When does overtime become unreasonable?

“Salaried employees are often expected to work a reasonable amount of overtime, but one top lawyer says HR should be careful of pushing staff too far.”

When does overtime become unreasonable?

Employment agreements for salaried staff often state that a reasonable amount of overtime may be required – but just how much is too much? Here, a leading industry lawyer, Laura Scampion, a partner at DLA Piper, offers her insight.

Firstly, what is a ‘reasonable amount’, and how and where is it defined?

The Employment Relations Act 2000 has no provisions relating to overtime but employers can require employees to work overtime if that is provided in their employment agreement. If not, employers may ask employees to work beyond their normal hours – but the employees must not be subject to any penalty or disadvantage if they say no. The employment agreement generally establishes whether overtime work is obligatory or not, but employees do not have a right to elect to work overtime (it can be worked only when required by the employer). In short, overtime is governed by the contract between the employer and the employee.”
“Where the agreement states that a ‘reasonable amount’ of overtime is also required, this is often paired with a clause that stipulates that the employee's salary fully compensates the employee for those additional hours worked,” she explains. “On that basis, employers should provide reasonable remuneration for the role if regular overtime is the expectation.”

Scampion also says that the perception of overtime has changed in recent years, with many employees happily accepting – and even embracing – the measure.

“Nowadays, many salaried employees accept that working late nights or working weekends is part of what is expected,” she tells HRD. “In fact, for some employees this is not so much ‘overtime’ but beneficial for flexibility – they can pick their children up from school but log on for a couple of hours later that night to get a project finished.”

While employers aren’t legally required to pay overtime to salaried employees, Scampion does say it’s important to discuss what is reasonably expected as well as offer advice on what staff should do if they feel that the amount of overtime worked is becoming unreasonable.

“Employment agreements for salaried employees often state that the remuneration for the position covers all the hours that an employee needs to work. Whether overtime rates are payable will depend on the provisions of the employment agreement. What we see now is many different overtime pay formulas (time and a half, double time added allowances). Some employers offer time off in lieu for overtime worked.”
What will be considered unreasonable will vary depending on a number of factors, says Scampion. These include pay rate, workplace needs, prior discussions about personal circumstances or family commitments, notice given by the employer, and standard patterns of work within a given industry.

If the level of overtime does become unreasonable, employees are entitled to refuse – however this is subject to the terms agreed in the employment agreement.

If their refusal seems unreasonable, Scampion says employers should raise the issue with the employee.

“An employer has the right to run their business in a commercially viable way, and an employee has a duty to perform their duties, and responsibilities in accordance with the terms of their employment agreement,” she tells HRD. “Failure to do so could lead to disciplinary action being taken - potentially on the basis of failure to follow the employer’s instruction.”

However, while employers can expect some work out-of-hours, there are countless reasons not to push staff too hard – primarily, health and safety.

“It is important an employer does not require an employee to work such an unreasonable amount of overtime that it may affect the health and safety of employees,” says Brittany Moore, a solicitor on Scampion’s employment team.

“Even where an employer feels that they are generously compensating the employee, the employees' health and safety at work is paramount,” she stresses, pointing to common mental health problems like stress, anxiety and burnout.

“There are potential fines for failing to ensure the health and safety of employees at work,” she adds.

Importantly, the employer should not push their luck in demanding overtime, given the range of legal avenues open to a disputatious employee. Scampion says:

“Employees can bring a personal grievance for disadvantage in the Employment Relations Authority or can contact the Labour Inspector to report the employer for failing to comply with either minimum code. They can request that the relevant union raise a complaint.”

What are some things employers can do during periods of intense activity to proactively care for employees working overtime hours?

“Employee recognition, additional meals, ease of transportation, equality of overtime opportunity (sharing it around), time off in lieu, benefits. Employers need to be very careful about not creating a culture where overtime is ‘overdone’. Quality of work when someone is tired/fatigued is clearly less! Monitoring health and safety and ensuring a safe workplace are statutory duties under the Health and Safety at Work Act 2015.”

Moore also says employers must be wary when expecting overtime from employees who earn close to the minimum wage.

“Where employees on a lower salary are working overtime, the employer needs to be acutely aware of the risk of employees dropping below the minimum wage when their pay is averaged out across their hours,” she warns.

“If there is any prospect that an employee's average rate may drop below the minimum wage (even if they are salaried) due to the number of hours they are working, the employer must keep accurate records to ensure this does not happen,” she stresses.

Employers should also be aware of a recent decision of the Employment Court that has potentially complicated many additional work hours arrangements, Postal Workers Union of Aotearoa v New Zealand Post Limited [2019].

The case broadened the scope of what are deemed ‘availability provisions’ in employment agreements. In simple terms, an availability provision is any provision under which an employee is required to be available for work but the employer is not required to provide work. Legislative changes in 2016, designed to limit ‘zero hour contracts’, curtailed the use of availability provisions. For an employer to include an availability provision in an employment agreement, according to statute, there must be:

  • guaranteed hours of work (i.e. no ‘zero hours contracts’);
  • the employer must have genuine reasons based on reasonable grounds for including an availability provision; and
  • there must be reasonable compensation for the employee’s availability.

The case concerned employees of New Zealand Post. The collective employment agreement for the posties provides that “delivery agents may be required to work reasonable overtime in excess of the standard hours.” Although the posties were paid for the additional hours, the Postal Workers Union argued, successfully, that the clause was an availability provision because, as Scampion summarised, “the clause made no provision for payment of reasonable compensation for Posties making themselves available in this way.” The Court agreed, deciding that the clause was an availability provision and posties were entitled to refuse to work overtime.

The upshot, says Scampion, is that any “provision in an employment agreement requiring an employee to work overtime when requested will be an ‘availability clause’. It will not be enforceable unless two things apply. First, there must be genuine reasons based on reasonable grounds for including the clause. Second, it must provide reasonable compensation to the employee for being available. Payment for the overtime hours worked will not be such compensation. There must be something paid in addition.”

“For waged employees this could be a loading of the standard hourly rate, for salaried employees, there could be a provision. A salary is agreed by the parties to cover all hours worked. The Employment Relations Act makes it clear that for salaried employees the parties can agree that the remuneration includes compensation for the employees making themselves available for work under an availability provision. If there is no such provision the employee will have no obligation to work the additional hours.

Finally, we asked Scampion whether she anticipated any other significant changes to the employment landscape that could be of relevance to overtime work. She noted that the question of overtime may become “moot” as significant structural changes to regular work hours take place.

“The gig economy has seen more remote/flexi working than ever before, more shared working spaces and the three and or four day working week. The concept of a 40 hour week and plus overtime may fade with the flexibility that is on the rise. Soon, more than a third of the workforce will be Gen Z (the generation after the millennials). These highly mobile, digital natives won’t be interested in traditional structures and/or ways of working. They’ll want to do things differently.”

Nicola Middlemiss originally wrote this article in September 2017. It has been updated and expanded by Edward Cranswick.

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