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How to avoid an overtime claim

overtime man on treadmill

Image: renjith krishnan / FreeDigitalPhotos.net

So you have an employee who has been working with you for five years, and now you have to terminate the employee because it is just not working out. When parting ways, the employee insists that you should have been paying him overtime pay for all the years he has worked for you – and he wants to claim this alleged outstanding overtime pay, or he will be making a claim for unpaid wages with the Employment Standards/Labour Standards Branch for unpaid overtime.

How can employers avoid this and other types of overtime claim?

Here is a brief overview of the three main solutions.

First, it is best to understand the rules of your jurisdiction. Each jurisdiction has its own rules. This information which are called minimum standards in employment is found under your jurisdiction’s Employment Standards Act or Labour Standard Act or Employment Standards Code. For instance, in Alberta, it is one and one-half times the employee’s regular rate for each hour worked in excess of eight hours per day or 44 hours per week. In British Columbia, Manitoba, Saskatchewan, Quebec, the federally regulated jurisdiction, Yukon, Nunavut, and the Northwest Territories, it is one and one-half times the employee’s regular rate of pay for hours worked in excess of eight hours per day or 40 per hours week. In Nova Scotia and Prince Edward Island, it is one and one-half times the regular rate for hours worked in excess of 48 hours per week. In New Brunswick and Newfoundland and Labrador, there is a minimum overtime wage of $15 per hour.

Some jurisdictions have added additional rules; for instance, in British Columbia, there is double time for all hours worked in excess of 12 hours in a day.

in Ontario, employers must pay employees overtime pay of at least one and one-half times the employee’s regular rate for each hour worked in excess of 44 hours per week or, if another threshold is prescribed or agreed upon between the employer and employee as part of the terms of employment.

That prescribed threshold could be found in regulation for some various industry sectors. For example, in Ontario, special overtime rules apply to some workers in Highway transport; the prescribe overtime threshold is after 60 hours a week.

This also means that if the employee and employer agree in their employment contract that overtime will be paid for hours worked in excess of 40 hours a week instead of the legislated 44 (if in Ontario for example), this agreement will be enforced by the Employment Standards Branch.

When dealing with overtime issues, it is also important to remember the following,

  • The applicable minimum and maximum hours of work in your jurisdiction. In general, employment standards legislation provides for a standard workday or workweek, which provides a legal maximum number of hours per day or week that employees are permitted to work. In some jurisdictions, the maximum workweek seems to be an absolute maximum whereby employees are not permitted to work any hours in excess of those stipulated. Other jurisdictions allow maximum hours to be exceeded where the employer meets certain conditions or obtains a permit, such as when work is urgently required to maintain or repair equipment. For instance, in Ontario, hours of work are limited to a maximum of 48 hours per week, and this limit can only be exceeded if the employee agrees in writing and the Director of Employment Standards approves the agreement. However, overtime must still be paid for any hours worked in excess of 44 hours a week
  • If overtime is calculated on an daily or weekly basis, or both; in Ontario, overtime is only calculated on a weekly basis
  • Whether an employee is paid on an hourly or fixed salary basis is not a criterion for overtime entitlement. Salaried employees have the same entitlement to overtime as hourly employees. Salary and hourly pay are merely methods by which wages are paid and affect how the entitlement to overtime is calculated, not whether the entitlement exists. Thus, overtime must be paid to all employees (regardless of the method or type of payment, meaning if they are paid an hourly, weekly, monthly, or annual wage, except if they are exempt)

This said, some employees because of their industry sector, type of work that they perform or profession are exempt from entitlement to overtime pay. It is important to consult the Regulation of your jurisdiction’s Employment Standards Act or Labour Standard Act or Employment Standards Code. There is a long list of fully excluded workers.

Thus, the goal is to stay on top of what the legislation of your particular jurisdiction requires. Remember, it’s illegal for an employee to contract out of his or her right to be paid overtime pay for hours worked in excess of their jurisdiction’s overtime threshold.

Second, understand and carefully apply the exemptions. Some employees have jobs that require them to do more than one kind of work. Some of the work might be specifically exempt from overtime pay, while other parts might be covered. If at least 50 percent of the hours the employee works are in a job category that is covered, the employee qualifies for overtime pay.

For example, in Ontario, supervisors and managers are exempt from overtime provisions as long as their prime responsibility is supervision (the majority of their time doing supervisory work and may only perform non-supervisory or non-managerial tasks on an irregular or exceptional basis). There are several exceptions to employment standards legislation, and in Ontario, for example, they can be found in Regulation 285/01.

For instance, in Alberta, managers, supervisors and those employed in a confidential capacity and whose duties do not, other than in an incidental way, consist of work similar to that performed by other employees who are not so employed, are exempt from overtime pay provisions.

Though this is a common exception, it is important to keep in mind that not all jurisdictions have it – in Newfoundland and Labrador, managers and supervisors are entitled to overtime pay provisions for overtime hours worked.

