Imagine that after a long career of working hard in the public service, you take your long service leave just prior to your retirement. You are ready for the next 30 years of travelling to Europe on pre-packaged cruise deals, buying top-of-the-line road bikes and wearing lycra to scare the grandkids. After all, you've earned it.
Then, after many months abroad of drinking champagne and eating until you have to undo the top button of your pants, you drag your sunburned body off the cruise ship and smile, looking forward to the last few weeks of your leave ... when your old HR department calls you:
"There has been a mistake ... we miscalculated your leave entitlements. You didn't actually have any long service leave to take ... you need to pay back the department $40,000."
This is the stuff of nightmares, and it is what reportedly happened to public servant Kay Boisen.
Boisen thought she had it all planned out. Like many public sector employees, she planned to take the remainder of her long service leave before pulling up stumps on a 35-year nursing career in Queensland. She had checked with the HR department and it seemed like it was all systems go, so Boisen went ahead and budgeted for her leave and subsequent retirement.
While Boisen was on her long service leave, with only a few short weeks remaining, the Queensland Health Department informed her there had been an input error in 2010 where her leave had been credited at four times the correct amount. As a result of this administrative error, Boisen was now required to reimburse the department no less than $40,000.
Chillingly (and somewhat surprisingly given the considerable resources of the Queensland state government), this was not an isolated case. Boisen had already paid back $8000 to the department in a separate circumstance of over-payment. Further, it has been reported that Queensland Health may have overpaid almost 17,000 of its employees. It is now scrambling to clawback these funds.
What does the law say?
At a glance, it seems manifestly unfair that an employee who took reasonable measures to ensure that her leave entitlements were correct, may have to pay the price for an administrative error that was not of her making. Generally, once an employee is aware that an employer has mistakenly paid them too much, they will be liable to pay the balance of the overpaid funds back to their employer, provided its "fair and just" to do so.
However, even if there is no dispute that an employee has been overpaid, an employer cannot simply deduct the overpaid amount owed from the employee's pay without their agreement (that is, unless the employment is subject to an enterprise agreement - which is the case for most APS and EL level employees - that allows the employer to deduct the overpayment from salary). If an employer does not have the power to withhold payment from salary under an enterprise agreement, and no agreement about repayment can be reached, the employer is entitled to recover the overpayment by taking the employee to the civil courts.
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The defence of change of position
In some circumstances it is possible for overpaid employees, such as Boisen, to rely on the defence of "change of position", a defence that, if established, may exempt her from paying the $40,000 bill in part or in whole. To rely on this defence Boisen would have to argue that upon the receipt of the money (or in her case - long service leave benefit), and in reliance thereupon, she made financial decisions in an irreversible manner such that it would now be unjust for her to have to repay $40,000 to Queensland Health.
For example, if Boisen could establish that she had, say, decided to give the money to charity, or to pay out her mortgage, and she would not have done so if not for the long service leave, then given that she could not get these monies back, the defence is likely to apply. The defence might also apply if she had spent the money on more leisurely pursuits like a cruise.
But there is a further consideration relevant to the "change of position" defence. In this scenario, to recover the overpayment, Queensland Health would have to show Boisen knowingly took advantage of the administrative error. If it was able to do this, then Boisen will not be able to rely on the "change of position" defence, and will most likely be ordered to repay the amount in full.
In The State of Western Australia v Hartmann-Nieto a cleaner (who was employed by the state to clean schools) was overpaid to the tune of $80,000, for a number of complicated reasons but, put simply, because her employer continued to pay her after she stopped working.
The cleaner tried to argue her position had changed, as she had reinvested the funds in everyday living expenses and overseas holidays. Unsurprisingly, the court held that the investment in "crucial" overseas holidays were not enough to enliven the defence, given that she knew that the payments had been mistakenly made into her bank account.
So, in the Boisen matter, if she can show that she had no knowledge that her leave entitlements were four times the amount they should have been, and that the money has been irretrievably spent, there is a likelihood that she may be able to rely on the defence.
What does this mean for you?
While hopefully the Queensland Health overpayment saga is not a "canary in the coal mine" of government overpayments, it serves as a timely reminder of employees' rights when faced with an overpayment claim.
Parties faced with such a claim should revisit the enterprise agreement to ascertain agreed rights and obligations. Should the employer not be able to lawfully claw-back the overpayment without your agreement (for example, because the employee no longer works there so wages cannot be garnisheed in any event, because no express overpayment clause exists, or because the employment is not covered by the enterprise agreement), and the money has already been spent, it might be worthwhile contacting your lawyer to see what, if any, legal defences exist to such a claim.
What is the moral of this tale? Always triple-check your leave entitlements before you depart forever on long-service leave - enjoy that hard-earned cruise in peace!
- John Wilson is the managing legal director of BAL Lawyers and an accredited specialist in industrial relations and employment law, with Claudia Weatherall and Rebecca Richardson.