Part VIII - Overtime pay

The intent of Part VIII (Overtime Pay) is to compensate an employee for the additional time he or she must work when overtime is required and to provide workplace parties with the ability to negotiate more flexible work schedules. The overtime provisions are also intended to discourage employers from requiring overtime by imposing an economic cost on them when overtime is demanded.

Section 22 — Overtime threshold

Overtime threshold — s. 22(1); same, two or more regular rates — s. 22(1.1)

Subject to s. 22(1.1), s. 22(1) sets out the general overtime premium of one and one-half times the employee’s regular rate of pay for each hour of overtime worked in each work week. Section 22(1) also establishes the general overtime threshold. The employer’s obligation to pay the overtime premium is triggered when an employee works more than 44 hours in a work week. Subject to a greater right or benefit, the general premium and threshold apply for all employees except those exempted from ESA Part VIII Overtime Pay. In addition, for certain employees, listed below, different overtime thresholds have been prescribed.

Subsection 22(1.1) is a new provision that the Fair Workplaces, Better Jobs Act, 2017, SO 2017, c 22, effective January 1, 2018, added to the Employment Standards Act, 2000. It states that where an employee has two or more regular rates for work performed in a work week that the overtime rate for any hour of overtime work is one and one-half times the regular rate the employee would be entitled to for the work performed in that hour.

Special overtime thresholds

O Reg 285/01 varies the overtime threshold for certain employees. The regulation requires employers to pay employees the general overtime premium of one and one-half times the employee’s regular rate of pay; however, it varies the overtime threshold as follows:

Road building in relation to streets, highways or parking lots

Employees engaged at the site of road building in relation to streets, highways or parking lots are entitled to the overtime premium for each hour of work in excess of 55 hours in each work week — O Reg 285/01, s. 13(1)(a). If the employee works less than 55 hours in a work week, the difference between the number of hours worked and 55 (up to a maximum of 22) is added on to the maximum number of hours that can be worked in the following work week before overtime becomes payable — O Reg 285/01, s. 13(1)(b).

Road building in relation to structures

Employees engaged at the site of road building in relation to structures such as bridges, tunnels or retaining walls in connection with streets or highways are entitled to the overtime premium for each hour of work in excess of 50 hours in each work week per O Reg 285/01, s. 13(2)(a). If the employee works less than 50 hours in a work week, the difference between the number of hours worked and 50 (up to a maximum of 22) is added on to the maximum number of hours that can be worked in the following work week before overtime becomes payable — O Reg 285/01, s. 13(2)(b).

Hospitality industry

Employees who work for the owner or operator of a hotel, motel, tourist resort, restaurant or tavern for 24 weeks or less in a calendar year and who are provided with room and board are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week — O Reg 285/01, s. 14.

Canning, processing and packing fresh fruits or vegetables

Seasonal employees whose employment is directly related to canning, processing and packing of fresh fruits or vegetables, or their distribution by the canner, processor or packer, are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week — O Reg 285/01, s. 15.

Sewer or watermain construction and maintenance

Employees engaged in laying, altering, repairing or maintaining sewers and watermains and work incidental thereto, or in guarding the site during this work are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week — O Reg 285/01, s. 16.

Local cartage drivers

Employees who are drivers of, or drivers' helpers on, a vehicle used in the business of carrying goods for hire within a municipality or to any point not more than five kilometres beyond the municipality’s limits are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week — O Reg 285/01, s. 17(1)(a).

Transport truck drivers

Employees who drive public trucks operated by holders of an operating licence issued under the Truck Transportation Act, RSO 1990, c T.22 are entitled to the overtime premium for each hour worked in excess of 60 hours in a work week — ss. 18(1) and 18(2). Only those hours during which such employees are directly responsible for the public truck are included when calculating the entitlement to overtime — O Reg 285/01, s. 18(4).

Invalid employer defences to an employee’s claim for overtime pay

Subsection 22(1) places a positive obligation on employers to ensure that employees receive the statutory minimum requirement with respect to overtime. An employer cannot satisfy that obligation or circumvent payment for overtime by raising any of the following defences:

Employer did not authorize the employee to work overtime

In Philip’s Auto Sales and Repair Inc. v Bonneville (October 30, 1984), ESC 1726 (Betcherman), the referee affirmed that even in the event that the employer did not authorize its employees to work overtime, they are still entitled to receive the overtime pay if they exceed the overtime threshold. This decision was based on a predecessor to O Reg 285/01, s. 1.1, which stipulated that work shall be deemed to be performed when work is permitted or suffered to be done by the employer. The employer in this case was present when the employee performed the overtime work and the referee held that the employer implicitly permitted such overtime.

In Joseph Dobi Painting v Szekely and Szekely (May 28, 1980), ESC 799 (Adamson), the referee stated: "[t]he law is quite clear with respect to overtime work. The responsibility rests fully upon the employer. If he does not wish employees to work overtime, he must not only order them to stop but see that they do. This employer had ample time after the first week of employment to do this. During the period in which the employer claimed to have been incapacitated, it was still his responsibility to see that another person supervised his workers."

In Joe Kool’s Restaurants Ltd. v Whitehead et al (January 21, 1986), ESC 2023 (Brown), the work schedule prepared by the employer did not include overtime hours; however, the employees were permitted to rearrange the schedule on an individual basis to suit their own convenience, without clearing those arrangements with the employer. These informal arrangements were neither encouraged nor discouraged, and there was no advance notification to the employer. The employer argued that the overtime was not scheduled by it, nor was it worked with its knowledge or acquiescence and that the Act’s overtime provisions were therefore inapplicable. The referee rejected that argument and upheld the overtime pay assessment on the basis that the employer must have known and thus was deemed to have permitted the overtime hours worked.

An employee who is working excess hours contrary to a specific term of an employment contract or without authorization may well face disciplinary action for having done so, but that does not alter the fact that they are entitled to overtime pay for overtime hours worked.

Employee agreed to a built-in overtime rate

An employer may argue that it has already compensated employees for overtime pay by providing the employee with a bonus scheme or a higher regular rate of pay. This is not a valid defence to an employee’s claim for overtime pay. The employer is also liable to pay overtime notwithstanding that the employee agreed verbally or in writing to work extra hours at the regular rate of pay. In Ferlandi Builders and Contractors Inc. v Manderscheid (May 30, 1986), ESC 2116 (Aggarwal), Jefferson Metal Products Inc. v Hazlehurst and Turner (February 20, 1985), ESC 1790 (Kerr) and Wen-Hal Limited v Hansen (August 22, 1979), ESC 660 (MacDowell), the referees held that any agreement by an employee to work overtime without receiving overtime pay for hours worked beyond 44 per week is rendered void by s. 3 of the former Employment Standards Act, now ESA Part III, s. 5(1), which specifically prohibits employees, employers and their agents from contracting out of or waiving an employment standard.

The ESA 2000 does not contain the provision that appeared in the former Employment Standards Act that specifically prohibited employers from reducing an employee’s pay to comply with the overtime provisions. However, the definition of regular rate in the ESA Part I, s. 1 makes the prohibition redundant.

Regular rate is now defined in such a way as to ensure that overtime hours shall not, in any circumstances, be used to calculate an employee’s regular rate. The regular rate for hourly employees is the amount paid for an hour of work in the employee’s usual work week — excluding overtime hours. The regular rate for non-hourly employees is the amount paid in a given work week divided by the number of non-overtime hours actually worked in that work week. For example, an employer cannot assign a regular rate of $12.00 for the first 44 hours of work in a work week and a regular rate of $8.00 thereafter.

Employee contracted out of their overtime pay

An employer and an employee cannot agree to contract out of the overtime provisions. This is prohibited by ESA Part III, s. 5(1). An employee cannot agree to work overtime hours at a rate lower than one and one-half times their regular rate. Nor can an employee agree to reduce their regular rate for those hours worked in excess of the applicable overtime threshold.

Employee performed work at multiple locations

An employer cannot avoid its obligation to pay overtime by scheduling employees to work, for example, 20 hours at one of its locations and 30 hours at a second location. In Tavares and Sgromo c.o.b. Mr. Submarine, Thunder Bay, Ontario v Coppola et al (April 13, 1982), ESC 1197 (Aggarwal), the employer had contended that since its employee did not work more than 44 hours in one location, the employee was not entitled to overtime pay. The referee, however, ruled that it was irrelevant whether the employee worked all 54.25 hours at a single location of the employer; the essential point was that the employee worked all of those hours for one employer.

Employee performed work for different but related employers

Similarly, the obligation to pay overtime cannot be avoided by scheduling employees to work, for example, 25 hours for one corporation and 25 hours for another related corporation. This is prohibited by ESA Part III, s. 4, which provides as follows:

Where ESA Part III, s. 4 applies and two or more entities are treated as one employer, the hours worked by employees for those two or more entities are to be added together for purposes of determining the employees' overtime pay entitlement. See ESA Part III, s. 4 for a more detailed discussion of this issue.

Calculation of overtime pay

The method for calculating an employee’s entitlement to overtime pay is set out below. This method applies to ALL employees who are not exempt from the application of Part VIII Overtime Pay.

1. Do the overtime provisions apply to the claimant?
2. Which threshold applies? Is it the standard 44-hour threshold, a higher threshold established by regulation, or a lower threshold established by contract?
3. Does s. 22(9) (the changing work provision) apply?
4. Which overtime premium(s) applies? The standard time and one-half premium or a higher premium established by contract?
5. What is the employee’s work week?
6. How many non-overtime and overtime hours has the employee worked during each work week in question?
7. What is the employee’s regular rate or rates in a given work week?
8. What is the employee’s overtime rate or rates for each hour of overtime work in a given work week?
9. What is the employee’s overtime pay for each work week in question?
10. Has the employer provided the employee with any overtime pay in respect of each work week in question?

Do the overtime provisions apply to the claimant?

The first determination that must be made is whether the person claiming overtime pay is covered by Part VIII Overtime Pay. To make this determination, the following issues must be considered:

• Is the claimant an employee within the meaning of the ESA 2000?
• Is the claimant excluded from the application of the ESA 2000 by virtue of ESA Part III, ss. 3(2), 3(3) or 3(5)?
• Is the employee exempt from the overtime provisions by virtue of O Reg 285/01, ss. 2(1), 2(2), 8, 11(3) or 23?

Please note that overtime averaging agreements may also impact on a claimant’s right to overtime pay. See discussion in ESA Part VIII, s. 22(2) below.

Which threshold applies?

Is it the standard 44-hour threshold, a higher threshold established by regulation, or a lower threshold established by contract?

The next issue for determination is whether the 44-hour threshold applies. A higher threshold may be prescribed by O Reg 285/01. A lower threshold may be established by contract. If the employee is engaged in any of the following, O Reg 285/01 should be consulted as a higher overtime threshold may apply:

• Road building — s. 13;
• Whether the employee is seasonal and employed by an owner or operator of a motel, hotel, tourist resort, restaurant or tavern — s. 14;
• Whether the employee is seasonal and engaged in canning, processing and packaging of fresh fruits or vegetables or their distribution — s. 15;
• Sewer and watermain construction — s. 16;
• Local cartage — s. 17;
• Highway transport — s. 18.

Does s. 22(9) (the changing work provision) apply?

Section 22(9) provides that when an employee performs work that is exempt from this Part and work that is not, the employee is entitled to overtime pay in respect of all of the overtime work performed in a work week so long as the non-exempt work in the work week constitutes 50% or more of the time the employee spent working.

Similarly, s. 22(9) provides that employees who perform both work that attracts overtime after 44 hours and work that attracts overtime at a higher threshold will be entitled to overtime pay after 44 hours in respect of all work performed during the work week by the employee so long as the work performed by the employee that attracts overtime pay at the 44 hour threshold constitutes 50% or more of the time the employee spent working.

See the detailed discussion of s. 22(9) below.

Which overtime premium applies?

The standard time and one-half premium or a higher premium established by contract?

The next issue for determination is whether the time and one-half overtime premium established in s. 22(1) applies. A higher premium may be established by contract. For example, the employment contract may provide for an overtime premium of double the employee’s regular rate after 44 hours of work in a work week, or it may provide for time and one-half after 44 hours of work in a work week and double-time after 50 hours of work in a work week.

What is the employee’s work week?

The definition of work week is critical to the calculation of an employee’s entitlement to overtime pay. An employee’s regular rate is determined with respect to a work week. Indeed, an employee’s entitlement to overtime pay is determined in respect of a work week. Therefore, one of the first determinations an officer must make is what constitutes the employee’s work week.

Work week is defined in ESA Part I, s. 1 as:

The Ontario Court of Appeal in Re Falconbridge Nickel Mines Ltd. and Egan et al., 1983 CanLII 1931 (ON CA) concluded that the term week as it was used in s. 24(1) of the former Employment Standards Act, must be interpreted as a work week. The ESA 2000 deleted the definition of week that appeared in the former Act and included an amended definition of work week to reflect the reasoning of the Court of Appeal. Part VIII Overtime Pay uses the terms week and work week interchangeably.

How many non-overtime and overtime hours has the employee worked during each work week in question?

When determining what overtime and non-overtime hours an employee has worked in a given work week, the first question is how many hours of work were actually performed by the employee in the work week. Once the officer has determined how many hours of work were performed in the work week, they may then determine how many of these hours constitute non-overtime hours and how many are overtime hours.