Determining who falls under the legal definition of “manager” involves a complex analysis of facts and can affect the outcome of claims with respect to overtime pay entitlements and the right to file a complaint under the Employment Standards Act.

It is crucial that employers do not assume that an employee falls under an exception contained in the Regulation, as this can cause problems later down the line. Sometimes these problems are discovered years later, and the employer must rectify this with a lump sum payment to the employee. If there are doubts about whether an employee falls within an exception, it is best to check first before commencing compensating the employee.

Third, communicating your rules and good record-keeping. A written set of guidelines is helpful. Employers should be consistent in communicating the rules to employees, and enforcing those rules. If overtime is to be mandatory when requested, state that fact throughout the hiring process. Further, include a statement to be signed by the employee acknowledging an understanding of the company policy regarding mandatory overtime. Even with such a policy, there may be mitigating circumstances, such as illness or death in the employee’s immediate family, or other family status concerns, which should be exceptions to mandatory overtime. Employers should document all exceptions to the policy.

If overtime is not a requirement or can be used in exceptional circumstances, from time to time, you need to also state it. If you don’t want employees to work overtime you need to clearly communicate it but most of all, enforce it.

If an employer does not want employees to work overtime, the employer must not only order them to refrain from or stop the overtime, it must also see to it that they do not work the overtime hours. Surprisingly, employers must also consider this when allowing employees to trade shifts among themselves in order to maximize their overtime entitlement. A failure to properly manage employees’ workloads can therefore be costly to employers.

Regarding record-keeping of overtime hours; sloppy or inconsistent employer records are common and often lead to employee success in overtime lawsuits.

Employers must have a complete record of the actual hours employees work. Employees who dispute their pay often produce comprehensive and convincing records or diaries. When the employer has no record to dispute a claim, it is much tougher to fight the case, even if the claim is excessive.

Make sure to keep track of employees work hours as well as the activities, tasks they are actually performing during those hours.

In addition, many employees take work home with them. Hours worked at home count as hours worked. While an employer can sometimes argue that it didn’t know the employee was taking work home, work-related emails from an employee to a supervisor late in the evening on a regular basis and other evidence can make that argument rather problematic. If the employer has no defined way of keeping track of employees’ hours, it is going to be vulnerable. On the other hand, if the employer requires employees to submit records of their hours every week, it will have a significant level of protection.

Conclusion

Audits, inspections, investigations and private or class-action lawsuits can happen for a myriad of violations, and they can happen to companies of any size. But most boil down to non-payment for hours worked or overtime worked.

Employers who demand that employees regularly submit daily and weekly and overtime hours worked will have the upper hand in hours of work disputes. If employees confirm they did not work any overtime during a given period, the employer will likely have built an effective defence against future claims because it is accountable and transparent.

Learn the rules for overtime pay in your jurisdiction, and when and who is eligible or not to receive this time-and-a-half rate. Beware of the “fixed salary” trap; simply stating that an employee will only be paid a fixed salary with no overtime does not end the overtime issue. If the employee’s hours of work exceed the overtime threshold, then the employer will need to pay the employee overtime.

Employees often make inflated claims, and employment standards officers have been known to make erroneous findings. Employers have in the past successfully appealed payment orders based on a failure to consider relevant evidence. It is important to vigorously fight these cases, since a precedent can be relevant to claims by other employees. Losing also carries a price the next time around, since officers more carefully scrutinize employers who have previously been the subject of an order.

Where serious allegations of unpaid overtime are made, the employer should conduct an audit and have a trusted legal advisor review the results, recommend changes and help with the implementation of those changes. With attention and care to prevention, employers may be able to avoid any serious overtime claims in the first place.

We encourage employers to ensure that: (i) their overtime clause in their employment contracts and overtime policies are compliant with statutory requirement;(ii) they take active measures to ensure employees do not work unauthorized overtime and employees know what is expected regarding the right to work overtime or not; and (iii) they implement measures to ensure that employees’ hours are being accurately tracked, whether or not those hours are being worked with the employer’s prior authorization

If you want to know more about the rules such as how to calculate overtime, how to vary from overtime rules among others, please consult the following First Reference publication, The Human Resources Advisor, Ontario, Western or Atlantic Editions. To know how to draft an overtime policy and cover all your bases, consult the Human Resources PolicyPro, Alberta, British Columbia, Manitoba & Saskatchewan, Ontario, Atlantic Editions.

Christina Catenacci and Yosie Saint-Cyr
First Reference Human Resources and Compliance Editors

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Christina Catenacci

Christina Catenacci, BA, LLB, LLM, was called to the Ontario Bar in 2002 and has since been a member of the Ontario Bar Association. Christina worked as an editor with First Reference between February 2005 and August 2015, working on publications including The Human Resources Advisor (Ontario, Western and Atlantic editions), HRinfodesk discussing topics in Labour and Employment Law. Christina has decided to pursue a PhD at the University of Western Ontario beginning in the fall of 2015. Read more
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