Do you believe in actively encouraging your employees to work a little harder and a little longer each month? If so, then you might want to consider the risks when inciting them to do overtime work, and how you can safeguard yourself and your company from unexpected – and expensive – overtime claims.

This is because your encouragement, or even passive tolerance, of overtime work can trigger significant financial liabilities unless proper precautions are taken, as two of Canada's major banks recently discovered when slapped with multimillion-dollar class-action suits for unpaid overtime.

There is probably no aspect of employment law as widely misunderstood or as repeatedly breached by employers, HR professionals and their legal counsel, as the law governing overtime work. It has recently been estimated that between 70 and 90 per cent of private-sector employers in Ontario operate in constant, but unwitting, contravention of the mandatory overtime provisions in the Employment Standards Act (ESA). These employers are unconsciously exposing themselves to the future risk of significant overtime claims and administrative penalties.

If you want to avoid costly future overtime claims for your company, it's essential to explore the dangerous myths to which many HR managers have inadvertently subscribed.

Myth # 1: Overtime pay must be authorized by the employer, otherwise the employee is not entitled by law to claim overtime pay.

Overtime pay must be paid to all employees who work overtime, regardless of whether or not that overtime work was ever actually authorized. This means that an employee who works overtime hours after being explicitly forbidden to do so is nonetheless entitled to overtime pay. The employer is liable, and must pay that employee overtime pay for all work in excess of the Ontario overtime threshold of 44 hours per week.

Myth # 2: Employees who earn a salary rather than an hourly wage cannot claim overtime pay.

In Ontario, all employees who work in excess of 44 hours per week are entitled to overtime pay, regardless of whether they are remunerated on an hourly basis or by a fixed annual salary.

Myth # 3: Managers and supervisors are not eligible to receive overtime pay.

This is only partly true. Generally speaking, managers and supervisors are not eligible to receive overtime pay. However, many employees with the work title 'manager' or 'supervisor' are exempted from this rule, and are entitled to claim overtime pay. For managers or supervisors to be denied overtime pay, they must actually manage other employees and must devote the greater part of their day to doing so. Under the ESA, managers or supervisors enjoy the right to claim overtime pay unless 1) the majority of their work is supervisory or managerial and 2) they execute those tasks regularly.

Myth # 4: Employees can agree to contract out of working overtime and claiming overtime pay.

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 44 hours per week. This means that any agreement between an employer and employee not to claim overtime is invalid and unenforceable. Such an agreement is prohibited under subsection 5(1) of the ESA, which governs employment relations between all employees and provincially regulated employers in Ontario.

Myth # 5: An employee can't agree to have paid time off instead of overtime pay.

The ESA explicitly stipulates that if the employer and the employee agree in writing, an employee can receive paid time off instead of overtime pay. This is at times referred to as 'banked' time or 'time off in lieu'. If employees previously agreed to bank overtime hours, they must be given one-and-a-half hours of paid time off work for each hour of overtime worked. Paid time off must be taken within three months of the week in which it was earned or, if the employee agrees in writing, within 12 months.

Myth #6: Employers must always pay overtime for each overtime hour an employee works.

Employers can avoid paying overtime for each overtime hour an employee works via a written agreement referred to in Ontario as an 'averaging agreement.' An averaging agreement requires employers to provide employees with flexible work hours in exchange for a break from their obligation to pay time-and-a-half for each hour of overtime worked. An employee's hours of work may be averaged over separate, non-overlapping, contiguous periods of two or more consecutive weeks, at the end of which the employer would average the employee's hours of work and only pay the average of overtime hours worked.

By Alan Riddell and Marianne Keriakos

Special to the OBJ

Alan Riddell is an Ottawa lawyer who specializes in labour and employment law, and Marianne Keriakos is an articling student, both at Soloway Wright LLP.