When making this determination, regard must be had for O Reg 285/01, s. 1.1, which sets out when work is and is not deemed to be performed.

Work deemed to be or not deemed to be performed by employee

Section 1.1 of O Reg 285/01 provides as follows:

See O Reg 285/01, s. 1.1 for a detailed discussion of this section.

Calculation of hours worked for employees in highway transport paid by mileage

A Program investigatory tool involving mileage approximation has been used to determine the hours of work for employees employed in highway transport and paid by mileage, where no complete and accurate records of hours of work exist. The investigatory tool consists of dividing the total distance driven by 80 kilometers per hour (or 50 miles per hour). This practice can also be used as a check to assess the accuracy of existing records. Any other (i.e., non-driving) hours, if they can be established to have been worked, must also be included in the total number of hours worked. However, the hours that the employee is not directly responsible for the truck are not included for overtime purposes.

Calculation of hours worked where the employer has not kept accurate records

If an employer has not kept accurate records of the hours worked by an employee, or if the employer’s records are challenged by the employee, the employment standards officer will determine the employee’s hours of work on the basis of the best evidence available. Note that where an employee has two or more regular rates of pay that the employer is required to maintain a record of the dates and times  the employee worked in excess of the overtime threshold, at each rate of pay, in any given work week. See ESA Part VI, s. 15 (1) paragraph 3.2.

Travel time

 With respect to travel time it is Program policy that:

• With the exception of commuting time, any time a person spends travelling (irrespective of the mode of transportation) for the purpose of getting to or from somewhere where work will be performed, must be counted as hours of work;
• Commuting time means the time required for an employee to travel to work from home and vice versa. However, there are a number of exceptions to this rule:
  • If the employee takes the work vehicle home in the evening for the convenience of the employer, the hours of work begin when the employee leaves home in the morning and end when they arrive home in the evening; or
  • If the employee is required to transport other staff or supplies to or from the workplace or work site, time so spent must be counted as hours of work.

What is the employee’s regular rate or rates in a given work week?

Before an employee’s overtime rate or rates in respect of the overtime hours worked in a given work week can be calculated, the employee’s regular rate or rates (if the employee is paid more than one hourly rate for work performed for the employer) for the work week(s) in question must be determined. ESA Part I, s. 1 defines regular rate as follows.

Employees who are paid solely on the basis of an hourly rate (including employees who are paid two or more different hourly rates for work performed for the employer) will fall within the first portion of this definition. All other employees, including salaried employees, flat rate mechanics, commissioned salespersons, piece workers and employees receiving mixed compensation, for example, an hourly rate and mileage or an hourly rate and commission, must have their regular rate determined by reference to clause (b) of the definition of regular rate.

What is the employee’s overtime rate or rates for each hour of overtime in a given work week?

An employee’s overtime rate for the overtime hours worked in any given work week is established by multiplying their regular rate by one and one-half or by the higher rate established by contract. If the employee has more than one regular rate that applies to overtime hours worked as per s. 22(1.1), the overtime rate in respect of each hour of overtime will be one and one-half times the regular rate that applies to the work performed in each hour, or the higher rate established by contract.

What is the employee’s overtime pay for each work week in question?

The overtime pay that an employee is entitled to for a given work week is determined by multiplying their overtime rate by the number of overtime hours worked at that rate within the week. Where the employee has two or more regular rates and has performed overtime work that attracts more than one overtime rate, the overtime pay for the work week is determined by adding together the overtime pay entitlement as calculated for each hour of overtime work. See example 1 under “Examples of How to Calculate Overtime” below.

Has the employer provided the employee with any overtime pay for each work week in question?

The final consideration is whether the employee has already been paid, in full or in part, for any of the overtime hours in question. This will only be appropriate in limited circumstances. For example, an employee who is paid by the hour and who works 55 hours in a work week and is paid their regular rate for those 55 hours has received a portion of their overtime pay. That employee will only be entitled to an additional .5 of their regular rate in respect of all overtime hours worked in the work week.

Please note that this will not apply to a salaried employee. See the discussion below.

Examples of how to calculate overtime

Overtime entitlements for employees with two or more regular rates

An employee who is paid on an hourly basis may perform, in one work week, two types of work, each of which attracts a different hourly rate. In that case, the employee has two regular rates and as a result, s. 22(1.1) applies to determine the overtime pay entitlement. That subsection provides that the overtime rate for each of hour of overtime work performed is based on the regular rate that applies to the work performed in that hour.

Example 1

An employee works as a punch press operator earning $15.00/hour and also as a shipping logistics coordinator earning $20.00/hour for the same employer. The employee’s overtime threshold is 44 hours and the overtime rate is 1.5 times the regular rate.

In one work week the employee worked 4 hours of overtime. The 45^th and 46^th hours were worked as punch press operator and the 47^th and 48^th hours were worked as a shipping logistics coordinator. This employee’s overtime pay entitlement would be calculated as follows:

45^th hour: overtime rate is $15.00 x1.5 = $22.50 per hour

46^th hour overtime rate is $15.00 x1.5 = $22.50 per hour

47^th hour overtime rate is $20.00 x1.5 = $30.00 per hour

48^th hour overtime rate is $20.00 x1.5 = $30.00 per hour

The total overtime pay due to the employee is $105.00 [$22.50 + $22.50 + $30.00 + $30.00]

Example 2

An employee usually works in job A at an hourly rate of $15.00. The employee also usually works, for the same employer in job B at an hourly rate of $20.00. The employer has received approval from the Director of Employment Standards under s. 17.1 to have employees work excess weekly hours. The employee has also agreed in writing to work excess hours. In one work week the employee works 60 hours: 36 hours in job A at $15.00 per hour and 24 hours in job B at $20.00 per hour. The employee was paid their regular rate or straight time for all hours worked including overtime hours; a total of $1020.

The regular overtime threshold and overtime rate of 1.5 times the regular rate apply to this employee. The 16 hours of work performed once the overtime threshold of 44 hours was reached were as follows:

• 12 hours in job A
• 4 hours in job B

The employee’s overtime entitlement in accordance with s. 22(1.1) is:

• Job A work: 12 hours X $15.00 per hour X 1.5 = $270
• Job B work: 4 hours X $20.00 per hour X 1.5 = $120

However, the employee had already been paid straight time for the 12 hours of overtime worked in job A = 12 X $15.00 per hour = $180

Plus straight time for the 4 hours of overtime worked in job B = 4 X $20.00 = $80.00

The employee’s overtime pay entitlement was $390; however the employee had already been paid $260 in straight time for the overtime hours (i.e. has received partial pay for the overtime hours). Therefore, the balance owing in respect of overtime pay for the work week in question is $390 — $260 = $130

Overtime entitlements for employees paid hourly rate and other forms of compensation

From time to time employees who are paid an hourly rate will also perform work that involves different types of compensation in the same work week. For example, payment of an hourly rate and commission. If an employee who receives an hourly rate is also compensated with commissions, that employee, strictly speaking, is not paid by the hour. Accordingly, the regular rate of such employees must be determined by applying clause (b) of the definition of regular rate, by dividing their total earnings for each work week in question by the number of non-overtime hours worked. However, if an employee receives an hourly rate for each hour worked (including overtime hours), the employer will be credited for such payment when the employee’s overtime entitlement is calculated.

Under the ESA 2000, overtime hours cannot be included in the calculation of an employee’s regular rate.

Example

The employee and the employer have entered into a valid written agreement under s. 17(3) for the employee to work excess weekly hours. The employee works 50 hours in a work week and is paid $20.00 per hour. The employee also receives commissions. In one work week the employee receives $1000 for 50 hours worked and $200 in respect of commissions. The general overtime premium and threshold apply.

• Employee works 44 non-overtime hours in the work week
• Employee works 6 hours of overtime in the work week
• Regular rate = (total earnings in work week divided by non-overtime hours) = $1200 divided by 44 = $27.27
• Overtime rate is $27.27 (regular rate) x 1.5 = $40.91
• Overtime pay entitlement = (overtime rate x overtime hours in a workweek) = $40.91 x 6 = $245.46

Because this employee was paid straight time for each hour worked, including overtime hours, the employee has already received $120 (6 overtime hours x $20.00) in respect of overtime. Therefore, they entitled to receive an additional $125.46: $245.46 overtime entitlement minus $120 of overtime already paid, in respect of overtime for the work week in question.

Overtime entitlements for employees paid on mileage, piecework or commission basis

Under the ESA 2000, the overtime entitlement for employees who are paid solely on a mileage basis, by commission or on a piece-rate must be determined by reference to the definition of regular rate in ESA Part I, s. 1. Because these employees are not paid by the hour, their regular rate must be determined by applying clause (b) of the definition of regular rate, by dividing all earned wages in the work week by the non-overtime hours worked. The overtime premium of one and one-half times the regular rate is payable for all hours worked in excess of 44 in a work week, unless a higher overtime rate applies by virtue of contract or a higher threshold applies by virtue of regulation.

Example

An employee works making oven mitts and is paid $2.50 per pair. In a particular work week, the employee works 60 hours to make 300 pairs of mitts and is paid $750.00. The employee and the employer have entered into a valid written agreement under s. 17(3) for the employee to work excess weekly hours. . The general threshold and premium apply to the employee.

• Employee works 44 non-overtime hours that work week
• Employee works 16 hours of overtime that work week
• Regular rate = total earnings in the work week divided by non-overtime hours = $750.00 divided by 44 = $17.05
• Overtime rate is $17.05 (regular rate) x 1.5 = $25.58
• Overtime pay entitlement = overtime rate x overtime hours in the work week
• = $25.58 x 16
• = $409.28 in respect of that work week.

Overtime entitlements for flat rate mechanics

Enquiries arise occasionally on the application of the legislation to motor vehicle mechanics and body repairpersons who are paid on a flat rate or incentive system. In a flat rate shop, every job is rated as taking a certain number of hours to perform and the mechanic is paid a book hourly rate for those hours. As an example, a brake reline is rated as a four-hour job, and the mechanic's book rate is $16 per hour. The mechanic will be paid $64 whether the job takes three or five hours to complete. This is acceptable so long as the minimum wage standard (compliance with which is determined on a pay period basis) is met and all overtime hours (hours worked in excess of 44) are compensated at a minimum of 1.5 times the mechanic's actual regular rate, which is not the same as the flat rate.

Generally, in a flat-rate remuneration system, it is a condition of employment that the employee rectify their own faulty work without further pay. This is not a violation of the ESA 2000, so long as the minimum wage and overtime provisions are not violated. If for some reason another mechanic makes the required changes, the payment for the entire job may be credited to the second mechanic. Where this occurs as part of the employment contract, the transfer of credits is considered as part of the reconciliation of wages due and not a prohibited set-off or deduction. However, the minimum wage and overtime provisions still apply with respect to the hours of work the first mechanic spent on the vehicle.

It is essential in a flat rate system that the employer's records reflect both the flat rate paid and the actual hours worked: it is the actual hours worked (and any work deemed to have been performed pursuant to O. Reg. 285/01, s. 1.1)  that must be used to calculate the employee's regular rate and overtime entitlements. Those hours of work must include any time spent rectifying the employee's faulty work.

As illustrated in the examples below, payment at the book rate is payment for a task (i.e., a flat rate for the task), rather than a payment for hours actually worked. As no portion of the payment is made in respect of hours actually worked, none of it can be considered to be a payment for regular hours or overtime hours.

Example 1

The employee is paid a flat book rate of $16.00 per hour for brake re-lining. The employee did 12 brake-relines which resulted in a flat rate payment for 48 hours (each re-line job is rated as taking 4 hours) for a total payment of $768. The employee however actually spent 46 hours doing the work in that week. The general overtime rate and threshold apply to this employee.

• Employee works 44 non-overtime hours in work week
• Employee works 2 overtime hours in work week
• Employee paid $768 for work week
• Employee’s regular rate is $768 divided by 44 non-overtime hours = $17.45
• Employee’s overtime rate is $17.45 x 1.5 = $26.18
• Employee’s overtime entitlement is 2 hours x $26.18 = $52.36

In this case, the employer owes the employee an additional $52.36 for overtime pay.

Example 2

The employee is paid a flat book rate of $16.00 per hour to perform tune-ups that according to the book will take 1.5 hours to complete. In fact the employee is being paid $24.00 for each tune-up regardless of the time it actually took to perform the tune-up. Having completed 25 tune-ups in one week the employee is paid $600 for that work week. However, the employee actually worked 50 hours in that work week. The general overtime rate and threshold apply to this employee.

• Employee works 44 non-overtime hours in work week
• Employee work 6 overtime hours in the work week
• Employee paid $600 for the work week
• Employee’s regular rate is $600 divided by 44 non-overtime hours = $13.64
• Employee’s overtime rate is $13.64 x 1.5 = $20.46
• Employee’s overtime entitlement is 6 hours x $20.46 = $122.76

In this case, the employer owes the employee an additional $122.76 for overtime pay.

Overtime entitlement for salaried employees

Generally, employees who are paid a fixed amount for each pay period rather than an amount determined by applying an hourly rate to each hour worked (or a piece rate or commission based on work performed) are considered to be salaried employees. It should be noted that although ESA Part VI, s. 15(4) defines a salaried employee, that definition is for the purposes of ESA Part VI, s. 15(3), which sets out the employer’s obligations to record hours worked, and is not necessarily relevant to the calculation of overtime entitlements.

