Employer cannot recoup wage increases paid in error

A company has been told it cannot recover wages that were overpaid to employees by mistake over a six-year period.

The case illustrates the need for companies to fully understand their obligations when acquiring other businesses and their employees under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE).

The company had bought another business and wanted to comply with TUPE so that the new employees would retain their existing terms and conditions. However, the directors misread the employment contracts and wrongly believed that employees were entitled to annual wage increases in line with inflation. That wasn’t actually the case.

The company sent an email to employees acknowledging that it was obliged to pay the increases and confirming that it would do so.

When the mistake was discovered six years later, the company started to deduct sums from the employees’ wages to recoup the excess payments.

The employees objected and the case went to a tribunal, which ruled that the deductions were unlawful.

The employer appealed saying that pay increases given under a mistaken belief could not become a legal obligation.

The case went all the way to the Court of Appeal, which upheld the tribunal decision. It held that the firm had initially been under no legal obligation to award the wage increases. However, the fact that it then told employees that increases were a contractual requirement meant that a new contract had effectively been created.

Please contact Jackie Cuneen or John Carter if you would like more information about the issues raised in this article or any aspect of TUPE and employment law.