Tesco plans clawback of mistaken redundancy pay from fired staff

A tough situation for Tesco has been made even trickier after a payroll error caused hundreds of ex-employees to be overpaid and underpaid their redundancy pay.

From an accounting perspective, it’s been a difficult few years for the UK’s biggest supermarket chain by market share.

In 2014, only three weeks into Dave Lewis’ tenure as Tesco CEO, the company announced it had overstated its profits by £250m after revenue recognition irregularities were spotted in its half-year results.

The gaffe drew the attention of the Serious Fraud Office and the FCA, and Tesco eventually pledged to pay out £235m in fines and settlements to quell the brewing storm. But it hasn’t been a smooth road since then, either.

In 2017, the chain announced a round of redundancies as part of a broader turnaround strategy citing a “competitive and challenging market”. Nine-thousand staff members were affected.

Now Tesco has announced yet another, albeit less existentially threatening accounting error: between 200 and 300 former workers received the incorrect amount of redundancy payments, with some staff getting in excess of what they were owed, while others were underpaid.

“A small number of colleagues were impacted by an administrative error which resulted in an incorrect redundancy payment being made to them,” said Tesco in a statement. “Colleagues who were underpaid were paid the correct amount within one to two working days and this issue is now resolved.”

Those who were overpaid, Tesco said, would be treated fairly and the company would take “individual circumstances” into account. The supermarket is applying strange logic to these overpayments, however: anyone who was overpaid by more than £500 will be able to keep £100, but those overpaid by less than £500 will be allowed to keep the full amount.

As AccountingWEB member Chris Mann reflected, “Seems to me that, if you’re lucky and, were overpaid by £499, you can pocket the lot. If you’re unlucky and were overpaid £501, you can only retain £100? I’m struggling to see how this is ‘reasonable’? Brings a new meaning to creative accounting, if you ask me.”

For individuals who received over the magical £500 barrier, the clawback will likely be a stressful addendum to losing their jobs, said Kate Coles, an FD mentor and coach, and former finance manager for Graze and Innocent.

“The money may well be spent already, or have been earmarked for an expense while they search for a new job. Again, this will be putting these redundant staff under an extra level of stress.”

From Tesco’s side, there needs to be a cost-benefit analysis, however. Any potential clawback of redundancy pay would not only be a potential PR nightmare, it would also be an expensive legal process, said Stephen Ravenscroft, partner and head of employment at Memery Crystal.

“If an ex-employee was unwilling to repay the money, it would require some form of legal action, either in county court or small claims court, on an individual basis,” he explained. Any kind of mass action would be impossible.

Tesco’s only non-legal recourse, Ravenscroft added, would be if the redundancy payment was made under a settlement agreement and there are other payments to be made under that settlement. “If that’s the case, Tesco might be able to deduct money from any payments to be made to them”.

As AccountingWEB member Ireallyshouldknowthisbut observed, instead of chasing down sacked employees for relatively small amounts, Tesco will be better served by reassessing “its control procedures in payroll and who made a mess of it”.

“I’d not try and claw it back as its likely to be not only really bad PR, but whilst you might get back a few [thousand] willingly, its unlikely to be economic to get it out of many peoples hands. Sacked employees don’t usually take kindly to a clawback.”