Salaried employees who are not exempt from the overtime provisions are entitled to overtime pay for overtime work. Once the work week has been determined, the employee’s regular rate will be determined by applying clause (b) of the definition of regular rate, by dividing the salary earned in respect of the work week by the number of non-overtime hours worked in the work week. Salaried employees are entitled to receive 1.5 times their regular rate in respect of each hour worked in excess of 44 in a work week (or other applicable threshold).

Prior to the introduction the ESA 2000, the calculation of the regular rate for salaried employees was accomplished by dividing the salary earned for the work week by the actual hours worked, including overtime hours. The employee was considered to have been paid straight time for all hours worked, including overtime hours, and received an additional .5 times their regular rate in respect of all overtime hours worked in the work week in question. This method of calculating overtime had the effect of lowering the employee’s regular rate as the number of hours worked increased and significantly reducing the employee’s entitlement to overtime pay.

Under the ESA 2000, overtime hours cannot be included in the calculation of an employee’s regular rate. Formerly, the more overtime hours a salaried employee worked, the less they were paid for those hours. The new definition of regular rate precludes that result because overtime hours cannot be included in the calculation.

Example

An employee is paid an annual salary of $52,000 or $1000 per week. The employee works 60 hours in a work week. The employee and the employer have entered into a valid written agreement under s. 17(3) for the employee to work excess weekly hours. The general overtime rate and threshold apply.

• Employee works 44 non-overtime hours in work week
• Employee works 16 overtime hours in work week
• Employee’s regular rate for the work week is $1000 divided by 44 non-overtime hours = $22.73
• Employee’s overtime rate for the work week is $22.73 x 1.5 = $34.10

The employee’s entitlement to overtime pay for the work week is $34.10 x 16 hours = $545.60.

Averaging — s. 22(2)

Subsection 22(2) was amended effective April 3, 2019  by the Restoring Ontario’s Competitiveness Act, 2019 (ROCA).  ROCA removed the previous requirement to obtain the Director of Employment Standards’ approval as a condition for averaging and imposed a four-week limit on the length of averaging agreements.

Where the conditions set out in this provision are met, the employer's obligation to pay overtime pay is based on the employee's average hours per work week during the period specified in the employee's averaging agreement (which cannot exceed four weeks), rather than the hours actually worked within a work week.

Example

An employee and employer have agreed in writing to average hours over four-week periods for the purpose of calculating the employee's entitlement to overtime pay. The employee works 48 hours in the first week, 44 hours in the second week, 40 hours in the third week and 50 hours in the fourth week. The employee and employer also have a valid written agreement for the employee to work excess weekly hours.

The employee’s overtime hours will be determined on the basis of the average number of hours worked per week. In this example the employee worked an average of 45.5 hours per week (48 + 44 + 40 + 50, divided by 4). Accordingly, the employee would be entitled to overtime pay for six hours based on an average of 1.5 hours of overtime per week in the four-week period. In the absence of averaging, the employee would have been entitled to four hours of overtime pay in the first week and six hours of overtime pay in the fourth week.

Note that, unless there is a time off in lieu arrangement in place pursuant to s. 22(7), the employer is required to pay the employee straight time for every hour worked within each pay period — including those hours over 44 - and that it is only the extra half that the employer can postpone paying under an averaging arrangement until the end of the averaging period. See ESA Part V, s. 11 for details.

Section 22(2) provides that where averaging is permitted, the employee’s hours of work can be averaged only over separate, non-overlapping, contiguous periods of two or more consecutive weeks. That is, the averaging periods must be contiguous (i.e., there cannot be gaps in between the end of one period and the beginning of another), and they must be separate and cannot overlap with one another. Further, the two or more weeks within each averaging period must be consecutive. The longest averaging period permitted under the Act is four weeks.

Note that even if an employer has averaging agreements and an averaging approval, if employees will be working hours in excess of the daily or weekly limits the employer must also obtain excess hours agreements from the employees.

Conditions for averaging

Before averaging can take place are discussed below.

Employee made agreement with employer that hours of work may be averaged over specified number of weeks

Before an employer is permitted to average an employee's hours, the employee must have entered into an agreement with the employer allowing his or her hours to be averaged over periods of a specified number of weeks.

For an agreement to valid, the following criteria must be met:

The agreement must be in writing

By virtue of ESA Part 1, s. 1(3), an agreement between an employer and an employee to average the employee’s hours of work, for purposes of calculating the employee’s entitlement to overtime pay must be in writing. See also ESA Part 1, s. 1(3.1), which provides that an agreement in writing may be in electronic form.

For employees represented by a trade union, the written agreement may be embodied in the collective agreement or a memorandum of agreement or other written documentation signed by union officials and, provided the other criteria are met, all bargaining unit employees will be bound by the agreement.

In the non-unionized context, a written agreement between each employee whose hours are to be averaged and the employer is required.

The agreement must specify the number of weeks over which the hours of work are going to be averaged, and cannot exceed a maximum of four weeks

Section 22(2)(a) requires that the agreement state specifically the number of weeks over which the hours of work are going to be averaged. Statements such as "up to 4 weeks" are not sufficient.

Section 22(2)(b) provides that the averaging period cannot exceed four weeks or the number of weeks specified in the agreement, whichever is lower. In other words, employees and employers can agree to average hours over periods of 2 weeks, 3 weeks, or 4 weeks.  Four weeks is the maximum period over which the hours of work may be averaged for overtime pay entitlement purposes.

For example, an employee agreed to average her hours of work over a period of three weeks. The employer can average the employee's hours only over a period of three weeks, not over the four-week maximum as set out in subsection 22(2)(b).

An agreement that purports to average hours over a period of longer than four weeks is invalid.

The agreement must contain a start date and, subject to certain exceptions, an expiry date

Section 22(3) provides that, subject to ss. (3.1) and (3.2), an averaging agreement is not valid unless it contains a start date and an expiry date.

With respect to the start date: if the agreement does not contain a start date it is invalid and as a result averaging of hours cannot take place.    

With respect to the end date:  

• Where employees are not represented by a union: the expiry date cannot be more than two years after the start date.  See s. 22 (3.1) below. Agreements that contain an expiry date that is beyond two years after the start date are invalid and, as a result, averaging of hours cannot take place (and the employer must pay the employee overtime pay according to s. 22(1)).
• Where employees are represented by a trade union and are covered by a collective agreement:  the averaging agreement cannot expire later than the day a subsequent collective agreement that applies to the employee comes into operation.  See s. 22(3.2) below.  The averaging agreement may contain a specific end date, or it may reference an event. For example, it may say that the agreement expires when the collective agreement expires, or it may say that it expires on the day a subsequent collective agreement comes into effect (it is not uncommon for there to be a period of time in between the date a collective agreement expires and the date the subsequent collective agreement comes into operation-Note that the rule re: the expiry date in ss. (3.2) is triggered and fixed if the conditions of the employee being represented by a trade union and covered by a collective agreement were present at the time the averaging agreement was entered into.

The Agreement should clearly and explicitly set out what is being agreed upon

The agreement should be written with sufficient clarity for the parties to know precisely what they are agreeing to.

The agreement should contain the employee’s express consent to the averaging of hours for the purpose of calculating the employee’s entitlement, if any, to overtime pay. Mere agreement to a particular schedule is not sufficient, as an employee may agree to work certain hours without necessarily having agreed to the hours being averaged for overtime pay purposes.

Employers are encouraged, but not required, to include schedules in averaging agreements.

Overtime averaging agreements must not be confused with agreements to work hours in excess of the weekly and daily maximums established in ESA Part VII, s. 17. Employers who wish employees to work hours in excess of eight hours a day (or the regular work day where that is longer than eight hours) or 48 hours a week must secure valid written agreements from their employees (which includes providing the employees the statutory information document — see s. 17(5) for details) )  to work hours in excess of the daily and weekly maximums. The overtime averaging and excess hours agreements may be contained in separate documents, or in the same one.

The parties must have entered into the agreement voluntarily

An averaging agreement will not be binding if it is not entered into voluntarily by both parties. Please see ESA Part I, s. 1(3) for a more detailed discussion of the issue of voluntary consent.

The employee must have given his or her informed consent to the agreement

The employee must understand what  is being agreed to, and the consequences of the agreement, for an averaging agreement to be binding. Informed consent will not be established unless each party knows precisely the ramifications of entering into the agreement.

The best evidence that an employee provided informed consent is where the document itself accurately sets out the consequences of the agreement. To this end, employers may wish to include the following in averaging agreements:

• A statement notifying the employee(s) that an averaging arrangement, if approved by the Director, will affect the amount of overtime pay the employee will be entitled to under the arrangement, as compared to the amount of overtime pay the employee would be entitled to if the employee(s) worked the same number of hours in each week without an averaging arrangement.
• A statement informing the employee(s) that the agreement is irrevocable before it expires, unless the employee and the employer agree, in writing, to revoke it — s. 22(6).

See s. 22(6) below for a more detailed discussion of these requirements.

The Ministry has produced a list of items employers and employees may wish to consider when drafting agreements. This can be found on the Ministry of Labour’s website.

In the absence of a valid agreement, the employer must pay the employee overtime pay according to s. 22(1), or ensure that the employee does not work overtime.

Employers are required to retain a copy of every averaging agreement it has made with its employees for three years after the last day on which work was performed under each agreement — see ESA Part VI, s. 15(9).

If employee refuses to consent to an averaging agreement

If an employee does not agree to the averaging of their hours for purposes of determining overtime pay entitlements, if any, the employer must pay the employee overtime pay according to s. 22(1), or ensure that the employee does not work overtime (that is, hours in excess of 44 hours per week or other applicable threshold). If an employer terminates the employment of an employee, or disciplines or otherwise penalizes an employee because the employee refused to consent to the averaging agreement, that employer will have committed a reprisal in violation of ESA Part XVIII, s. 74.

Averaging arrangements for shift exchanges

Employers may wish to have averaging arrangements in place in order to provide employees with increased flexibility in their work schedules by allowing shift exchanges, without the requirement of paying overtime as a consequence of the shift exchanges.

Example: A three-week averaging arrangement is in place and:

• Employee A works Monday through Friday 8:00 a.m. to 4:30 p.m.;
• Employee B works Wednesday through Sunday 3:30 p.m. to 12:00 midnight;
• Employee A asks B to work his Tuesday shift in exchange for working B's Sunday shift two weeks later;
• Even though B works more than 44 hours in the first week and A works more than 44 hours in the third week as a result of the shift change, no overtime pay will be owing because of the averaging arrangement. 

An issue that may arise in the context of an averaging agreement made for the purpose of accommodating shift exchanges is how to handle circumstances in which the employment of an employee who has been involved in a shift exchange ends before the exchange is complete. The following example illustrates the Program’s policy on this matter.

Example

The employees and the employer have agreed in writing to average hours of work over a period of four weeks for purposes of calculating overtime pay. Employees are paid weekly. Employee A agrees to work a shift for Employee B in week one of the averaging period. In exchange, Employee B agrees to work a shift for Employee A in week two of the averaging period; however, Employee B's employment is terminated before she can complete the shift exchange. The employees are paid their regular wages in respect of week one and week two.

The employer owes Employee A straight time for the shift she worked in week one for Employee B and in respect of which Employee A has not been compensated.

Employee B owes the employer the regular wages that she was paid for work that she did not perform in week one. Employee B is considered to have received an advance and therefore, the employer may make a reconciliation for this amount. Such a reconciliation is not considered to be a set-off or deduction as defined in ESA Part V, s. 13.

Transition: Certain agreements — s. 22(2.2)

Section 22(2.2) is a transitional provision relating to amendments made to the ESA in 2005.  (See s. 22(5) below for the transitional provision relating to amendments made to the ESA in April, 2019.)

With respect to agreements made under the ESA 2000, paragraph 2 refers to agreements made under s. 22 as it read on February 28, 2005, i.e., agreements to average over periods of up to four weeks, while paragraph 3 refers to agreements made under O Reg 285/01, s. 30, i.e., agreements to average over period of more than four weeks. At the time, only the latter required the approval of the Director. In the case of all three types of averaging agreements, this provision states that such agreements are to be treated as if they were agreements under s. 22(2)(a).

On February 28, 2005 the relevant provisions read as follows:

Section 22(2) of the ESA 2000:

Section 30 of O Reg 285/01:

By virtue of s. 22(2.2), agreements that were entered into under s. 22(2) or O Reg 285/01, s. 30 as they read on February 28, 2005 under the former Employment Standards Act that are still valid are treated as if they are agreements made under the current s. 22(2)(a) (new agreements), thereby avoiding the need for employers to enter into another agreement with employees if they wished to average hours after February 28, 2005. However, employers who had old, pre-February 28, 2005 agreements with employees were required to seek approval from the Director before the employer could average employees' hours of work. This was so even if the Director had approved the agreement pursuant to O Reg 285/01, s. 30 - see s. 22.1(18), which specifically provides that any approval granted by the Director under the regulation ceases to have effect on March 1, 2005.  Note: As of April 3, 2019, Director approval is no longer necessary for averaging agreements to be valid.

Term of agreement — s. 22(3); Limit on agreement, not represented by trade union — s. 22(3.1); Limit on agreement, collective agreement applies — s. 22(3.2)

The rules established in these subsections apply only to agreements entered into on or after April 3, 2019, the date that the Restoring Ontario’s Competitiveness Act, 2019 received Royal Assent.  See ss. 22(5) below for the rules re: agreements that were made prior to  April 3, 2019.

