LETTER | Recovering overpaid wages by mistake

LETTER | Wages are a fundamental factor in employment contracts which have to be paid to the workers within the period specified by the law or as contractually agreed by the parties. 

Failure to pay within the assigned period would constitute a fundamental breach of the employment contract wherein the affected workers may, besides making a formal complaint to the Labour Department, resign from employment and thereafter bring a claim for constructive dismissal pursuant to the Industrial Relations Act.

Further, no employer may withhold or deduct any portion of a worker’s wages except when it is authorised by law or where the employer has written authorisation from the employee for the deduction.

In the case of overpayment of wages by mistake, there is no automatic mechanism that allows the employer to unilaterally recover the overpaid sum unless a deduction clause in the employment contract allows for such deduction.

A deduction clause simply means that the employee consents to the employer making deductions from the employee’s future wages.

Alternatively, the employer may with the written consent of the worker make an arrangement for the worker to repay the overpaid sum by a series of deductions from his wages each month until all money due has been repaid.

But if the worker refuses consent for the refund, the employer would have to file a civil claim and recovery action to recover the overpaid amount although undeniably it would be against conscience for the worker to keep the overpaid money which is not his entitlement.

However, any unilateral reduction of the worker’s wages would constitute a fundamental breach of the contract of employment.

In the aforesaid circumstances, the affected worker is entitled to resign and to have his resignation treated as constructive dismissal.

Hence, the sooner the overpayment is noticed and the worker is notified, the more likely it is for the employer to recover the overpaid sum without recourse to civil claim in court. 

However, where there is a long delay before the mistake was discovered, it will in most circumstances receive worker’s resistance and the chances of its successful recovery may be remote.

In fact, the failure to immediately detect the mistaken overpayment, the employer is deemed to have led the worker to believe that the overpayment was his entitlement and in reliance of the overpayment, the worker would have altered his financial circumstances in good faith.

In this regard, the court will have to consider whether the injustice of requiring the worker to repay the overpaid money is greater than the injustice to the employer of not receiving it. 

It would also require consideration as to what was done by the worker of the overpaid sum to the extent that it would amount to a detriment if they were required to repay the overpaid monies.

ASHGAR ALI ALI MOHAMED is a law professor at the International Islamic University Malaysia (IIUM).

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.