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Norwegian Supreme Court: Automatic set-off clauses are no longer valid

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Legal news
calendar 16 December 2022
globus Norway

After accidentally paying an employee more travel compensation than he was entitled to, a company wanted to set off the amount against his monthly salary. To do so, the company relied on a standard clause in his employment agreement. According to the employee, he was entitled to the amount that was paid out to him. The Norwegian Supreme Court agreed that standards clauses do not automatically allow for set off.

A project manager in a Norwegian infrastructure company, received compensation for his travel expenses according to fixed rates. During his employment, changes occurred to the underlying taxation rules. Because the new rules impacted the system relating to travel expenses, the company decided to introduce a new calculation system for its fixed rate system.

However, in connection with the transition to the new system, the employee accidentally got more compensation paid out than he was entitled to. The company did not discover its mistake until the new system had been completely rolled out half a year later.

Although the employee had not been informed about the new rates, the company decided to set off the amount paid out accidentally against the employee’s salary. To do so, the company referred to a standard clause in the employee’s contract, which gave the company an automatic right to set off. The employee disagreed that the standard clause allowed the company to set off the amount against his salary.

Standard clauses are too unpredictable

As a main rule, companies can only set off an amount against its employees’ salary with a prior written agreement. To secure a general access to set off, many companies therefore include standard set off clauses in employment agreements, as a standard wording. With this case, the Supreme Court found that such standard clauses are no longer lawful, because they are too general.

Pursuant to the Supreme Court, the rules allowing companies to conduct set off are intended to protect employees. Access to set off is consequently restricted. According to the Supreme Court, standard clauses mean loss of control and predictability over their salary for employees. To set off lawfully, a specific agreement must be concluded in each case in connection with an incorrect payment or briefly after.

While concluding that standard set off clauses no longer will be enforceable, the Supreme Court emphasized that specific standard clauses can be. This is conditioned upon the clause being specific and allowing for predictability. By way of example, this could be relating to ongoing cafeteria expenses.

IUNO’s opinion

This judgement is important and impacts most companies, as standard set off clauses no longer can allow for automatic set off. Companies will therefore need to rethink how to approach situations where it wants to deduct amounts in salaries.

IUNO recommends that companies using standard set off clauses take a close look on how to change internal practices to allow it to continue having access to set off, when necessary. However, whether a clause will allow for set off will usually require an individual assessment, and it is required in any case, that companies always get in touch and communicate to employees quickly, if amounts have been paid out accidentally. Absent a clause or agreement, companies will have no other way to get reimbursement for incorrect payments other than legal action.

[The Norwegian Supreme Court’s’ judgement HR-2021-2532-A of 17 December 2021]

A project manager in a Norwegian infrastructure company, received compensation for his travel expenses according to fixed rates. During his employment, changes occurred to the underlying taxation rules. Because the new rules impacted the system relating to travel expenses, the company decided to introduce a new calculation system for its fixed rate system.

However, in connection with the transition to the new system, the employee accidentally got more compensation paid out than he was entitled to. The company did not discover its mistake until the new system had been completely rolled out half a year later.

Although the employee had not been informed about the new rates, the company decided to set off the amount paid out accidentally against the employee’s salary. To do so, the company referred to a standard clause in the employee’s contract, which gave the company an automatic right to set off. The employee disagreed that the standard clause allowed the company to set off the amount against his salary.

Standard clauses are too unpredictable

As a main rule, companies can only set off an amount against its employees’ salary with a prior written agreement. To secure a general access to set off, many companies therefore include standard set off clauses in employment agreements, as a standard wording. With this case, the Supreme Court found that such standard clauses are no longer lawful, because they are too general.

Pursuant to the Supreme Court, the rules allowing companies to conduct set off are intended to protect employees. Access to set off is consequently restricted. According to the Supreme Court, standard clauses mean loss of control and predictability over their salary for employees. To set off lawfully, a specific agreement must be concluded in each case in connection with an incorrect payment or briefly after.

While concluding that standard set off clauses no longer will be enforceable, the Supreme Court emphasized that specific standard clauses can be. This is conditioned upon the clause being specific and allowing for predictability. By way of example, this could be relating to ongoing cafeteria expenses.

IUNO’s opinion

This judgement is important and impacts most companies, as standard set off clauses no longer can allow for automatic set off. Companies will therefore need to rethink how to approach situations where it wants to deduct amounts in salaries.

IUNO recommends that companies using standard set off clauses take a close look on how to change internal practices to allow it to continue having access to set off, when necessary. However, whether a clause will allow for set off will usually require an individual assessment, and it is required in any case, that companies always get in touch and communicate to employees quickly, if amounts have been paid out accidentally. Absent a clause or agreement, companies will have no other way to get reimbursement for incorrect payments other than legal action.

[The Norwegian Supreme Court’s’ judgement HR-2021-2532-A of 17 December 2021]

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Etgen Reitz

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