Limit on agreement, not represented by trade union – s. 22(3.1)

Limit on agreement, collective agreement applies – s. 22(3.2)

Section 22(3) provides that, subject to ss. (3.1) and (3.2), an averaging agreement is not valid unless it contains a start date and an expiry date.

With respect to the start date: if the agreement does not contain a start date it is invalid and as a result averaging of hours cannot take place.   

With respect to the end date:  

• Where employees are not represented by a union: the expiry date cannot be more than two years after the start date. Agreements that contain an expiry date that is beyond two years after the start date are invalid and, as a result, averaging of hours cannot take place. Note that s. 22(6) provides that averaging agreements may not be revoked before they expire unless both parties agree in writing.
• Where employees are represented by a trade union and are covered by a collective agreement:  the averaging agreement cannot expire later than the day a subsequent collective agreement that applies to the employee comes into operation. 

For employees represented by a trade union, the written averaging agreement may be embodied in the collective agreement, a memorandum of agreement or an addendum to an agreement. The terms of the averaging agreement determine which of the bargaining unit employees are bound by it.  (For example, it could be all employees in the bargaining unit or only select groups of employees in the bargaining unit.) 

The averaging agreement may contain a specific end date, or it may reference an event. For example, it may say that the agreement expires when the collective agreement expires, or it may say that it expires on the day a subsequent collective agreement comes into effect (it is not uncommon for there to be a period of time in between the date a collective agreement expires and the date the subsequent collective agreement comes into operation Note that the rule re: the expiry date in ss. (3.2) is triggered and fixed if the conditions of the employee being represented by a trade union and covered by a collective agreement were present at the time the averaging agreement was entered into.

Agreement may be renewed or replaced — s. 22(4)

This provision clarifies that averaging agreements  may, before or upon their expiry be renewed or replaced, provided the requirements set out in section 22 are met

Existing agreement — s. 22(5)

Prior to the ROCA amendments, an employee’s hours could be averaged only if the employee agreed in writing to the averaging and only if the Director of Employment Standards approved the agreement.  ROCA removed the requirement for the approval of the Director and limited the length of averaging agreements to four weeks.

This provision states that valid averaging agreements entered into and approved by the Director of Employment Standards prior to the Restoring Ontario’s Competitiveness Act, 2019 receiving Royal Assent (April 3, 2019), are deemed to meet the requirements of this section and remain valid and in force until the earlier of the following events: 

1. the agreement is revoked by written agreement of the employee and employer,
2. the approval from the Director of Employment Standards expires or
3. the approval from the Director of Employment Standards is revoked.

This provision applies only to agreements that were entered into and approved by the Director of Employment Standards prior to April 3, 2019  Agreements entered into on or after April 3, 2019 are governed by the rules regarding expiry dates that are set out in s. 22(3.2)

This provision applies to Director-approved averaging agreements of any length, including those that exceed the current maximum length of four weeks.

Agreement irrevocable — s. 22(6)

The ESA 2000 introduced this provision to ensure that once an averaging agreement is made, it cannot be unilaterally cancelled or revoked by the employer, the employee or their agents. Averaging agreements can only be revoked by the parties if the employer and the employee agree to do so in writing, in accordance with ESA Part 1, s. 1(3). The purpose of this provision is to provide the parties with a degree of certainty.

Time off in lieu — s. 22(7)

The provision permits an employer and an employee to agree, in writing, that the employee be compensated for some or all overtime hours by receiving one and one-half hours of paid time off work for each hour worked in excess of 44 (or other applicable threshold) instead of receiving overtime pay if the following criteria are met:

1. The employee and the employer agree, in writing to compensate the employee with paid time off at a rate of 1.5 hours off work for every hour of overtime worked, rather than pay the employee overtime pay; and
2. The paid time off work is taken within three months of the work week in which the overtime was earned or, with the employee’s written agreement within 12 months of that work week.

Please see ESA Part I, s. 1(3) and (3.1) for a more detailed discussion.

Because the subsection states that the employee is to be compensated for overtime hours with one and one-half hours of paid time off work for each hour of overtime worked instead of overtime pay, it is the Program's position that the employee is entitled to the time off at the rate the employee is earning when the employee takes the time off as opposed to the rate they were earning when the overtime was worked. Note, however, that if the employee’s employment ends before the time off can be taken, the employer will be required to pay overtime pay based on the rate the employee was earning when the overtime was worked. See the discussion at s. 22(8) below.

Where employment ends — s. 22(8)

This provision stipulates that if the employee’s employment ends before the lieu time earned pursuant to s. 22(7) is taken, the employee’s lieu time entitlement automatically converts into an entitlement to overtime pay. Pursuant to s. 11(5), the overtime pay is payable to the employee by the later of seven days after the termination of the employee’s employment or on what would have been the employee’s next pay day. Note that because this provision requires that the employer pay the employee overtime pay for the overtime hours that were worked, it is the Program’s position that the overtime pay the employee is entitled to receive is based on the rate the employee was earning when the overtime was worked as opposed to the rate they were earning when the termination occurred.

Changing work — s. 22(9)

The purpose of this provision is twofold. This provision ensures that:

1. Employees who perform work that is exempt from the overtime provisions and work that is not exempt are entitled to overtime pay for all hours worked in excess of 44 per week, provided that at least 50% of their work week is spent performing non-exempt work; and
2. Employees who perform work to which the 44-hour overtime threshold applies and work to which a higher overtime threshold attaches are entitled to overtime pay for all hours worked in excess of 44 per week provided that at least 50% of their work week is spent performing work that attracts the 44-hour threshold.

While s. 22(9) does not address the situation of employees who perform work for which the regulations prescribe differing overtime thresholds, it is Program policy to apply the principle behind that subsection by analogy to their situation. Thus, such employees are considered by the Program to be entitled to overtime pay for all hours worked in excess of the lower threshold provided that at least 50% of their work week is spent performing work that attracts the lower threshold. For example, employees who perform work that attracts overtime after 50 or 60 hours (local cartage and highway transport respectively) as per O Reg 285/01, ss. 17 and 18 would be entitled to overtime for all hours in excess of 50 in a week if at least 50% of the hours worked in the week were in local cartage.

Section 22 — Overtime threshold — Before April 3, 2019

The “overtime averaging” scheme set out in the ESA 2000 was amended effective April 3, 2019 as a result of the Restoring Ontario’s Competitiveness Act, 2019.  The provisions that are currently in force are discussed in the section above.  The text below, which appears in red, is the legislative text and the associated operational policy as it applied prior to April 3, 2019.  This discussion is being maintained in this publication since employees may still file a complaint relating to a situation that arose when the below provisions were in force. 

Overtime threshold — s. 22(1); same, two or more regular rates – s. 22(1.1)

Subject to s. 22(1.1), s. 22(1) sets out the general overtime premium of one and one-half times the employee’s regular rate of pay for each hour of overtime worked in each work week. Section 22(1) also establishes the general overtime threshold. The employer’s obligation to pay the overtime premium is triggered when an employee works more than 44 hours in a work week. Subject to a greater right or benefit, the general premium and threshold apply for all employees except those exempted from ESA Part VIII Overtime Pay. In addition, for certain employees, listed below, different overtime thresholds have been prescribed.

Subsection 22(1.1) is a new provision that the Fair Workplaces, Better Jobs Act, 2017, SO 2017, c 22, effective January 1, 2018, added to the Employment Standards Act, 2000. It states that where an employee has two or more regular rates for work performed in a work week that the overtime rate for any hour of overtime work is one and one-half times the regular rate the employee would be entitled to for the work performed in that hour.

Special overtime thresholds

O Reg 285/01 varies the overtime threshold for certain employees. The regulation requires employers to pay employees the general overtime premium of one and one-half times the employee’s regular rate of pay; however, it varies the overtime threshold as follows:

Road building in relation to streets, highways or parking lots

Employees engaged at the site of road building in relation to streets, highways or parking lots are entitled to the overtime premium for each hour of work in excess of 55 hours in each work week – O Reg 285/01, s. 13(1)(a). If the employee works less than 55 hours in a work week, the difference between the number of hours worked and 55 (up to a maximum of 22) is added on to the maximum number of hours that can be worked in the following work week before overtime becomes payable  — O Reg 285/01, s. 13(1)(b).

Road building in relation to structures

Employees engaged at the site of road building in relation to structures such as bridges, tunnels or retaining walls in connection with streets or highways are entitled to the overtime premium for each hour of work in excess of 50 hours in each work week per O Reg 285/01, s. 13(2)(a). If the employee works less than 50 hours in a work week, the difference between the number of hours worked and 50 (up to a maximum of 22) is added on to the maximum number of hours that can be worked in the following work week before overtime becomes payable – O Reg 285/01, s. 13(2)(b).

Hospitality industry

Employees who work for the owner or operator of a hotel, motel, tourist resort, restaurant or tavern for 24 weeks or less in a calendar year and who are provided with room and board are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week – O Reg 285/01, s. 14.

Canning, processing and packing fresh fruits or vegetables

Seasonal employees whose employment is directly related to canning, processing and packing of fresh fruits or vegetables, or their distribution by the canner, processor or packer, are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week – O Reg 285/01, s. 15.

Sewer or watermain construction and maintenance

Employees engaged in laying, altering, repairing or maintaining sewers and watermains and work incidental thereto, or in guarding the site during this work are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week – O Reg 285/01, s. 16.

Local cartage drivers

Employees who are drivers of, or drivers' helpers on, a vehicle used in the business of carrying goods for hire within a municipality or to any point not more than five kilometres beyond the municipality’s limits are entitled to the overtime premium for each hour worked in excess of 50 hours in a work week – O Reg 285/01, s. 17(1)(a).

Transport truck drivers

Employees who drive public trucks operated by holders of an operating licence issued under the Truck Transportation Act, RSO 1990, c T.22 are entitled to the overtime premium for each hour worked in excess of 60 hours in a work week — ss. 18(1) and 18(2). Only those hours during which such employees are directly responsible for the public truck are included when calculating the entitlement to overtime – O Reg 285/01, s. 18(4).

Invalid employer defences to an employee’s claim for overtime pay

Subsection 22(1) places a positive obligation on employers to ensure that employees receive the statutory minimum requirement with respect to overtime. An employer cannot satisfy that obligation or circumvent payment for overtime by raising any of the following defences:

Employer did not authorize the employee to work overtime

In Philip’s Auto Sales and Repair Inc. v Bonneville (October 30, 1984), ESC 1726 (Betcherman), the referee affirmed that even in the event that the employer did not authorize its employees to work overtime, they are still entitled to receive the overtime pay if they exceed the overtime threshold. This decision was based on a predecessor to O Reg 285/01, s. 1.1, which stipulated that work shall be deemed to be performed when work is permitted or suffered to be done by the employer. The employer in this case was present when the employee performed the overtime work and the referee held that the employer implicitly permitted such overtime.

In Joseph Dobi Painting v Szekely and Szekely (May 28, 1980), ESC 799 (Adamson), the referee stated: "[t]he law is quite clear with respect to overtime work. The responsibility rests fully upon the employer. If he does not wish employees to work overtime, he must not only order them to stop but see that they do. This employer had ample time after the first week of employment to do this. During the period in which the employer claimed to have been incapacitated, it was still his responsibility to see that another person supervised his workers."

In Joe Kool’s Restaurants Ltd. v Whitehead et al (January 21, 1986), ESC 2023 (Brown), the work schedule prepared by the employer did not include overtime hours; however, the employees were permitted to rearrange the schedule on an individual basis to suit their own convenience, without clearing those arrangements with the employer. These informal arrangements were neither encouraged nor discouraged, and there was no advance notification to the employer. The employer argued that the overtime was not scheduled by it, nor was it worked with its knowledge or acquiescence and that the Act’s overtime provisions were therefore inapplicable. The referee rejected that argument and upheld the overtime pay assessment on the basis that the employer must have known and thus was deemed to have permitted the overtime hours worked.

An employee who is working excess hours contrary to a specific term of an employment contract or without authorization may well face disciplinary action for having done so, but that does not alter the fact that they are entitled to overtime pay for overtime hours worked.

Employee agreed to a built-in overtime rate

An employer may argue that it has already compensated employees for overtime pay by providing the employee with a bonus scheme or a higher regular rate of pay. This is not a valid defence to an employee’s claim for overtime pay. The employer is also liable to pay overtime notwithstanding that the employee agreed verbally or in writing to work extra hours at the regular rate of pay. In Ferlandi Builders and Contractors Inc. v Manderscheid (May 30, 1986), ESC 2116 (Aggarwal), Jefferson Metal Products Inc. v Hazlehurst and Turner (February 20, 1985), ESC 1790 (Kerr) and Wen-Hal Limited v Hansen (August 22, 1979), ESC 660 (MacDowell), the referees held that any agreement by an employee to work overtime without receiving overtime pay for hours worked beyond 44 per week is rendered void by s. 3 of the former Employment Standards Act, now ESA Part III, s. 5(1), which specifically prohibits employees, employers and their agents from contracting out of or waiving an employment standard.

The ESA 2000 does not contain the provision that appeared in the former Employment Standards Act that specifically prohibited employers from reducing an employee’s pay to comply with the overtime provisions. However, the definition of regular rate in the ESA Part I, s. 1 makes the prohibition redundant.

