Controlling overtime pay

While it may seem counter-productive to penalize an employee for working overtime, that may need to be done to avoid unanticipated overtime costs in the future

Controlling overtime pay
Stuart Rudner

Although it might seem as though the only thing we discuss these days is COVID-19 and all of the implications of that virus, we were recently reminded that "ordinary” employment law issues still exist when the Ontario Superior Court of Justice rendered a decision on an overtime class action that started way back in 2007. In short, the court confirmed what our firm has always said: Employment standards legislation requires that employers pay employees for the time that they work, even if it is not authorized.

Readers may recall that there was a time when overtime class actions seemed almost commonplace. However, due to procedural issues and maneuvering, they fell off the radar as year after year went by without any substantive decisions. We now have one, as Justice Edward Belobaba rendered a decision on the merits in Fresco v CIBC, which was the first of the overtime class actions in Canada.

This action involved over 30,000 customer service employees of the Canadian Imperial Bank of Commerce (CIBC) who alleged that the bank “required or permitted” its employees to work unpaid overtime. That wording is specific to the Canada Labour Code, which regulates federal operations such as banks. As readers will know, employment law is governed provincially, so that each province and territory has its own employment standards legislation, with the Canada Labour Code applying to employees in the federal sphere. The legislation across the country is similar but each one has its own nuances.

The court agreed with the plaintiff class that the CIBC was liable for requiring or permitting class members to work overtime without pay and for failing to accurately record all hours worked by the class members.

What if you have a policy against unauthorized overtime?
We get this question all the time. And many employers are understandably frustrated when we tell them that although it is advisable to have such a policy in place, it does not absolve the employer of the obligation to pay employees for the time that they work, even if they are in violation of the policy.

Belobaba considered what it means to “permit” overtime in the context of employment standards legislation that is intended to provide workplace protections for employees. Having reviewed existing case law, he found that to permit employees to work overtime means to “allow” or “fail to prevent” it.

The court confirmed that the legislation requires that overtime be paid when it is permitted, even if it is not required or authorized. Again, this is a source of frustration for employers, many of whom complain that they should not have to pay someone if they choose to come in early or work late without ever being directed to and without seeking approval.

We often advise employers that in those circumstances, their recourse is not to refuse to pay the employee for time worked, but to enforce the policy by imposing discipline. And while it may seem counter-productive to penalize an employee for working overtime, that is what needs to be done if the employer wants to avoid unanticipated overtime costs in the future.

The court in Fresco confirmed that refusing to pay overtime due to a policy of requiring pre-approval is inconsistent with the legislation, for the reasons set out above: If the overtime worked was required or permitted, then it must be paid.

As I mentioned above, the legislation in each jurisdiction is a little different but the principles are similar. Interestingly, Belobaba explicitly referenced the fact that the Employment Standards Act, 2000 in Ontario has wording that is similar to the Canada Labour Code.

So, how do we control overtime?
Understand who is entitled to overtime: First, it is important to understand who is entitled to overtime pay and who is not. Let’s dispel one common myth: Entitlement to overtime pay is not related to how someone is paid. In other words, just because someone is paid an annual salary, that does not mean they are not eligible for overtime pay.

The starting point is that all employees are entitled to overtime pay once they exceed the threshold in the applicable legislation (in Ontario, it is 44 hours in a week). However, every jurisdiction sets out exemptions, which are based on the nature of the work performed by the employee. For example, supervisors and managers are typically exempt. So, for some employees, this discussion is irrelevant.

Use a policy strategically: The court in Fresco did not say that you cannot have a policy which states that overtime must be approved. However, they did make it clear that such a policy cannot be used to refuse to pay for overtime that is “required or permitted.” The policy should clearly state that any overtime is to be approved (ideally in advance), and also make it clear that breaches will result in discipline.

Record hours: One of the things that CIBC did wrong was failing to track employee hours, as required by the legislation. Not only is this a breach of the legislation, failing to record employee hours also exposes an employer to liability. We have seen many situations in which employees produce their own records of hours worked and allege extensive overtime which the employer cannot refute because it has no records of its own. In those cases, the employer is in a weak position and risks liability for overtime that may or may not have actually been worked.

We always encourage employers to have a system in place to record all hours worked. We often get pushback, particularly from professional services firms and in the context of white-collar workers. In many cases, they are imagining a punch clock on the wall, like in an old school factory. However, there are ways to track hours that will be more palatable, such as smartphone apps or weekly time sheets. The bottom line is that if an employee submits their hours on a regular basis and signs off on them, it will be difficult for them to make allegations in the future that they worked longer hours.

Monitor behaviour: Employers should make sure to be aware of the time people are spending “at work.” Obviously, that includes the time they are physically present in the workplace, but it also includes emails sent in the evenings and other work done while “off-duty.” If an employee is not exempt from overtime, employers should be mindful of any such work, which can constitute overtime, and take steps to control it. An employee may seem to be quite happy to put in extra time, but when the relationship sours, they may seek compensation.

Impose discipline: If an employer becomes aware of unauthorized overtime, then it must take action. Start by speaking with the employee to find out why they are working outside of their regular hours. If it is an excessive workload, then there may need to be a discussion with their manager to assess what is realistic and adjust the download as appropriate, along with a clear message that overtime is to be pre-approved.

If, on the other hand, it appears that the overtime is not necessary, then the employee should be warned that unauthorized overtime will result in discipline, and a system of progressive discipline should be followed. However, the time worked must still be paid.

Use overtime averaging: Some jurisdictions allow for averaging hours over several weeks. For example, in Ontario, overtime must be paid after 44 hours worked in a week but an employee can agree to have their hours averaged over several weeks. For example, if they work 37 hours in one week and 47 the next, the average would be less than 44 and overtime pay would not be required.

The bottom line
The Fresco case is not over, as the court will still have to assess damages at a later hearing and, of course, there may be appeals. But, at this point, after almost 13 years, we have confirmation that overtime must be paid even in the face of a policy that requires pre-approval.

As we describe above, there are several things that employers can do to address this issue, and they are well-advised to do so. Having and enforcing a policy requiring approval for overtime is critical, but employers should not make the mistake of refusing to pay for overtime even if it was not pre-approved.

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