Wage deductions in case of incorrect payment? Not quite as simple according to the Supreme Court

Many employment contracts have general provisions that give the employer the right to make a deduction from the employee's salary if incorrect payments are made. The Supreme Court now states that such standard regulations do not normally allow the employer to make a deduction from the employee's salary to correct previous erroneous payments. More specific agreements on the relevant wage deduction must be in place for the employer to be able to make adjustments in this way.

1 Got paid approx. 8000 kroner too much

The employer in the case had paid around NOK 8,000 too much in diet allowance to the employee. Due to changes in the tax rules, the rules, and rates for dietary allowances in the company's collective agreement had been changed.

These changes also necessitated a re-adjustment of the employer's computer system. While the employer waited to arrange this, they continued to pay diet allowance according to the old regulations without notifying the employees about it or making a reservation about a refund.

Only after about half a year did the employer inform the employees about the incorrect payments and that they would be deducted from their salary if they had been paid too much. The employee was one of those who had been paid too much and protested the demand for reimbursement.

2 The "General Clause" was not enough here, but may be in other situations

According to the Working Environment Act § 14-15, employers are generally not allowed to make deductions from employees' salaries and holiday pay. Withdrawals can still be made when it is determined in advance by written agreement.

In the employee's employment contract, there was a provision that gave the employer the right to make necessary adjustments to correct erroneous payments. The employer thought this was sufficient as a basis for deducting the employee's salary, but the Supreme Court did not agree.

The court held that a prior agreement on deductions from wage must specify the relevant wage deduction. The agreement in this case had been entered into long before the erroneous payment took place and thus the wage deduction was not sufficiently specified.

In practice, this means that agreements on deductions from wages must be entered into either in connection with the erroneous payment or afterwards if the employer is to be able to carry out the wage deduction. General standard agreements will thus not be enough to secure the employer's claim for repayment in the event of incorrect payments.

It is worth noting that there are situations where at an earlier stage one can concretize the pay cut sufficiently. An example the Supreme Court referred to was agreements that give the employer the opportunity to deduct the employee's salary to cover agreed rent or canteen costs that the employee incurs on an ongoing basis through the employment relationship. Such agreements can still be entered into already in the employment contract.

3 Does the employer have other ways to get refunded incorrect payments?

The employer tried to gain a foothold to be reimbursed for the erroneous payment by both general interpretation of the agreement and the illegal rule on settlement correction, so-called ‘condictio indebiti’. They did not win with this either. Regarding the interpretation of the agreement, the Supreme Court emphasized that the employer was the stronger party in the contractual relationship and thus was closest to bearing the risk of any ambiguities.

Regarding ‘condictio indebiti’, the court pointed out that the employer had been aware that the company had paid the wrong daily allowance while changing the computer system. However, the employer had not notified the employees or made a reservation that the payments were incorrect. The Supreme Court therefore found no other basis for the employer's claim for reimbursement, which had thus been lost.

4 Disagreement among the judges

One of the judges disagreed with the others. This judge believed that the so-called "General Clause" was clear enough that the employer could demand reimbursement, and that it had to be understood in any case so that the correct settlement would take place. The judge therefore considered that the employer could demand the amount repaid.

5 What can we learn?

The judgment emphasizes that it must be predictable for the employee how much he / she will be paid in salary.

Employers should now think carefully about the situations in which incorrect payments can take place and regulate these clearly and concretely in the employment contracts. For those who are already employed, this may mean that the employer should consider making additional agreements that regulate these situations.

In addition, employers must be alert to situations where incorrect payments occur or may occur. In such situations, employers should be open about the error / risk of error, and quickly put in place necessary and sufficiently specific agreements on deductions from wages with the relevant employees.