Regular rate is now defined in such a way as to ensure that overtime hours shall not, in any circumstances, be used to calculate an employee’s regular rate. The regular rate for hourly employees is the amount paid for an hour of work in the employee’s usual work week — excluding overtime hours. The regular rate for non-hourly employees is the amount paid in a given work week divided by the number of non-overtime hours actually worked in that work week. For example, an employer cannot assign a regular rate of $12.00 for the first 44 hours of work in a work week and a regular rate of $8.00 thereafter.

Employee contracted out of their overtime pay

An employer and an employee cannot agree to contract out of the overtime provisions. This is prohibited by ESA Part III, s. 5(1). An employee cannot agree to work overtime hours at a rate lower than one and one-half times their regular rate. Nor can an employee agree to reduce their regular rate for those hours worked in excess of the applicable overtime threshold.

Employee performed work at multiple locations

An employer cannot avoid its obligation to pay overtime by scheduling employees to work, for example, 20 hours at one of its locations and 30 hours at a second location. In Tavares and Sgromo c.o.b. Mr. Submarine, Thunder Bay, Ontario v Coppola et al (April 13, 1982), ESC 1197 (Aggarwal), the employer had contended that since its employee did not work more than 44 hours in one location, the employee was not entitled to overtime pay. The referee, however, ruled that it was irrelevant whether the employee worked all 54.25 hours at a single location of the employer; the essential point was that the employee worked all of those hours for one employer.

Employee performed work for different but related employers

Similarly, the obligation to pay overtime cannot be avoided by scheduling employees to work, for example, 25 hours for one corporation and 25 hours for another related corporation. This is prohibited by ESA Part III, s. 4, which provides as follows:

Where ESA Part III, s. 4 applies and two or more entities are treated as one employer, the hours worked by employees for those two or more entities are to be added together for purposes of determining the employees' overtime pay entitlement. See ESA Part III, s. 4 for a more detailed discussion of this issue.

Calculation of overtime pay

The method for calculating an employee’s entitlement to overtime pay is set out below. This method applies to ALL employees who are not exempt from the application of Part VIII Overtime Pay.

1. Do the overtime provisions apply to the claimant?
2. Which threshold applies? Is it the standard 44-hour threshold, a higher threshold established by regulation, or a lower threshold established by contract?
3. Does s. 22(9) (the changing work provision) apply?
4. Which overtime premium(s) applies? The standard time and one-half premium or a higher premium established by contract?
5. What is the employee’s work week?
6. How many non-overtime and overtime hours has the employee worked during each work week in question?
7. What is the employee’s regular rate or rates in a given work week?
8. What is the employee’s overtime rate or rates for each hour of overtime work in a given work week?
9. What is the employee’s overtime pay for each work week in question?
10. Has the employer provided the employee with any overtime pay in respect of each work week in question?

Do the overtime provisions apply to the claimant?

The first determination that must be made is whether the person claiming overtime pay is covered by Part VIII Overtime Pay. To make this determination, the following issues must be considered:

• Is the claimant an employee within the meaning of the ESA 2000?
• Is the claimant excluded from the application of the ESA 2000 by virtue of ESA Part III, ss. 3(2), 3(3) or 3(5)?
• Is the employee exempt from the overtime provisions by virtue of O Reg 285/01, ss. 2(1), 2(2), 8, 11(3) or 23?

Please note that overtime averaging agreements may also impact on a claimant’s right to overtime pay. See discussion in ESA Part VIII, s. 22(2) below.

Which threshold applies?

Is it the standard 44-hour threshold, a higher threshold established by regulation, or a lower threshold established by contract?

The next issue for determination is whether the 44-hour threshold applies. A higher threshold may be prescribed by O Reg 285/01. A lower threshold may be established by contract. If the employee is engaged in any of the following, O Reg 285/01 should be consulted as a higher overtime threshold may apply:

• Road building — s. 13;
• Whether the employee is seasonal and employed by an owner or operator of a motel, hotel, tourist resort, restaurant or tavern — s. 14;
• Whether the employee is seasonal and engaged in canning, processing and packaging of fresh fruits or vegetables or their distribution — s. 15;
• Sewer and watermain construction — s. 16;
• Local cartage — s. 17;
• Highway transport — s. 18.

Does s. 22(9) (the changing work provision) apply?

Section 22(9) provides that when an employee performs work that is exempt from this Part and work that is not, the employee is entitled to overtime pay in respect of all of the overtime work performed in a work week so long as the non-exempt work in the work week constitutes 50% or more of the time the employee spent working.

Similarly, s. 22(9) provides that employees who perform both work that attracts overtime after 44 hours and work that attracts overtime at a higher threshold will be entitled to overtime pay after 44 hours in respect of all work performed during the work week by the employee so long as the work performed by the employee that attracts overtime pay at the 44 hour threshold constitutes 50% or more of the time the employee spent working.

See the detailed discussion of s. 22(9) below.

Which overtime premium applies?

The standard time and one-half premium or a higher premium established by contract?

The next issue for determination is whether the time and one-half overtime premium established in s. 22(1) applies. A higher premium may be established by contract. For example, the employment contract may provide for an overtime premium of double the employee’s regular rate after 44 hours of work in a work week, or it may provide for time and one-half after 44 hours of work in a work week and double-time after 50 hours of work in a work week.

What is the employee’s work week?

The definition of work week is critical to the calculation of an employee’s entitlement to overtime pay. An employee’s regular rate is determined with respect to a work week. Indeed, an employee’s entitlement to overtime pay is determined in respect of a work week. Therefore, one of the first determinations an officer must make is what constitutes the employee’s work week.

Work week is defined in ESA Part I, s. 1 as:

The Ontario Court of Appeal in Re Falconbridge Nickel Mines Ltd. and Egan et al., 1983 CanLII 1931 (ON CA) concluded that the term week as it was used in s. 24(1) of the former Employment Standards Act, must be interpreted as a work week. The ESA 2000 deleted the definition of week that appeared in the former Act and included an amended definition of work week to reflect the reasoning of the Court of Appeal. Part VIII Overtime Pay uses the terms week and work week interchangeably.

How many non-overtime and overtime hours has the employee worked during each work week in question?

When determining what overtime and non-overtime hours an employee has worked in a given work week, the first question is how many hours of work were actually performed by the employee in the work week. Once the officer has determined how many hours of work were performed in the work week, they may then determine how many of these hours constitute non-overtime hours and how many are overtime hours.

When making this determination, regard must be had for O Reg 285/01, s. 1.1, which sets out when work is and is not deemed to be performed.

Work deemed to be or not deemed to be performed by employee

Section 1.1 of O Reg 285/01 provides as follows:

See O Reg 285/01, s. 1.1 for a detailed discussion of this section.

Calculation of hours worked for employees in highway transport paid by mileage

A Program investigatory tool involving mileage approximation has been used to determine the hours of work for employees employed in highway transport and paid by mileage, where no complete and accurate records of hours of work exist. The investigatory tool consists of dividing the total distance driven by 80 kilometers per hour (or 50 miles per hour). This practice can also be used as a check to assess the accuracy of existing records. Any other (i.e., non-driving) hours, if they can be established to have been worked, must also be included in the total number of hours worked. However, the hours that the employee is not directly responsible for the truck are not included for overtime purposes.

Calculation of hours worked where the employer has not kept accurate records

If an employer has not kept accurate records of the hours worked by an employee, or if the employer’s records are challenged by the employee, the employment standards officer will determine the employee’s hours of work on the basis of the best evidence available. Note that where an employee has two or more regular rates of pay that the employer is required to maintain a record of the dates and times  the employee worked in excess of the overtime threshold, at each rate of pay, in any given work week. See ESA Part VI, s. 15 (1) paragraph 3.2.

Travel time

 With respect to travel time it is Program policy that:

• With the exception of commuting time, any time a person spends travelling (irrespective of the mode of transportation) for the purpose of getting to or from somewhere where work will be performed, must be counted as hours of work;
• Commuting time means the time required for an employee to travel to work from home and vice versa. However, there are a number of exceptions to this rule:
  • If the employee takes the work vehicle home in the evening for the convenience of the employer, the hours of work begin when the employee leaves home in the morning and end when they arrive home in the evening; or
  • If the employee is required to transport other staff or supplies to or from the workplace or work site, time so spent must be counted as hours of work.

What is the employee’s regular rate or rates in a given work week?

Before an employee’s overtime rate or rates in respect of the overtime hours worked in a given work week can be calculated, the employee’s regular rate or rates (if the employee is paid more than one hourly rate for work performed for the employer) for the work week(s) in question must be determined. ESA Part I, s. 1 defines regular rate as follows.

Employees who are paid solely on the basis of an hourly rate (including employees who are paid two or more different hourly rates for work performed for the employer) will fall within the first portion of this definition. All other employees, including salaried employees, flat rate mechanics, commissioned salespersons, piece workers and employees receiving mixed compensation, for example, an hourly rate and mileage or an hourly rate and commission, must have their regular rate determined by reference to clause (b) of the definition of regular rate.

What is the employee’s overtime rate or rates for each hour of overtime in a given work week?

An employee’s overtime rate for the overtime hours worked in any given work week is established by multiplying their regular rate by one and one-half or by the higher rate established by contract. If the employee has more than one regular rate that applies to overtime hours worked as per s. 22(1.1), the overtime rate in respect of each hour of overtime will be one and one-half times the regular rate that applies to the work performed in each hour, or the higher rate established by contract.

What is the employee’s overtime pay for each work week in question?

The overtime pay that an employee is entitled to for a given work week is determined by multiplying their overtime rate by the number of overtime hours worked at that rate within the week. Where the employee has two or more regular rates and has performed overtime work that attracts more than one overtime rate, the overtime pay for the work week is determined by adding together the overtime pay entitlement as calculated for each hour of overtime work. See example 1 under “Examples of How to Calculate Overtime” below.

Has the employer provided the employee with any overtime pay for each work week in question?

The final consideration is whether the employee has already been paid, in full or in part, for any of the overtime hours in question. This will only be appropriate in limited circumstances. For example, an employee who is paid by the hour and who works 55 hours in a work week and is paid their regular rate for those 55 hours has received a portion of their overtime pay. That employee will only be entitled to an additional .5 of their regular rate in respect of all overtime hours worked in the work week.

Please note that this will not apply to a salaried employee. See the discussion below.

Examples of how to calculate overtime

Overtime entitlements for employees with two or more regular rates

An employee who is paid on an hourly basis may perform, in one work week, two types of work, each of which attracts a different hourly rate. In that case, the employee has two regular rates and as a result, s. 22(1.1) applies to determine the overtime pay entitlement. That subsection provides that the overtime rate for each of hour of overtime work performed is based on the regular rate that applies to the work performed in that hour.

Example 1

An employee works as a punch press operator earning $15.00/hour and also as a shipping logistics coordinator earning $20.00/hour for the same employer. The employee’s overtime threshold is 44 hours and the overtime rate is 1.5 times the regular rate.

In one work week the employee worked 4 hours of overtime. The 45^th and 46^th hours were worked as punch press operator and the 47^th and 48^th hours were worked as a shipping logistics coordinator. This employee’s overtime pay entitlement would be calculated as follows:

45^th hour: overtime rate is $15.00 x1.5 = $22.50 per hour

46^th hour overtime rate is $15.00 x1.5 = $22.50 per hour

47^th hour overtime rate is $20.00 x1.5 = $30.00 per hour

48^th hour overtime rate is $20.00 x1.5 = $30.00 per hour

The total overtime pay due to the employee is $105.00 [$22.50 + $22.50 + $30.00 + $30.00]

Example 2

An employee usually works in job A at an hourly rate of $15.00. The employee also usually works, for the same employer in job B at an hourly rate of $20.00. The employer has received approval from the Director of Employment Standards under s. 17.1 to have employees work excess weekly hours. The employee has also agreed in writing to work excess hours. In one work week the employee works 60 hours: 36 hours in job A at $15.00 per hour and 24 hours in job B at $20.00 per hour. The employee was paid their regular rate or straight time for all hours worked including overtime hours; a total of $1020.

The regular overtime threshold and overtime rate of 1.5 times the regular rate apply to this employee. The 16 hours of work performed once the overtime threshold of 44 hours was reached were as follows:

• 12 hours in job A
• 4 hours in job B

The employee’s overtime entitlement in accordance with s. 22(1.1) is:

• Job A work: 12 hours X $15.00 per hour X 1.5 = $270
• Job B work: 4 hours X $20.00 per hour X 1.5 = $120

However, the employee had already been paid straight time for the 12 hours of overtime worked in job A = 12 X $15.00 per hour = $180

Plus straight time for the 4 hours of overtime worked in job B = 4 X $20.00 = $80.00

The employee’s overtime pay entitlement was $390; however the employee had already been paid $260 in straight time for the overtime hours (i.e. has received partial pay for the overtime hours). Therefore, the balance owing in respect of overtime pay for the work week in question is $390 — $260 = $130

Overtime entitlements for employees paid hourly rate and other forms of compensation

From time to time employees who are paid an hourly rate will also perform work that involves different types of compensation in the same work week. For example, payment of an hourly rate and commission. If an employee who receives an hourly rate is also compensated with commissions, that employee, strictly speaking, is not paid by the hour. Accordingly, the regular rate of such employees must be determined by applying clause (b) of the definition of regular rate, by dividing their total earnings for each work week in question by the number of non-overtime hours worked. However, if an employee receives an hourly rate for each hour worked (including overtime hours), the employer will be credited for such payment when the employee’s overtime entitlement is calculated.

