The recent Employment Court decision of Air New Zealand Ltd v Foai has shown the difficulties for an employer in trying to recover salary overpayments from an ex-employee.

In this case, Air New Zealand discovered that it had overpaid ex-employee, Mr Foai, by approximately $70,000 during his 16-month period of employment in a temporary full-time role and claimed recovery of this overpayment.

Mr Foai did not dispute the overpayment but claimed that he received his wages in good faith and altered his position in reliance on the validity of the wages that he was paid. Mr Foai had moved into his own accommodation which he would not otherwise have done, had taken a number of overseas trips, incurred a child support debt to IRD and had bought an engagement ring as he had decided to get married. Mr Foai had queried his pay on several occasions and was told that there was no issue with it. He claimed that he genuinely (if rather naively) believed he was entitled to his increased pay due to his "mingling with the CEO and other general managers". In addition, as Mr Foai's employment agreement did not specify any pay rate, he assumed that he was being paid the correct amount.

The Employment Court, in overturning the Authority's decision, held that the injustice that would result from compelling Mr Foai to repay the overpayments would significantly outweigh the potential injustice to Air New Zealand if it was denied recovery. Air New Zealand was therefore not entitled to recover the overpayment of wages. Application for leave to appeal by Air New Zealand was recently denied by the Court of Appeal.

This case challenges a widely held assumption that establishing a right to recover overpayments is a fairly straightforward process. It serves as a reminder to employers to ensure that payroll systems are comprehensive and accurate and that any concerns regarding overpayments are addressed and corrected promptly.