Occasionally an employer mistakenly and inadvertently overpays an employee over and above his or her entitlement, through no fault of the employee. The overpayment may be a single payment or made over a period of time. It may be the result of a clerical or computer error on the employer's part, inadequate internal processes for receiving and updating information which is relevant for computing salary, or agreements which were not duly authorised by the employer or relevant authorities.

The employer may stop paying an overpayment once it has been discovered, but the recovery of overpaid amounts is not simple. The issues which often arise are whether the overpayment is recoverable in all circumstances and whether the employer can deduct the overpayment from the employee's wages. The answers are: not in all cases. The Wage Protection Law(1) takes the view that the employee's wages, being a source of income on which the employee and his or her family depend, require protection, and therefore the law allows reductions only in a closed list of circumstances. Deductions not made in accordance with the law may entail prohibitive fines with respect to the salary deducted. The permitted deductions include, within limitations, a liquidated debt (which, if the employment relationship is ongoing, requires a written agreement) and advances paid, but they do not include deduction of an overpayment, unless the employee agrees in writing to the deduction. In the absence of a deduction agreement, the employer must take its case to court and may only make the deduction if and to the extent that it receives a judgment in its favour.

The issue of inadvertent and mistaken payment or overpayment is not particular to an employment context. The issue of recovering payments made inadvertently and mistakenly is part of the more general issue of undue enrichment governed by the Unjust Enrichment Law, which provides that when a person receives any benefit from another person without legal right, the recipient must make restitution, whether or not the benefit was procured through any act of the recipient or the other person or otherwise.(2) The law also provides that the court may exempt the recipient from all or part of the duty to make restitution if the benefit did not involve a loss to the other person or if restitution is unjust in the circumstances.(3) The law reflects the necessity of balancing the conflicting interests of preventing unlawful enrichment by enabling recovery of overpayments on the one hand, and the necessity to protect parties which act in good faith in reliance on the benefit on the other. The judicial discretion in defining circumstances which render restitution unjust is wide.(4)

The fact that an employee who receives an overpayment contends the employer's entitlement to recovery does not make the employee a thief, an embezzler or a person acting in bad faith.

If the overpayment is made through no fault of the employee, and the employee is ignorant of the fact that he or she is being overpaid and spends the overpayment believing, in good faith, that he or she is entitled to receive it or incurs irregular expenses which he or she might otherwise not have incurred had he or she not received the overpayment, the court may exempt the employee from repayment of overpayments so received.(5)(6) If, however, the employee is aware of a duty to report information which may adversely effect his or her salary entitlement and he or she fails to do so, the court may order repayment.

The issue of repayment of overpayments by an employee has been recently adjudicated by the Tel Aviv District Labor Court.(7)


According to the law, if a retired public servant commences employment with another public service, the pension payable by the former public service employer is reduced, taking into consideration the employee's salary from the public service.

A municipality sued an ex-employee for repayment of pension overpayments continued to be made after the employee began working for another municipality. The employee did not inform her former municipality employer that she had begun working for another municipality. In its claim to receive repayment of pension overpayments, the municipality relied on the statutory duty of its employees to report employment in another public service.


The court rejected the claim, ruling that the municipality had not notified its employees of their duty to inform, and that the employee was, in fact, unaware of such duty.


The message is clear: if an employer fails to notify its employees of their duty to report certain information which may adversely effect their salary entitlement, and as a result lacks the information necessary for computing employees' salaries and overpays its employees, the court may exempt the employee from repayment, unless the employer can prove that the employee was in fact aware of this duty. On the other hand, if the employee was aware of his or her duty to report certain information which may adversely effect his or her salary entitlement and fails to do so, the employer may be entitled to recover since the employee will be unable to claim that he or she relied in good faith on the overpayment.

There is a disparity between the employer's and the employee's position in case of overpayment and underpayment, assuming in both cases that the employer acted mistakenly and inadvertently: if the employer overpays the employee, the employer may not be able to recover, whereas if the employer underpays, the employer will be made to pay the shortfall in arrears. This gap is attributable to the superior resources and control usually characteristic of the employer in the employer-employee relationship. The disparity may be bridged if the employee fails to report specific information that may adversely effect his or her entitlements, even though he or she is aware of the duty to do so. Therefore, employers should take measures to notify employees of their duty to report specific information that is relevant to their salary entitlements, since the existence of a statutory duty to do so, not specifically brought to the attention of the employees, is not sufficient to establish awareness on part of the employee.

The National Labour Court of Appeals(8) recently reiterated that due to the nature of labour relations based on 'relational contract', both parties owe each other heightened obligations of fairness, disclosure and honesty. This includes the employer's responsibility to disclose to the employee essential information about labour conditions and any subsequent changes, especially if such conditions and alterations have significant financial ramifications. The court also ruled that the employee's payslip is not the appropriate vehicle for transmitting information of changes in employment conditions. The information provided should be explicit and detailed.

For further information on this topic please contact Shoshana Gavish at S Horowitz & Co by telephone (+972 3 567 0700), fax (+972 3 566 0974) or email ([email protected]).


(1) The Wage Protection Law (5718/1958), Section 25.

(2) The Unjust Enrichment Law (5739/1979), Section 1.

(3) The Unjust Enrichment Law, Section 2.

(4) Bill 1353, July 5 1978, p267.

(5) Prof Daniel Friedmann, The Law Of Unjust Enrichment (2nd edition 1998).

(6) National Labour Judgment of Appeals, 704/06 Medical Researches Fund v Lorin Kedem:

"The employee did not recognise the mistake and had certainly not contributed to its occurrence. The employee did not misrepresent the fund. In the instant case, the employee was innocently of the opinion that she deserves the wage received."

(7) Labour Judgment (Tel Aviv) 4572/02, Lod Municipality v Chaya Oslo.

(8) National Labour Judgment of Appeals 652/08, The State of Israel v Yoel Ben Hemmo. In this case the employer failed sufficiently to notify its employees of a change in rules with respect to employees who elect to acquire retroactive pension rights in respect of a former period of employment in lieu of severance payments which they received and must repay. According to the change in rules, the amount repayable was significantly higher. The court ruled that the employer was not entitled to collect the difference and that no negligence could be attributed to the employee, although the principle of contributory negligence can be used to reduce an employer's liability or increase the employee's liability.