Legal Question in Employment Law in California

Overpayment to Employee Statute of Limitations

My employer has conducted a payroll audit and has discovered that they have overpaid many employees. All of these overpayment happened over two years ago.

1. Is there a Statute of Limitations for the employer to correct their mistake?

2. Does the employer have the right to money from payroll checks to correct the mistake?

Asked on 5/19/04, 7:32 pm

2 Answers from Attorneys

Scott Linden Scott H. Linden, Esq.
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Re: Overpayment to Employee Statute of Limitations

Attorney Kirschbaum is correct about the Statute of Limitations, it depends on how the receipt of the increased payments are and were perceived.

This is certainly not a cut and dry issue and additional research of the company policies as well as the issues surrounding the reason for the errors is necessary.

Your first, and cheapest, line of defense is to contact the Department of Labor and inform them of the situation. They are usually not too pleased when employers make errors on payroll and then take it out on employees. Their website is at http://www.dir.ca.gov/DLSE/dlse.html. Their contact info is:

1515 Clay Street, Suite 801

Oakland, CA 94612

(510) 622-3273

As a former corporate counsel, I had to deal with similar situations. Usually, if the amount in question was negligable, (remember, this amount varies depending on financial situation; yours and the company's), then we would write the amount off as an employee bonus.

Please feel free to contact me directly if you need additional assistance at (626) 578-0708 or online at RulesofEmployment.com

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5/24/04, 3:44 pm
Michael Kirschbaum Law Offices of Michael R. Kirschbaum
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Re: Overpayment to Employee Statute of Limitations

You could make the argument that, since wage payment is part of a verbal agreement, the Statute of Limitations is two years. I'm sure they would counter that the employees knew they were being paid more than they should be, and this is fraud, therefore the Statute of Limitations should be three years. This is a factual question.

If the employees were aware they were overpaid and said nothing, they will probably have to pay back the money. But the employer cannot help itself by making unauthorized deductions from their paychecks. This would be illegal. An agreement would have to be worked out.

I can envision a scenario where the employees reasonably believed they had recieved a pay raise and continued working under the belief it was for the higher rate of pay. Under this scenario, the employer may be estopped from now claiming the employees were paid incorrectly.

The specific facts will have to be reviewed by an attorney for a more informed legal opinion.

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5/20/04, 6:57 pm

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