Under the ESA 2000, overtime hours cannot be included in the calculation of an employee’s regular rate.

Example

The employee works 50 hours in a work week and is paid $20.00 per hour. The employer has received approval from the Director of Employment Standards under s. 17.1 to have employees work excess weekly hours. The employee has also agreed in writing to work excess hours. The employee also receives commissions. In one work week the employee receives $1000 for 50 hours worked and $200 in respect of commissions. The general overtime premium and threshold apply.

• Employee works 44 non-overtime hours in the work week
• Employee works 6 hours of overtime in the work week
• Regular rate = total earnings in work week divided by non-overtime hours) = $1200 divided by 44 = $27.27
• Overtime rate is $27.27 (regular rate) x 1.5 = $40.91
• Overtime pay entitlement = (overtime rate x overtime hours in a workweek) = $40.91 x 6 = $245.46

Because this employee was paid straight time for each hour worked, including overtime hours, the employee has already received $120 (6 overtime hours x $20.00) in respect of overtime. Therefore, they entitled to receive an additional $125.46: $245.46 overtime entitlement minus $120 of overtime already paid, in respect of overtime for the work week in question.

Overtime entitlements for employees paid on mileage, piecework or commission basis

Under the ESA 2000, the overtime entitlement for employees who are paid solely on a mileage basis, by commission or on a piece-rate must be determined by reference to the definition of regular rate in ESA Part I, s. 1. Because these employees are not paid by the hour, their regular rate must be determined by applying clause (b) of the definition of regular rate, by dividing all earned wages in the work week by the non-overtime hours worked. The overtime premium of one and one-half times the regular rate is payable for all hours worked in excess of 44 in a work week, unless a higher overtime rate applies by virtue of contract or a higher threshold applies by virtue of regulation.

Example

An employee works making oven mitts and is paid $2.00 per pair. In a particular work week, the employee works 60 hours to make 300 pairs of mitts and is paid $600.00. The employer has received approval from the Director of Employment Standards under ESA Part VII, s. 17.1 to have employees work excess weekly hours. The employee has also agreed in writing to work excess hours. The general threshold and premium apply to the employee.

• Employee works 44 non-overtime hours that work week
• Employee works 16 hours of overtime that work week
• Regular rate = total earnings in the work week divided by non-overtime hours = $750.00 divided by 44 = $17.05
• Overtime rate is $17.05 (regular rate) x 1.5 = $25.58
• Overtime pay entitlement = overtime rate x overtime hours in the work week
• = $25.58 x 16
• = $409.28 in respect of that work week.

Overtime entitlements for flat rate mechanics

Enquiries arise occasionally on the application of the legislation to motor vehicle mechanics and body repairpersons who are paid on a flat rate or incentive system. In a flat rate shop, every job is rated as taking a certain number of hours to perform and the mechanic is paid a book hourly rate for those hours. As an example, a brake reline is rated as a four-hour job, and the mechanic’s book rate is $16 per hour. The mechanic will be paid $64 whether the job takes three or five hours to complete. This is acceptable so long as minimum wage is being paid and all overtime hours (hours worked in excess of 44) are compensated at a minimum of 1.5 times the mechanic’s actual regular rate, which is not the same as the flat rate.

Generally, in a flat-rate remuneration system, it is a condition of employment that the employee rectify their own faulty work without further pay. This is not a violation of the ESA 2000, so long as the minimum wage and overtime provisions are not violated. If for some reason, another mechanic makes the required changes, the payment for the entire job is credited to the second mechanic. Where this occurs as part of the employment contract, the transfer of credits is considered as part of the reconciliation of wages due and not a prohibited set-off or deduction. However, the minimum wage and overtime provisions still apply with respect to the hours of work the first mechanic spent on the vehicle.

It is essential in a flat rate system that the employer’s records reflect both the flat rate paid and the actual hours worked: it is the actual hours worked that must be used to calculate the employee’s regular rate and overtime entitlements. Those actual hours of work must include any time spent rectifying the employee’s faulty work.

As illustrated in the examples below, payment at the book rate is payment for a task (i.e., a flat rate for the task), rather than a payment for hours actually worked. As no portion of the payment is made in respect of hours actually worked, none of it can be considered to be a payment for regular hours or overtime hours.

Example 1

The employee is paid a flat book rate of $16.00 per hour for brake re-lining. They did 12 brake-relines which resulted in a flat rate payment for 48 hours (each re-line job is rated as taking 4 hours) for a total payment of $768. The employee however actually spent 46 hours doing the work in that week. The general overtime rate and threshold apply to this employee.

• Employee works 44 non-overtime hours in work week
• Employee works 2 overtime hours in work week
• Employee paid $768 for work week
• Employee’s regular rate is $768 divided by 44 non-overtime hours = $17.45
• Employee’s overtime rate is $17.45 x 1.5 = $26.18
• Employee’s overtime entitlement is 2 hours x $26.18 = $52.36

In this case, the employer owes the employee an additional $52.36 for overtime pay.

Example 2

The employee is paid a flat book rate of $16.00 per hour to perform tune-ups that according to the book will take 1.5 hours to complete. In fact they are being paid $24.00 for each tune-up regardless of the time it actually took them to perform the tune-up. Having completed 25 tune-ups in one week the employee is paid $600 for that work week. However, the employee actually worked 50 hours in that work week. The general overtime rate and threshold apply to this employee.

• Employee works 44 non-overtime hours in work week
• Employee work 6 overtime hours in the work week
• Employee paid $600 for the work week
• Employee’s regular rate is $600 divided by 44 non-overtime hours = $13.64
• Employee’s overtime rate is $13.64 x 1.5 = $20.46
• Employee’s overtime entitlement is 6 hours x $20.46 = $122.76

In this case, the employer owes the employee an additional $122.76 for overtime pay.

Overtime entitlement for salaried employees

Generally, employees who are paid a fixed amount for each pay period rather than an amount determined by applying an hourly rate to each hour worked (or a piece rate or commission based on work performed) are considered to be salaried employees. It should be noted that although ESA Part VI, s. 15(4) defines a salaried employee, that definition is for the purposes of ESA Part VI, s. 15(3), which sets out the employer’s obligations to record hours worked, and is not necessarily relevant to the calculation of overtime entitlements.

Salaried employees who are not exempt from the overtime provisions are entitled to overtime pay for overtime work. Once the work week has been determined, the employee’s regular rate will be determined by applying clause (b) of the definition of regular rate, by dividing the salary earned in respect of the work week by the number of non-overtime hours worked in the work week. Salaried employees are entitled to receive 1.5 times their regular rate in respect of each hour worked in excess of 44 in a work week (or other applicable threshold).

Prior to the introduction the ESA 2000, the calculation of the regular rate for salaried employees was accomplished by dividing the salary earned for the work week by the actual hours worked, including overtime hours. The employee was considered to have been paid straight time for all hours worked, including overtime hours, and received an additional .5 times their regular rate in respect of all overtime hours worked in the work week in question. This method of calculating overtime had the effect of lowering the employee’s regular rate as the number of hours worked increased and significantly reducing the employee’s entitlement to overtime pay.

Under the ESA 2000, overtime hours cannot be included in the calculation of an employee’s regular rate. Formerly, the more overtime hours a salaried employee worked, the less they were paid for those hours. The new definition of regular rate precludes that result because overtime hours cannot be included in the calculation.

Example

An employee is paid an annual salary of $52,000 or $1000 per week. The employee works 60 hours in a work week. The employer has received approval from the Director of Employment Standards under s. 17.1 to have employees work excess weekly hours. The employee has also agreed in writing to work excess hours. The general overtime rate and threshold apply.

• Employee works 44 non-overtime hours in work week
• Employee works 16 overtime hours in work week
• Employee’s regular rate for the work week is $1000 divided by 44 non-overtime hours = $22.73
• Employee’s overtime rate for the work week is $22.73 x 1.5 = $34.10

The employee’s entitlement to overtime pay for the work week is $34.10 x 16 hours = $545.60.

Averaging — s. 22(2)

Where the conditions set out in this provision are met, the employer’s obligation to pay overtime pay is based on the employee’s average hours per work week (during the period specified in the employee’s averaging agreement or the period specified in the approval, whichever period is shorter), rather than the hours actually worked within a work week.

Example

An employee and employer have agreed in writing and have the Director’s approval to average hours over four-week periods for the purpose of calculating the employee’s entitlement to overtime pay. The employee works 48 hours in the first week, 44 hours in the second week, 40 hours in the third week and 50 hours in the fourth week. The employee and employer have also agreed in writing and have the Director’s approval to work excess weekly hours.

The employee’s overtime hours will be determined on the basis of the average number of hours worked per week. In this example the employee worked an average of 45.5 hours per week (48 + 44 + 40 + 50, divided by 4). Accordingly, the employee would be entitled to overtime pay for six hours based on an average of 1.5 hours of overtime per week in the four-week period. In the absence of averaging, the employee would have been entitled to four hours of overtime pay in the first week and six hours of overtime pay in the fourth week.

Calculating overtime pay when employee works different jobs for different rates of pay

It is program policy that the employer shall apply the proportion of each overtime rate to the averaged overtime hours.

For example, if the employee gets 4 hours of overtime pursuant to the 2 week averaging agreement and the employee worked 25% of the overtime in the 2 week period at Job A and 75% of the overtime at Job B, this employee would get 1 hour of overtime at the Job A’s overtime rate and 3 hours of the overtime rate at Job B.

Note that, unless there is a time off in lieu arrangement in place pursuant to s. 22(7), the employer is required to pay the employee straight time for every hour worked within each pay period — including those hours over 44 - and that it is only the extra half that the employer can postpone paying under an averaging arrangement until the end of the averaging period. See ESA Part V, s. 11 for details.

Section 22(2) provides that where averaging is permitted, the employee’s hours of work can be averaged only over separate, non-overlapping, contiguous periods of two or more consecutive weeks. That is, the averaging periods must be contiguous (i.e., there cannot be gaps in between the end of one period and the beginning of another), and they must be separate and cannot overlap with one another. Further, the two or more weeks within each averaging period must be consecutive.

Note that even if an employer has averaging agreements and an averaging approval, if employees will be working hours in excess of the daily or weekly limits the employer must also obtain excess hours agreements from the employees and, in the case where they work in excess of the weekly limit, an excess hours approval from the Director, subject to the pending approval rule.

Three conditions for averaging

The three conditions that must be met before averaging can take place are discussed below.

Condition 1: Employee made agreement with employer that hours of work may be averaged over specified number of weeks

The first condition that must be met before an employer is permitted to average an employee’s hours is the employee must have entered into an agreement with the employer that their hours may be averaged over periods of a specified number of weeks.

For an agreement to valid, the following criteria must be met:

Agreement must be in writing

By virtue of ESA Part 1, s. 1(3), an agreement between an employer and an employee to average the employee’s hours of work, for purposes of calculating the employee’s entitlement to overtime pay must be in writing. See also ESA Part 1, s. 1(3.1), which provides that an agreement in writing may be in electronic form.

For employees represented by a trade union, the written agreement may be embodied in the collective agreement or a memorandum of agreement or other written documentation signed by union officials and, provided the other criteria are met, all bargaining unit employees will be bound by the agreement.

In the non-unionized context, a written agreement between each employee and the employer is required.

Agreement must specify the number of weeks over which the hours of work are going to be averaged

Section 22(2)(a) requires that the agreement state precisely the number of weeks over which the hours of work are going to be averaged. Statements such as "up to 4 weeks" are not sufficient.

Agreement must contain an expiry date

The averaging agreement must also contain an expiry date. There are restrictions placed on when the expiry date can be. See s. 22(3) below for a more detailed discussion.

Agreement must clearly and explicitly set out what is being agreed upon

The agreement should be written with sufficient clarity for the parties to know precisely what they are agreeing to. Ambiguous or equivocal agreements will be ineffective.

The agreement should contain the employee’s express consent to the averaging of hours for the purpose of calculating the employee’s entitlement, if any, to overtime pay. Mere agreement to a particular schedule is not sufficient, as an employee may agree to work certain hours without necessarily having agreed to the hours being averaged for overtime pay purposes.

Employers are encouraged, but not required, to include schedules in averaging agreements.

Overtime averaging agreements must not be confused with agreements to work hours in excess of the weekly and daily maximums established in ESA Part VII, s. 17. Employers who wish employees to work hours in excess of eight hours a day (or the regular work day where that is longer than eight hours) or 48 hours a week must secure valid written agreements from their employees (and, in the case of excess weekly hours, obtain the Director’s approval) to work hours in excess of the daily and weekly maximums.

Parties must have entered into the agreement voluntarily

An averaging agreement will not be binding if it is not entered into voluntarily by both parties. Please see ESA Part I, s. 1(3) for a more detailed discussion of the issue of voluntary consent.

Employee must have given their informed consent to the agreement

The employee must understand what they are agreeing to, and the consequences of the agreement, for an averaging agreement to be binding. Informed consent will not be established unless each party knows precisely the ramifications of entering into the agreement.

