that allows an employer to make deductions is insufficient.
Section 90 of the Fair Work Act mandates that employers pay current and departing employees the full amount of their accrued leave. This prohibits employers from making deductions from accrued leave payments. Deductions, when permitted, can only be from wages.
Money cannot be unilaterally deducted from a departing employee’s final pay simply because they have not returned the employer’s property. Clauses in contracts, enterprise agreements, or awards, that provide otherwise are of no legal effect. However, such clauses do deter ex-employees from keeping their former employer’s property.
If an employer makes unlawful deductions, they may have unlawfully underpaid their employees and breached s 323 of the Fair Work Act. The employer could face fines, known as pecuniary penalties, of up to:
A person “involved” in the contravention, such as an HR manager or a supervisor, could face pecuniary penalties of up to:
Not all employee debts are recoverable, even when the employer pursues legal action. If the employee, in good faith, spends an overpayment on an irrecoverable good or service (like a holiday) that they would not have acquired but for the overpayment, a court may find that the employee has a successful “change of position” defence which precludes the employer from being able to recover the entirety of the debt.
It is wise to take precautionary measures like keeping records of remuneration payments, checking awards and enterprise agreements for permitted deductions. If a debt does arise, try to arrange a reasonable repayment plan while employment is on foot and only engage in permitted deductions drawn from wages.
To register for future HR Breakfast Club forums, visit our monthly forum page and register to attend. If you have any questions or queries about a debt an employee owes you, a debt your employer alleges you owe, please contact the BAL Lawyers Employment Law & Investigations team on 02 6274 0999. For more information, see the Fair Work Ombudsman’s website.