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Recovery of Overpayment to Employees in British Columbia

In the fast-paced world of payroll, mistakes occasionally happen leading to overpayment of employees. It is tempting to correct such overpayment by simply deducting the overpaid amount from the employee's next paycheque. British Columbia employers may be surprised to learn that, except in certain circumstances, this method of recovery is impermissible.

Section 21(1) of the BC Employment Standards Act says:

Except as permitted or required by this Act or any other enactment of British Columbia or Canada, an employer must not, directly or indirectly, withhold, deduct or require payment of all or part of an employee's wages for any purpose. (emphasis added)

This broadly worded clause seems, on its face, to prohibit deductions for any purpose, apart from those authorized by statute, such as for tax, Employment Insurance, or Canada Pension Plan. Fortunately, courts have taken a sympathetic view of section 21.

In Health Employers Assn. of B.C. v. B.C. Nurses' Union, 2005 BCCA 343, the Court of Appeal affirmed a grievance arbitrator's interpretation of section 21 as prohibiting the unilateral recovery by the employer in all but certain excepted circumstances. The Court of Appeal wrote:

The employer is still able to recover overpayments from employees where that employee agrees to the deductions, or where a statute or collective agreement expressly authorizes the employer's unilateral action. Where no such agreement or statutory authorization exists, the employer has the option of recovering overpayments in other ways such as pursuing a grievance, or bringing a claim against the employee (at para 67).

In the non-union workplace, where an employee has been overpaid, the employer should seek consent in writing from the employee to deduct the amount of overpayment from the employee's next paycheque. Where there is a good working relationship and the mistake is caught quickly, an employee may willingly consent to this reasonable balancing of accounts.

If the employee does not consent to the deduction, as may be the case where there is an accidental overpayment coincident with an employee's final paycheque on termination of employment, section 21 holds that the employer's only remedy would be to bring a claim against the employee.

Given the relatively small amounts that may be in issue in the event of overpayment, a full-scale court action would likely be an inefficient way to recover the overpayment. Circumstances of overpayment are suitable instead for the relatively informal and streamlined Civil Resolution Tribunal process, which is appropriate where the disputed overpayment amounts to less than $5,000. The Civil Resolution Tribunal process is based online and proceeds by written submission, offering a cost-effective method for employers to recover overpayment from intransigent employees which helps to overcome the restrictions imposed by section 21.

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Lawson Lundell's Labour and Employment Law Blog provides updates on the most recent legal developments impacting the Canadian workplace and offers practical tips for employers. We cover a range of topics, including labour relations, employment law, collective bargaining, human rights, employment standards, employment equity, workers' compensation, business immigration, privacy, occupational health and safety and pensions and employee benefits. 

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