No recovery of payment mistakenly made: e-Alert November 2011

The Victorian Supreme Court has dismissed an appeal by an employer seeking recovery of a redundancy payment mistakenly paid to a former employee: TRA Global Pty Ltd v Kebakoska [2011] VSC 480.

Background

Ms Kebakoska was employed as National Operations Manager of TRA when her position was made redundant. On termination of her employment, and in addition to amounts for unused accrued annual leave and long service leave, Ms Kebakoska was paid 12 weeks pay, which TRA stated was based on 'Federal Award Standard requirements'. In fact, Ms Kebakoska was not covered by any award. Email correspondence between TRA's senior management and Ms Kebakoska suggested that TRA was convinced it had a legal obligation to pay 12 weeks severance, although it did not refer to the source of this obligation.

Ms Kebakoska did not obtain further employment for eight months. During the time she was unemployed, she applied to Centrelink for unemployment benefits, but was ineligible due to her receipt of the redundancy and other termination payments. By the time she obtained further employment, she had spent almost the entire amount paid to her by TRA on termination of her employment.

The Victorian Magistrates Court (Lauritsen M) found in favour of Ms Kebakoska, finding that:

• TRA did not make the redundancy payment voluntarily (as argued by Ms Kebakoska), but rather in the mistaken belief it had a legal obligation to do so.
• Generally, a person who makes a payment to another in the mistaken belief that they have a legal obligation to do so may sue to recover that payment.
• However, Ms Kebakoska was deprived of Centrelink's benefits due to TRA's mistake, and as a result used the redundancy payment for her living expenses.  In these circumstances, it would be unjust to require her to repay the amount of the redundancy payment to TRA.

Proceedings

TRA appealed the decision of Lauritsen M in the Supreme Court. Justice Osborn dismissed the appeal.  His Honour held that Ms Kebakoska should not be forced to bear a financial loss, which would have been covered by unemployment benefits if TRA had not mistakenly made the redundancy payment. Ms Kebakoska had relied on TRA's mistake, which had the effect of depriving her of a benefit to which she would otherwise be entitled. In such circumstances, the general rule requiring repayment of monies paid under a mistake of law should not be applied.

Lessons

• An employer that makes a payment to an employee voluntarily, without regard to any legal obligation to do so, cannot subsequently seek to recover that payment from the employee.
• An employer may be entitled to recover an amount paid to an employee if that payment was made because of the employer's mistaken belief that that the employer was legally required to make the payment.
• However, recovery of a payment made by mistake will not be available to an employer where, by relying upon and accepting the payment in good faith, the employee is denied another benefit (such as social security payments) to which they would otherwise be entitled.

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