Employer's ability to make payroll deductions from the employee's salary payments - clarification from the Supreme Court

Two of the most central obligations in an employment relationship are that the employee must perform work, while the employer must pay wages. Payment of wages must be made at the agreed time. The payment of wages is of central importance for employees to secure their livelihood. For this reason, the employer has very limited access to correcting any incorrect payments at a later date. 

Section 14-15, third paragraph, of the Norwegian Working Environment Act regulates the cases in which the employer may legally make payroll deductions. According to letter c of the provision, the employer may deduct wages «when it has been previously agreed in writing». The provision has led many employers to include a standard clause on pre-agreed salary deductions in their employment contracts. On 17 December, the Supreme Court handed down a ruling that restricts access to salary deductions and the ability to agree salary deductions in advance.

Advance agreements with standard clauses on payroll deductions

The case concerned an employer who deducted wages from one of its employees as a result of the employee having received too high a per diem allowance over six months. The incorrect payments were made as a result of the employer's failure to update its computer systems after the collective agreement on regulated per diem allowances was amended. The employer was aware that too high a per diem allowance was being paid, but continued to do so until the computer system was updated. During this period, the employee believed in good faith that he was receiving the correct per diem allowance. After six months, the employee was notified that he had been paid too much allowance during those six months. The employee protested the right to deduct wages. 

The question for the Supreme Court was whether it is sufficient for salary deductions that there are pre-agreed standard clauses on salary deductions in employment contracts or whether separate agreements must be entered into for each salary deduction. After a detailed review of relevant legal sources, the majority of the Supreme Court concluded that the purpose of the law, that the employee should receive the salary as fully as possible and that the salary should be predictable, weighed most heavily. Agreements on salary deductions must consequently concretise the salary deduction so that the employee's need for predictability is safeguarded. The Supreme Court thus concluded that the pre-agreed standard clause on salary deductions did not meet the employee's needs, so that the employer could not make salary deductions.

It should be noted that if there are ongoing and fixed salary deductions, such as canteen deductions, the employee's predictability will be ensured, so that salary deductions can be made.

The possibility to claim repayment on other grounds - conditio indebiti

The Supreme Court then considered whether the employer was entitled to repayment at all, either through the employment contract or the non-statutory doctrine of repayment, conditio indebiti. The non-statutory doctrine of repayment is based on a specific overall assessment in which one considers the consideration of correcting incorrect settlements against the consideration that the recipient should be able to consider the settlement as final. The Supreme Court's majority concluded that the employment contract's regulation did not provide a basis for repayment. 

On the question of repayment under the non-statutory doctrine, the Supreme Court pointed out that the incorrect payments could not be blamed on the employer, as the payments were due to the reorganisation of the computer system. However, the employer could be blamed for failing to notify the employees or pay wages subject to later corrections after updating the computer system. Based on this, the Supreme Court concluded that no repayment could be made. 

The practical significance of the judgement

The Supreme Court's judgement means that employers are not entitled to deduct wages based on general provisions in employment contracts. Any advance agreement on salary deductions will have to be sufficiently specific, in addition to ensuring the employee's need for predictability, in order for a salary deduction to be legal. In practice, this means that such agreements must be entered into at the time of the incorrect payment or afterwards. To ensure that the employee does not act in the belief that the payment is correct if this is not the case, the employer should also notify the employee of any incorrect payments as soon as this is discovered. It is also in the employer's interest to enter into a dialogue with the employee about repayment as quickly as possible. 

Please feel free to contact us if you have any questions related to payroll deductions or other labour law topics. We can be contacted on 64 84 00 20.