Law's Remarkable Failure to Protect Mistakenly Overpaid Employees

By Jim Hawkins. Full text here.

Employers frequently make mistakes and overpay their employees. For instance, the federal government alone, which makes up only around 2% of the U.S. workforce, will likely overpay its employees by $2 billion this year. After discovering the error, employers often recoup the mistaken overpayments without the supervision of the courts by simply exercising a self-help remedy — setting-off the debt against the employees’ paychecks. The law of restitution enables this recovery because overpaying on a contract is a prototypical example of unjust enrichment. For some employees, the entire transaction is trivial, but for many others, losing significant portions of their wages and suffering from aggressive collection techniques drive the employees and their families into financial distress.

Remarkably, current law does virtually nothing to protect employees who are indebted to their employers, and scholarship on restitution, creditor-debtor law, and employment law has not recognized this near absolute absence of protection. This Article uncovers law’s failure to protect mistakenly overpaid employees and suggests judicial and legislative action to protect this vulnerable group.