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Employee Overpaid By $42,000 - Gets To Keep The Money

Published 25 Jun 2012

Foai v Air New Zealand

Mr Foai was employed by Air New Zealand in 2002 as a casual loader or cleaner. He later became a permanent part timer, working shifts. In 2007 he moved to a temporary role as an administrator.
Air New Zealand claimed he was overpaid by $42,635 net over a 16 month period, from July 2007 till Nov 2008.

Mr Foai’s employment was terminated in 2009. In order to claw back some of the money Air NZ said it was owed they deducted $9,363 from the final pay. The dismissal itself was contested, and not part of this Appeal. The deduction was held to be illegal in the Employment Relations Authority (ERA), but the Authority ordered Mr. Foai to repay the $42,635 he had received. Mr Foai sought to retain the $42,635. ($70,428 gross)

Mr Foai challenged the ERA’s determination by appealing to the Employment Court.

The circumstances of the case were highly unusual, as the Employer was not able to provide a copy of a relevant Employment Agreement detailing the rate of pay for 2007, nor was a new rate of pay established until 2008. Prior payment arrangements on several rates were amalgamated into “average earnings” based on prior payments. This “average” was ill defined, and there were many fluctuations. A change from part time to full time and a new role was involved.

Mr Foai had several times raised concerns about the fluctuations in his payments. A payroll officer had advised there was an overpayment. The payroll Officer advised Mr. Foai not to spend the money. Managers were informed, but the Employer took no action.

Mr Foai received a variety of payments, many minor, but some in a fortnight were up to $4,000 in excess of prior earnings. However, Mr. Foai had worked extra hours, and had put in recognised extra effort.

The Employer did not produce basic evidence to demonstrate what the mistake was. Counsel for the Employer, towards the end of the case, tried to provide a general description of the error (“there may have been a computer error”), which the Court held to be inadequate as tangible evidence.

It was held by the Employment Court that Mr Foai had received the money in good faith, (i.e. he was not conscious that there was in fact definitely an error). Mr. Foai had acted in reliance and spent the money on rent, holidays and looking after his family. The money had gone, and it was not fair to recover it in these special circumstances, partly because the Employer had not provided normal written details of the rate of pay, and had allowed the situation to continue after Mr Foai had raised his concerns on several occasions.

The Employee “was entitled to rely upon Air New Zealand to get the figures right”.


This case raised several points which can’t be over emphasised.

•        The importance of having up to date employment agreements in place for all staff, which accurately record rates of pay – this is especially important for internal transfers where the terms and conditions can change markedly.

•        The systematic recording of changes of rates of pay and other employee related correspondence.

•        Any reported pay issues should be investigated and resolved immediately after they are raised, in order to minimise the potential impact.

*** If you would like more information on how to put a new employment agreement (or a change to existing terms and conditions) in place for an existing employee, please see our guide "How to Change Existing Employment Agreements".
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