As seen in a recent New York state court case, an employer cannot recoup an overpayment to an employee based on an “unjust enrichment” when the payments were made under an employment contract. Instead, the employer must make a claim of a breach of the employment contract to collect.
What happened. The employer, an urban medical center, signed a 3-year employment contract with a “Dr. K” to serve as Associate Director to one of its surgery programs and as an Assistant Professor of Cardiothoracic Surgery at the medical school. The contract provided that Dr. K receive a base salary of $160,000 per year and an annual supplement of $590,000 for the first 2 years.
Dr. K was required to perform a productivity “target” of at least $875,000 in surgical services in order to receive the annual supplement from the third year of his employment onwards. The hospital claimed that Dr. K did not meet his productivity targets during his third and fourth years and, therefore, he was not entitled to the full amount of the annual supplement. Unfortunately, the hospital mistakenly paid Dr. K his salary and annual supplement for his third year of employment and the pro-rated salary and annual supplement for his fourth year up to the time of his resignation.
Dr. K refused to return the alleged overpayment to the hospital. The hospital sued Dr. K to recoup the payments under a legal theory of “unjust enrichment.” Dr. K moved to dismiss the hospital’s claim.
What the court said. The court granted Dr. K’s motion to dismiss the hospital’s claim, holding that “[u]njust enrichment occurs where a defendant enjoys a benefit bestowed by plaintiff, but without adequate compensation to the plaintiff.” In addressing the employer’s claim, the court reasoned that “a claim for unjust enrichment cannot stand when based on a subject matter governed by a contract.” Specifically, since the employment contract specifically addressed the supplemental payments, the contract would control the outcome of the case. Mount Sinai School of Medicine v. Konstadinos A. Plestis, M.D., No. 601314, Sup. Ct., NY Cnty. (12/14/2010).
Point to remember. If an employment contract exists, an unjust enrichment claim for unearned pay does not work in court. Instead, both the employer and the employee will be bound by the terms of the contract, so a claim of breach of contract is the proper claim to make.