From time to time the slick, professional and ruthlessly efficient machinery of office administration, such as payroll, breaks down – hard to believe we know. Occasionally this results in employees getting overpaid. Those benefitting from such a windfall will usually pay the money back. The case of Keenan v Barclays Bank Plc explores what happens when an employee says, "No, your mistake mate, I'm keeping the cash!".

Due to an administrative error, Mrs Keenan was wrongly paid £17,000 a year instead of £9,500. When Barclays discovered this they demanded she repay the £20,000 overpayment. Keenan promptly took them to an employment tribunal – and won!

Keenan originally earned £9,500 a year working part-time for the Woolwich, but when the business was taken over by Barclays 3 years ago she was assured she would receive a 'significant' pay rise. When she received a new contract stating she would be paid £17,000 a year, she assumed the increase was the pay rise she had been promised. Barclays claims the amount stated was for full-time employment and she should have been paid on a pro-rata basis. Keenan used her pay slips to apply for a mortgage on a house and Barclays even provided a reference confirming her salary when she applied for the loan.

For an overpayment not to be recoverable, an employee must show 3 things:

1) the overpayment was the fault of the company and not the employee;

2) it was reasonable for the employee not to know that they were being overpaid;

3) the employee must have acted to their disadvantage assuming that the payment of salary was correct e.g. they have spent the cash!

In Keenan's case the tribunal found that she satisfied all 3 of the tests and, not only did she not have to repay the money, but worse, she would also continue to receive the higher salary payments!

The case is quite unusual both in the scale of the overpayment and also in the sense that it satisfied all 3 tests. If these are not satisfied then the Employment Rights Act 1996 does allow for a deduction from an employee's wages where there has been an overpayment of wages by mistake. If such a mistake is discovered, act promptly; explain the situation to the employee and try to agree how the money will be recovered and over what period. If matters can't be resolved then deduct the money from salary and wait to see if a claim is brought.