Employee overtime – non-compliant employment agreements can have costly consequences
Does your employment agreement allow you to require employees to work overtime? If so, the Employment Court has recently held that you are required to compensate them for being available to work, even if in practice they are able to turn down extra hours.
The case of Stewart v Affco New Zealand Ltd  NZEmpC 200 highlights the importance of ensuring employment agreements, especially availability provisions, are drafted accurately, are legally compliant, and reflect what happens in practice. We outline the case below and what it means for you.
What is an availability provision?
An availability provision is a clause in an employment agreement that allows an employer to require an employee to be available to work hours above their guaranteed working hours.
In order for an employer to be able to rely on an availability provision, it must have genuine reasons based on reasonable grounds for including it in the employment agreement, and the availability provision must:
- Specify agreed hours of work (including guaranteed hours of work);
- Relate to a period for which an employee is required to be available that is in addition to those guaranteed hours of work; and
- Provide reasonable compensation for the employee making themselves available to undertake the work (for salaried employees, their salary can provide this compensation).
The effect of this is that an employer cannot require an employee to be available to work beyond their guaranteed hours unless the employment agreement has a valid availability provision and the employee is compensated for being available, even if they do not perform the work.
What happened in Mr Stewart’s case?
Mr Stewart was employed in July 2018 on an employment agreement that required him to be available to work beyond his guaranteed hours of work but did not provide availability compensation.
In 2020, Mr Stewart was offered compensation of 1.25% on top of his normal weekly pay as compensation for being available to work beyond his guaranteed hours.
Mr Stewart did not accept this offer but continued to work significant overtime hours for AFFCO. AFFCO never explicitly required Mr Stewart to work beyond his normal hours but Mr Stewart stated that in reality he had no option to decline overtime. This resulted in him forgoing the ability to plan his life outside of work, for the periods he was required to be available.
The Court held that this was a non-compliant availability provision and Mr Stewart was entitled to availability compensation back dated four years to when he signed his employment agreement. AFFCO’s failure to pay this constituted an unjustified disadvantage.
What does this mean for you?
The Stewart decision demonstrates that if an employee’s employment agreement requires them to be available to work additional hours, then they are entitled to be compensated. An employer cannot rely on the fact that the clause was not used in practice; the inclusion of a non-compliant availability clause in an employment agreement may be grounds for a personal grievance.
In practical terms, this highlights the importance of having compliant employment agreements that align with how the employment relationship operates in practice. Otherwise, it is likely to land an employer in hot water. Employment agreements should be reviewed regularly and tailored to suit your business.
Special thanks to Solicitor Sydney Caughey for preparing this article. If you have any questions in relation to availability provisions, employment agreements, or employment law generally, please get in contact with a member of our Employment Law Team.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.