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Employment Appeal Tribunal decision confirms set off defence for the first time

The Employment Appeal Tribunal("EAT") has held that an employer could set off its liability to a claimant for loss of pension rights against a counterclaim for overpaid wages. This is the first reported case to confirm that the set-off defence of this type is available in Tribunal claims - Ridge v HM Land Registry.

Employees are able to bring claims for breach of contract and debt claims against their employers in Employment Tribunals where those claims arise or exist at the time of termination. This means that employees do not have to resort to issuing county court claims for smaller claims.

In contrast, employers have no corresponding right to bring contractual claims against their employees in the Tribunal - but employers can seek to recover over-paid wages and other money due under contracts with their employees via a counterclaim.

Although it seems logical that, if an employee owes their employer money, the value of any successful claim the employee makes against their employer should be reduced accordingly, the right to set-off is an equitable right established in the civil courts, and no clear rule existed in relation to Employment Tribunals until the case of Ridge v HM Land Registry.

In that case, Mr Ridge was dismissed in 2010 following repeated short-term periods of sickness absence. Mr Ridge brought claims against his employer, HM Land Registry, for disability discrimination and victimisation, and added a claim for breach of contract in relation to alleged unpaid pension contributions during his notice period.

In response, HM Land Registry brought a counterclaim for overpaid wages, which exceeded the value of Mr Ridge's claim for unpaid pension contributions. HM Land Registry however lodged the counterclaim out of time - so it could only reduce its liability if the claim for overpaid wages could be used under the set-off defence.

The EAT held that the defence of set-off is available in the Employment Tribunal, and as such HM Land Registry would not be required to compensate Mr Ridge for his unpaid pension contributions.

HHJ Richardson held that defences to contractual claims, including set-off, which are available in the civil courts, should be available in respect of contractual claims in the Employment Tribunal (unless explicitly restricted).

Although this case does not remove the need to bring counterclaims (if the employee's claim fails, only a counterclaim would provide a remedy for the employer), it will prove helpful to many employers due to the short time limit in which to bring a counterclaim (28 days). It also serves as a useful reminder to employers to consider all the facts about their relationship with employees and identify whether their own potential liability can be reduced by anything owed from the employee.

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