Many employment contracts have general provisions that give the employer the right to make a deduction from the employee's salary if incorrect payments are made. The Supreme Court now states that such standard regulations do not normally allow the employer to make a deduction from the employee's salary to correct previous erroneous payments. More specific agreements on the relevant wage deduction must be in place for the employer to be able to make adjustments in this way.
In a recent case, the employer overpaid around 8,000 Norwegian krone in dietary allowance to the employee. Due to changes in the tax rules, the employer company's rules and rates for dietary allowances in their collective agreement had been changed. These changes also necessitated a readjustment of the employer's computer system. While the employer waited for this to happen, it continued to pay dietary allowance according to the old regulations without notifying the employees about it or reserving a refund.
Only after about six months did the employer inform the employees about the incorrect payments and that these would be deducted from their salary if they had been paid too much. The employee was one of those who had been paid too much and contested the demand for reimbursement.
According to sections 14-15 of the Working Environment Act, employers are generally not allowed to make deductions from employees' salaries and holiday pay. Deductions can be made when it is determined in advance by written agreement.
In the employee's employment contract, there was a provision that gave the employer the right to make necessary adjustments to correct erroneous payments. The employer thought this was sufficient as a basis for deducting the employee's salary, but the Court did not agree.
The Court held that a prior agreement on deductions from wages must specify the relevant wage deduction. The agreement in this case had been entered into long before the erroneous payment took place and thus the wage deduction had not been sufficiently specified.
In practice, this means that if an employer is to succeed with a wage deduction, agreements on deductions from wages must be entered into either in connection with the erroneous payment or afterwards. General standard agreements will thus not be enough to secure the employer's claim for repayment in the event of incorrect payments.
It is worth noting that there are situations in which it is possible to sufficiently concretise the pay cut at an earlier stage. An example the Supreme Court gave was agreements that give the employer the opportunity to deduct the employee's salary to cover agreed rent or canteen costs that the employee incurs on an ongoing basis through the employment relationship. Such agreements can be entered into at the time of the employment contract.
Does the employer have other ways to get a refund?
The employer tried to get reimbursed for the erroneous payment by both a general interpretation of the agreement and the illegal rule on settlement correction, so-called "condictio indebiti". Neither of these succeeded. Regarding the interpretation of the agreement, the Court emphasised that the employer was the stronger party in the contractual relationship and should bear the risk of any ambiguities. Regarding condictio indebiti, the Court pointed out that the employer had been aware that the company had paid the wrong daily allowance when changing the computer system. However, the employer had not notified the employees or made a reservation that the payments were incorrect. The Supreme Court therefore found no other basis for the employer's claim for reimbursement.
Disagreement among judges
One of the judges disagreed with the others. This judge believed that the so-called "general clause" made it clear enough that the employer could demand reimbursement, and that it had to be understood as such so that the correct settlement could take place. The judge therefore considered that the employer could demand the amount be repaid.
The judgment emphasises that the employee must have certainty about the amount of their salary.
Employers should now think carefully about the situations in which incorrect payments can take place and regulate these clearly and concretely in employment contracts. For those who are already employed, this may mean that the employer should consider making additional agreements that regulate these situations.
In addition, employers must be alert to situations where incorrect payments occur or may occur. In such situations, employers should be open about the error or risk of error, and quickly put in place necessary and sufficiently specific agreements on deductions from wages with the relevant employees.
For further information on this topic please contact Lise Gran or Ole Kristian Olsby at Homble Olsby | Littler by telephone (+47 23 89 75 70) or email ([email protected] or [email protected]). The Homble Olsby | Littler website can be accessed at www.homble-olsby.no.