The recent Employment Appeal Tribunal case of Ridge v HM Land Registry has confirmed for the first time that the defence of set-off is available to employers in response to breach of contract claims in the Employment Tribunal.
What is a set-off defence?
Set-off is a legal defence available to a civil court action. In simple terms, where a claim involves two parties that both owe each other money, one party can raise a set-off defence to reduce or eliminate its liability to the other.
Breach of contract claims in the Tribunal
Employees can sue their employers in the Tribunal for breach of contract or debt claims if those claims existed or arose at the time their employment terminated.
Employers are not able to bring stand alone breach of contract claims against employees in the Tribunal. They can however bring a breach of contract counterclaim against an employee if that employee has brought a breach of contract claim against them. The employer must bring its counterclaim within 28 days from the day on which it received a copy of the employee’s claim or it will be out of time.
Mr Ridge was dismissed by HM Land Registry. In addition to other claims, he brought a claim for breach of contract in relation to unpaid pension contributions during his notice period. The Land Registry brought a counterclaim against Mr Ridge for overpaid wages, which exceeded the amount of Mr Ridge’s unpaid pension contributions.
The Tribunal held that the pension contributions claim was valid but that the counterclaim for overpaid wages had been submitted out of time. The Tribunal still decided however that the employer could use the overpayment of wages argument as a set-off defence against Mr Ridge’s claim for pension contributions.
Mr Ridge appealed to the EAT and the EAT agreed that the defence of set-off is available in Tribunals as well as the civil courts. Accordingly, it agreed that HM Land Registry could set off its overpayment of wages claim against Mr Ridge’s loss of pension contributions claim, regardless of the fact that it hadn’t submitted a counterclaim in time.
Good news – but counterclaims are still better
This decision is welcome news for employers, as not all will manage to comply with the short counterclaim time period. Employers should still bring their counterclaims whenever they can however because they will not be able to recover anything via a defence of set-off if the employee’s claim fails altogether. In this situation there simply wouldn’t be any claim to apply the set-off against. Also, the amount that an employer can set-off will be capped by the amount of the employee’s claim. If the employee’s claim is significantly less than the employer’s set-off defence, the employer will be left with a shortfall.
Jeremy Crook is a solicitor in the dispute resolution team in St Austell, he has experience in contentious employment matters including counterclaims and set-off defences. If you need help with any employment issues, or with persuading your insurer to allow you to choose your own solicitor, please contact Jeremy on 01726 74433 or email: email@example.com