The best evidence that an employee provided their informed consent is where the document itself accurately sets out the consequences of the agreement. To this end, employers may wish to include the following in averaging agreements:

• A statement notifying the employee(s) that an averaging arrangement, if approved by the Director, will affect the amount of overtime pay the employee will be entitled to under the arrangement, as compared to the amount of overtime pay the employee would be entitled to if the employee(s) worked the same number of hours in each week without an averaging arrangement.
• A statement informing the employee(s) that the agreement is irrevocable before it expires, unless the employee and the employer agree, in writing, to revoke it — s. 22(6).

See s. 22(6) below for a more detailed discussion of these requirements.

Employers may also wish to consider including a specific schedule in an averaging agreement.

The Ministry has produced a list of items employers and employees may wish to consider when drafting agreements. This can be found on the Ministry of Labour’s website.

In the absence of a valid agreement, the employer must pay the employee overtime according to s. 22(1), or ensure that the employee does not work overtime, even if the Director of Employment Standards has issued an approval that applies to the employee.

Employers are required to retain a copy of every averaging agreement it has made with its employees for three years after the last day on which work was performed under each agreement — see ESA Part VI, s. 15(9).

If employee refuses to consent to an averaging agreement

If an employee does not agree to the averaging of their overtime hours, the employer must pay the employee overtime according to s. 22(1), or ensure that the employee does not work overtime (that is, hours in excess of 44 hours per week or other applicable threshold). If an employer terminates the employment of an employee or otherwise disciplines an employee because the employee refused to consent to the averaging agreement, that employer will have committed a reprisal in violation of ESA Part XVIII, s. 74.

Averaging arrangements for shift exchanges

Employers may wish to have averaging arrangements in place in order to provide employees with increased flexibility in their work schedules by allowing shift exchanges, without the requirement of paying overtime as a consequence of the shift exchanges.

Example

• Employee A works Monday through Friday 8:00 a.m. to 4:30 p.m.;
• Employee B works Wednesday through Sunday 3:30 p.m. to 12:00 midnight;
• Employee A asks B to work his Tuesday shift in exchange for working B's Sunday shift two weeks later;
• Even though B works an additional eight hours in the first week (and A works eight hours less) neither will see an increase or reduction in their weekly pay for the weeks in which the shift exchanges took place and, specifically, no overtime will be paid for the week in which each employee worked 48 hours.

An issue that may arise in the context of an averaging agreement made for the purpose of accommodating shift exchanges is how to handle circumstances in which the employment of an employee who has been involved in a shift exchange ends before the exchange is complete. The following example illustrates the Program’s policy on this matter.

Example

The employees and the employer have agreed in writing and have received the Director’s approval to average hours of work over a period of four weeks for purposes of calculating overtime pay. Employee A agrees to work a shift for Employee B in week one of the averaging period. In exchange, Employee B agrees to work a shift for Employee A in week two of the averaging period; however, Employee B's employment is terminated before she can complete the shift exchange. The employees are paid their regular wages in respect of week one and week two.

The employer owes Employee A straight time for the shift she worked in week one for Employee B and in respect of which Employee A has not been compensated.

Employee B owes the employer the regular wages that she was paid for work that she did not perform in week one. Employee B is considered to have received an advance and therefore, the employer may make a reconciliation for this amount. Such a reconciliation is not considered to be a set-off or deduction as defined in ESA Part V, s. 13.

Condition 2: Employer received an approval that applies to employee or a class of employees

The second condition that must be met before an employer can average an employee’s hours for overtime pay purposes is the employer must be in receipt of an approval by the Director of Employment Standards under s. 22.1 that applies to the employee or to a class of employees that includes the employee.

ESA Part VIII, s. 22.1 describes how employers apply for an averaging approval.

This section must be read in conjunction with s. 22.1(8), which states:

Accordingly, where an employer already has an approval from the Director of Employment Standards, the employer may begin averaging an employee’s hours of work for overtime pay purposes immediately after the employee provides their written agreement to do so if that employee falls within the class of employees set out in the approval immediately (assuming that all of the requirements for a valid agreement are met) the employer will not be required to apply for another approval. For example, an employer will be allowed to average an employee’s hours without having to obtain another approval where the employee who provides the valid written agreement:

• Was not an employee of the employer at the time the approval was issued;
• Was an employee of the employer at the time the approval was issued but was working in a position the approval does not apply to; or
• Was an employee in the class of employees the approval applies to at the time the approval was issued, but at that time had not yet agreed to average hours for overtime pay purposes?

See ESA Part VIII, s. 22.1 for further discussion.

This section must also be read in conjunction with s. 22(2.1), which allows employers to average an employee’s hours for the purposes of overtime pay entitlements (but for periods of not more than two weeks) if the employer does not receive either an approval or a refusal from the Director within 30 days of the application being served and certain other conditions are met.

Condition 3: Averaging period does not exceed the lesser of number of weeks specified in the agreement and number of weeks specified in approval

This is the third condition that must be met before an employer is allowed to average an employee’s hours of work for overtime pay entitlement purposes. It provides that averaging will be lawful only if the averaging period does not exceed the number of weeks specified in the employee’s agreement or the number of weeks specified in the Director’s approval, whichever is less.

For example, an employee agreed to average their hours of work over a period of eight weeks, but the Director issued an approval to average only over a period of four weeks. The employer can average the employee’s hours only over a period of four weeks.

Conversely, an approval was issued for an averaging period of four weeks that applies to a particular class of employees. Some employees in that class agreed to an averaging period of four weeks. The employer is permitted to average those employees' hours over a period of four weeks. One employee in that class agreed to an averaging period of only two weeks. Pursuant to s. 22(2)(c), the employer is permitted to average that employee’s hours only over a period of two weeks.

Same, pending approval — s. 22(2.1)

This section provides an exception to the requirement in s. 22(2) that the employer have received an averaging approval from the Director before the employer is permitted to average the employee’s hours for the purposes of determining overtime pay entitlements. It permits an employer to begin averaging an employee’s hours — but only over periods of two weeks — if the Director has not issued either an approval or a notice of refusal of the application within 30 days of the date the application was served and certain other conditions are met.

This section permits averaging of hours pending the Director issuing an approval or a notice of refusal if certain conditions are met. It does not deem an approval to have been granted. If the application is ultimately rejected, the averaging must cease when the notice is received.

If the application is ultimately approved, s. 22(2) will dictate the conditions under which averaging may occur from that point forward.

The employer will be permitted to average an employee’s hours of work for overtime pay entitlement purposes pending the disposal of the application — but only over periods of two weeks — only if all eight conditions set out in s. 22(2.1) are met. If any of the eight conditions are not met, the employer will not be permitted to average the employee’s hours pending the disposal of the application.

Each of the eight conditions is discussed below.

Employee made an agreement described in s. 22(2)(a) with employer

The first condition is the employee must have made an agreement described in s. 22(2)(a) with the employer to average hours of work over periods of a specified number of weeks. See the discussion of s. 22(2)(a) below.

Employer served on the Director an application for an approval under s. 22.1

The second condition is that the employer must have served the application for an averaging approval on the Director of Employment Standards under s ESA Part VIII, s. 22.1. See in particular the discussion of the issue of when an application is considered to be served if the approval application is not properly completed.

Application is for an approval that applies to the employee or to a class of employees

The third condition is the application for an averaging approval that has been served on the Director must apply to the individual employee at issue, or to a class of employees that includes the employee.

30 days have passed since application was served on the Director

The fourth condition is at least 30 days must have passed since the employer served the Director with the averaging approval application. Day means a calendar day.

Note that ss. 22.1(4) and (5) contain rules regarding when service is deemed to be effective, and, accordingly, when the 30-day period begins. See the discussion at ESA Part VIII, s. 22.1.

Note also that s. 22(5.1) contains a special rule regarding when the 30-day period expires if the application is filed before March 1, 2005.

Employer has not received a notice that the application has been refused

The fifth condition is the employer not have received a notice from the Director that the application has been refused. The notice could be in writing (by e-mail, facsimile transmission, courier, or mail).

Employer’s most recent previous application, if any, for an approval under s. 22.1 was not refused

The sixth condition is the employer’s most recent previous averaging application cannot have been refused. If the employer submitted an earlier application that was refused for any reason, and that application was the most recent application, the employer will not be permitted to rely on s. 22(2.1), and the employer will not be allowed to begin averaging the hours of the employees who are the subject of the current application until the current application is approved. This is so whether or not the most recent previous application that was refused applied to the same employees who are the subject of the current application.

Most recent approval received by employer under s. 22.1 was not revoked

The seventh condition is the most recent approval (if any) that was granted by the Director must not have been revoked. Pursuant to s. 22.1(14), the Director can revoke an approval.

Employee’s hours of work in a work week are averaged over periods of not more than two weeks

The eighth condition sets an upper limit on the number of weeks in the periods over which an employee’s hours can be averaged pending the disposal of the application. It provides that the maximum period over which an employee’s hour of work can be averaged pending the disposal of the application is two weeks. This limit applies even if the employee agreed to average hours over periods longer than two weeks and/or the application asks for an approval to average hours over periods longer than two weeks.

Transition: Certain agreements — s. 22(2.2)

Section 22(2.2) is a transitional provision. It establishes how agreements to average hours that were entered into under the provisions of the former Employment Standards Act or under the Employment Standards Act, 2000 before the amendments made by the Employment Standards Amendment Act (Hours of Work and Other Matters), 2004, SO 2004, c 21 came into force that have not expired are to be treated.

With respect to agreements made under the ESA 2000, paragraph 2 refers to agreements made under s. 22 as it read on February 28, 2005, i.e., agreements to average over periods of up to four weeks, while paragraph 3 refers to agreements made under O Reg 285/01, s. 30, i.e., agreements to average over period of more than four weeks. The latter required the approval of the Director. In the case of all three types of averaging agreements, this provision states that such agreements are to be treated as if they were agreements under s. 22(2)(a).

On February 28, 2005 the relevant provisions read as follows:

Section 22(2) of the ESA 2000:

Section 30 of O Reg 285/01:

By virtue of s. 22(2.2), agreements that were entered into under s. 22(2) or O Reg 285/01, s. 30 as they read on February 28, 2005 under the former Employment Standards Act that are still valid are treated as if they are agreements made under the current s. 22(2)(a) (new agreements), thereby avoiding the need for employers to enter into another agreement with employees if they wish to average hours after February 28, 2005. However, employers who have old agreements with employees must seek approval from the Director before the employer can average employees' hours of work. This is so even if the Director had approved the agreement pursuant to O Reg 285/01, s. 30 - see s. 22.1(18), which specifically provides that any approval granted by the Director under the regulation ceases to have effect on March 1, 2005.

Term of agreement – s. 22(3)

This provision requires averaging agreements to include an expiry date. In the non-unionized context the expiry date cannot be later than two years from the date the averaging agreement takes effect. In the unionized context the parties must negotiate the expiry date. The purpose of this provision is to preclude perpetual averaging agreements. This is particularly important given that s. 22(6) provides that averaging agreements may not be revoked before they expire, unless the parties agree otherwise in writing.

Agreement may be renewed – s. 22(4)

This provision states that employers and employees may, before or upon the expiry of an averaging agreement, agree, in writing, to extend, to renew or replace the agreement.

Existing agreements – s. 22(5)

This provision stipulates that averaging agreements made under the former Employment Standards Act and approved by the Director of Employment Standards, before the ESA 2000 came into force, will remain in force, for specified periods of time.

The purpose of this provision was to provide workplace parties operating under existing averaging agreements that predated the ESA 2000 with a period of stability before having to negotiate new averaging agreements.

This section was not repealed when amendments made by the Employment Standards Amendment Act (Hours of Work and Other Matters), 2004, came into effect on March 1, 2005, because it is possible that some agreements that predate the ESA 2000 are still in effect.

In the non-unionized workplace, an averaging agreement approved by the Director under the former Act remained in force until September 4, 2002, which was one year after the day s. 22 of the ESA 2000 came into force.

Where a collective agreement applies, valid pre-existing averaging agreements will remain valid until a subsequent collective agreement comes into operation. If a subsequent collective agreement has not come into operation one year after the existing collective agreement expires, the agreement will expire at the end of that year. For example, if a collective agreement that was in force on September 4, 2001, expired January 31, 2002, and no subsequent collective agreement came into force on or before January 31, 2003, the averaging agreement would have ceased to be valid on January 31, 2003.

Transition: Application for approval before commencement – s. 22(5.1)

This is a transitional provision. Pursuant to s. 22.1(19), employers can apply for approval of averaging agreements on or after December 9, 2004, the day the Employment Standards Amendment Act (Hours of Work and Other Matters), 2004 received Royal Assent, even though the amendments that require approvals for averaging agreements do not come into force until March 1, 2005. Applications are permitted prior to March 1, 2005 in order to facilitate a seamless transition between the old rules and the new rules.

Section 22(2.1) permits, in certain circumstances, an employer to average an employee’s hours of work for the purposes of determining any overtime pay entitlements (but only over a maximum period of two weeks) if the employer has not received either an approval or a notice of refusal of an averaging application within 30 days of the date the application was served. By virtue of s. 22(5.1), where an employer applies for an averaging approval prior to March 1, 2005, the 30-day wait period will expire on March 1, 2005 at the earliest.

