The Victorian Supreme Court has recently handed down a decision which complicates when and how an employer will be entitled to recover an overpayment made to an employee/ex-employee. The lessons from this decision should be heeded by employers.

TRA Global Pty Ltd v Kebakoska [2011] VSC 480

Facts:
Ms Kebakoska was employed by TRA Global as a National Operations Manager, earning $129,034.20 per year.

In 2008, Ms Kebakoska’s position was made redundant. The Company paid out her accrued outstanding entitlements and an amount of redundancy pay in accordance with an award.

Following the cessation of her employment, Ms Kebakoska attempted to find alternative employment but was unsuccessful. She instead applied to Centrelink for unemployment benefits.

Ms Kebakoska was told by Centrelink that she was not entitled to any benefits because she had not exhausted the funds that were paid to her in the redundancy package.

As a result, Ms Kebakoska used most of the funds from the redundancy package to support herself until she found ongoing employment.

Later, Ms Kebakoska then sued the Company for an unpaid bonus she argued she had been contractually entitled to. The Company then counter sued Ms Kebakoska claiming that it had paid her an amount of redundancy pay in error and that amount should be returned to them.

The matter was heard in the Magistrates Court and then appealed to the Supreme Court.

Relevant findings as to the overpayment:
The Supreme Court upheld the finding of the Magistrates Court that that redundancy payment had been made to Ms Kebakoska by mistake.

Even though it was a mistake, the Company could not recover the amount because Ms Kebakoska had “changed her position” in reliance on the redundancy payment. Specifically, she had used the redundancy pay to live off while she looked for another job and had, because of the redundancy pay, been denied unemployment benefits by Centrelink.

Lessons for Employers

• Actions to recover overpayments will be significantly harder if the employee/ex-employee has changed their position in reliance on the overpayment. A “change of position” may include inability to access other benefits, or the abandonment of pursuing opportunities to obtain other work.
• As soon as employers become aware of an overpayment to an employee/ex-employee they should write to them immediately and advise them of the overpayment and that they are not entitled to use it in any way. Ms Kebakoska was only told about the Company’s view that it was an overpayment when she tried to sue the Company, and not beforehand.
• Being able to demonstrate that the employee was aware that they were not entitled to use the funds may help address any claim they may later make that they relied on the funds and changed their position.

 

The team at Zeitz Workplace Lawyers can assist you with any workplace issues you may have including recovering overpayments. Please do not hesitate to give Susan, Nandi, Simon or Sarah a call to discuss any of these matters further.

Disclaimer – This update is intended to provide commentary and general information only. It must not be relied upon as legal advice. Formal legal advice should be sought in relation to any matter arising out of this update.