For example, an employee agreed in writing to average hours of work over two-week periods for a period of two years back in July 2003. The employer served an application for an averaging approval on the Director on January 15, 2005. As of March 1, 2005, the Director had not issued either an approval or a notice of refusal of the application. This employer:

• Was permitted to average the employee’s hours of work over two-week periods until February 28, 2005 pursuant to the provisions that were in force until that date; and
• Is permitted to average the employee’s hours of work over two-week periods as of March 1, 2005 pursuant to the pending approval rules of s. 22(2.1), assuming all of the conditions in s. 22(2.1) are met by the employer.

Agreement irrevocable – s. 22(6)

The ESA 2000 introduced this provision to ensure that once an averaging agreement is made, it cannot be unilaterally cancelled or revoked by the employer, the employee or their agents. Averaging agreements can only be revoked by the parties if the employer and the employee agree to do so in writing, in accordance with ESA Part 1, s. 1(3). The purpose of this provision is to provide the parties with a degree of certainty.

Note, however, that the Director has the authority to revoke an approval — see ESA Part VIII, s. 22.1.

Time off in lieu – s. 22(7)

The provision permits an employer and an employee to agree, in writing, that the employee be compensated for some or all overtime hours by receiving one and one-half hours of paid time off work for each hour worked in excess of 44 (or other applicable threshold) instead of receiving overtime pay if the following criteria are met:

1. The employee and the employer agree, in writing to compensate the employee with paid time off at a rate of 1.5 hours off work for every hour of overtime worked, rather than pay the employee overtime pay; and
2. The paid time off work is taken within three months of the work week in which the overtime was earned or, with the employee’s written agreement within 12 months of that work week.

Please see ESA Part I, s. 1(3) and (3.1) for a more detailed discussion.

Because the subsection states that the employee is to be compensated for overtime hours with one and one-half hours of paid time off work for each hour of overtime worked instead of overtime pay, it is the Program’s position that the employee is entitled to the time off at the rate they are currently earning as opposed to the rate they were earning when the overtime was worked. Note however, that if employment ends before the time off can be taken, the employer will be required to pay overtime pay based on the rate they were earning when the overtime was worked. See the discussion in s. 22(8) below.

Where employment ends – s. 22(8)

This provision stipulates that if the employee’s employment ends before the lieu time earned pursuant to s. 22(7) is taken, the employee’s lieu time entitlement automatically converts into an entitlement to overtime pay. Pursuant to s. 11(5), the overtime pay is payable to the employee by the later of seven days after the termination of the employee’s employment or on what would have been the employee’s next pay day. Note that because this provision requires that the employer pay the employee overtime pay for the overtime hours that were worked, it is the Program’s position that the overtime pay the employee is entitled to receive is based on the rate the employee was earning when the overtime was worked as opposed to the rate they were earning when the termination occurred.

Changing work – s. 22(9)

The purpose of this provision is twofold. This provision ensures that:

1. Employees who perform work that is exempt from the overtime provisions and work that is not exempt are entitled to overtime pay for all hours worked in excess of 44 per week, provided that at least 50% of their work week is spent performing non-exempt work; and
2. Employees who perform work to which the 44-hour overtime threshold applies and work to which a higher overtime threshold attaches are entitled to overtime pay for all hours worked in excess of 44 per week provided that at least 50% of their work week is spent performing work that attracts the 44-hour threshold.

While s. 22(9) does not address the situation of employees who perform work for which the regulations prescribe differing overtime thresholds, it is Program policy to apply the principle behind that subsection by analogy to their situation. Thus, such employees are considered by the Program to be entitled to overtime pay for all hours worked in excess of the lower threshold provided that at least 50% of their work week is spent performing work that attracts the lower threshold. For example, employees who perform work that attracts overtime after 50 or 60 hours (local cartage and highway transport respectively) as per O Reg 285/01, ss. 17 and 18 would be entitled to overtime for all hours in excess of 50 in a week if at least 50% of the hours worked in the week were in local cartage.

Section 22.1 — Averaging: Application for approval

Averaging: Application for approval — s. 22.1(1)

Under s. 22(2) of the Employment Standards Act, 2000, an employer may average an employee’s hours of work for the purpose of determining the employee’s overtime pay entitlement if certain conditions are met. One of those conditions is that the employer be in receipt of an approval under s. 22.1 that applies to the employee or to a class of employees that includes the employee.

Sections 22.1(1) to (19) describe the process for applying for an averaging approval.

Form — s. 22.1(2)

This section provides that an application for an averaging approval must be made in a form provided by the Director of Employment Standards.

The form, Hours of Work and Averaging Hours, is available on the Ministry of Labour’s website.

Service of application — s. 22.1(3)

This section sets out three different methods an employer may use to serve an averaging application form on the Director of Employment Standards. The three ways are:

1. By delivery to the Director’s office when it is open.

For example, personal delivery by the employer or its representative or agent, or by private courier The Director’s office will provide a receipt or other acknowledgement to verify that the application has been received.

2. By mail to the Director’s office using a method of mail delivery that allows for the delivery to be verified.

Three Canada Post services falls within the meaning of verifiable mail — Registered Mail, Xpresspost and Priority Courier. Xpresspost and Priority Courier comply with the requirement of s. 22.1(3)(b) only if the signature upon delivery option is selected.

3. By electronic transmission or facsimile transmission.

To serve the application by electronic transmission, employers must complete the application on the Ministry of Labour’s website and submit it electronically.

The application form provides the Director’s address and facsimile number.

This section must be read in conjunction with s. 22.1(4), which sets out when service is deemed to be effective.

When service effective — ss. 22.1(4), (5)

These sections set out when the service of the application is considered to have been effected. This is important for the purposes of the pending approval provisions in s. 22(2.1) which permit employers to begin averaging an employee’s hours for overtime pay purposes (if certain conditions are met and even then only over a period of two weeks) if the application has been neither approved nor rejected within 30 days of the effective service date.

Under ss. 22.1(4) and (5), service is considered to be effected:

Delivery to the Director’s office

If the employer served the application by delivering it to the Director’s office on a day and at a time when it is open as per s. 22.1(3)(a), service is deemed to be effective on the day indicated on the receipt or acknowledgement provided by the Director or their representative.

Mailing to the Director’s office

If the employer served the application by mailing it to the Director’s officer using a method of mail delivery that allows the delivery to be verified as per s. 22.1(3)(b), service is deemed to be effective on the day shown in the verification.

Electronic transmission

If the employer served the application by sending it to the Director’s office by electronic transmission via the online filing system or by fax as per s. 22.1(3)(c), service is deemed to be effective on the day on which the electronic transmission or fax transmission is made. However, if the electronic transmission or fax transmission is made on a day that the Director’s office is closed or after 5 p.m. on any day, the service is deemed to be effected on the next day that the office is open. Generally, the Director’s office is closed on Saturdays, Sundays, the nine public holidays under the ESA 2000, as well as Easter Monday, the August Civic Holiday, and Remembrance Day. See the definition of public holidays in ESA Part I, s. 1.

Criteria — ss. 22.1(6), (7)

Section 22.1(6) provides that the Director may issue an approval for an averaging application if they are of the view that it would be appropriate to do so. Section 22.1(7) sets out some criteria that the Director may consider when deciding whether to issue an approval.

Section 22.1(7) allows to Director to consider any factor they consider relevant, and specifically lists three factors that may be taken into consideration:

1. Current or past contraventions of the ESA 2000 or its regulations on the part of the employer, including related employers under ESA Part III, s. 4.
   • This includes situations where the Director, in the course of considering an application, discovers that the employer was found to be in contravention of the ESA 2000.
   • The number of contraventions, the extent of the contraventions (e.g. the number of employees affected by the contraventions), the monetary amounts involved, and the Part of the ESA 2000 to which the contraventions relate are all be factors that may be taken into consideration.
2. The health and safety of employees.
   • This factor could include whether the health and safety of employees covered by the application may be put at risk, as well the past health and safety record of the employer.
3. Any prescribed factors.
   • At the time of writing, there were no other prescribed factors.

In addition to the factors listed above, the Director may consider any factor they consider relevant. Some factors that may be considered when the Director is asked to approve an averaging application under s. 22.1 include:

1. Whether information provided by the employer during the application process was false, inaccurate or misleading.
   • Any significant problem of this nature, unless quickly remedied, would most likely lead to a refusal.
2. Whether the employer co-operated with the Ministry’s request for further information during the approval process, e.g. if the employer fails to respond to a request to provide work schedules.
   • A lack of co-operation, unless quickly remedied, would most likely lead to a refusal.
3. Whether the employer has also filed an application for approval for excess weekly hours.
   • If so, and the employer provided proposed schedules, does it appear that an employee will work a large number of excess hours without ever receiving overtime pay? If so, this will militate against the granting of an approval.
4. Whether there are any benefits to employees that accompany the proposed work schedule and hours of work scheme. For example:
   • Is there a lower threshold for overtime pay than what is required in the ESA 2000?
   • Do employees get paid for a set number of hours per week regardless of the number of hours that they work? For example, employees work 36 hours, but get paid for 40 hours of work?
   • Does the proposed scheme provide for a more flexible work arrangement for employees? For example: provides employees with increased flexibility in their work schedules to allow for shift exchanges;  employees have a four week work schedule that provides for longer hours in the first two weeks of the work cycle (e.g., 96 hours) and fewer hours in the second two weeks of the cycle (e.g., 72 hours)?
   • Do employees receive extra compensation for working on the weekends or for working unscheduled hours?
     • Positive answers to any of the above questions may operate in favour of granting an approval.
5. The employer’s reason for requesting overtime averaging is limited to a brief time frame.
   • This may operate in favour of granting an approval.

Please refer to Delegation of Powers for general principles of how the Director exercises their discretion under the ESA 2000.

Employees to whom approval applies — ss. 22.1(8), (9)

These sections specify to which employees an approval applies. The approval applies to:

• If approval was given with respect to a particular employee (or employees), it applies to the employee(s) specified in the approval.
• If approval was given with respect to a specified class of employees, it applies to every employee in that class.

Section 22.1(9) provides that all of the employer’s employees can be a specified class. Where approval is given to a specified class, the approval will apply to an employee in that class even if the employee was not an employee in that class when the approval was given. This means that where an employer already has an approval for a specified class of employees, it is not required to seek another approval if a new employee subsequently begins working in that class, assuming that all of the requirements for a valid averaging agreement are met.

Section 22.1(8) means that an employer will be allowed to average an employee’s hours for the purposes of determining overtime pay entitlements without having to obtain another approval where, for example, the employee who provides the written agreement:

• Was not an employee of the employer at the time the approval was issued;
• Was an employee of the employer at the time the approval was issued but was working in a position the approval does not apply to; or
• Was an employee in the class of employees the approval applies to at the time the approval was issued, but at that time had not yet agreed to have their hours of work averaged.

Approval to be posted — ss. 22.1(10), (11)

This section requires employers who receive an approval to post the approval or a copy of the approval in the workplace. It must be posted in a place or places such that it is likely to come to the attention of the employee(s) named in the application. If the application is with respect to a class of employees, a copy of it must be posted in a place or places that that all of the employees in the class are likely to see it.

An issue arises as to how this requirement applies where the approval is issued to an employer whose employees are assigned to work in a client’s workplace, for example, where the employer is a temporary help agency, security company, food service provider, or cleaning company. In this type of situation, the employer is required by s. 22.1(10) only to ensure that the approval is posted in its own workplace. If the employer has several branches where the employees to whom the approval applies attend, then the approval issued to the employer must be copied and posted in each branch. The employer is not required to post a copy of the approval at its clients’ work sites.

Section 22.1(11) requires the employer to keep the approval posted until the day it expires or is revoked. This section further requires the employer to remove the approval upon the expiry or revocation of the approval.

Expiry — s. 22.1(12)

This section establishes an expiry date for an averaging approval.

Generally, an approval will expire on the date specified in the agreement itself. Section 22(3) requires that agreements contain an expiry date, and sets limits on the duration of the agreement — see ESA part VIII, s. 22. Where the Director has specified an expiry date in the approval that is earlier than the expiry date in the agreement, the approval will expire on the earlier date. In this latter case, an employer who wishes to apply for another approval when the expiry date of the approval is approaching may not be required to obtain another agreement from the employee(s), since the agreement is still in effect.

Conditions — s. 22.1(13)

This section authorizes the Director to impose conditions on an approval. See the discussion of s. 22.1(15) below, for the criteria the Director may consider when deciding whether to impose conditions.

Revocation — s. 22.1 (14)

This section authorizes the Director to revoke an approval that was granted to an employer, upon giving the employer an amount of notice the Director considers to be reasonable in the circumstances. See the discussion of s. 22.1(15) below, for the criteria the Director may consider when deciding whether to revoke an approval.

Criteria — s. 22.1(15)

Section 22.1(15) provides that the Director may consider any factor they consider relevant when deciding whether to impose conditions on an approval or whether to revoke an approval. The three factors that are specifically listed in s. 22.1(7) as factors the Director can consider when determining whether to grant an approval are among those that may be taken into account when deciding whether to impose conditions on an approval or revoke an approval. See the discussion of s. 22.1(7) above.

Another factor that the Director may, depending on the circumstances, consider relevant when deciding whether to revoke an approval is if, after the approval is issued, an employment standards officer finds that some of the employees to whom the approval applies did not have valid agreements to average hours, either because, for example, they were coerced into signing the agreement, the agreements were ambiguous, or they did not sign agreements at all.

Where there is no valid averaging agreement between the employer and a particular employee, it would not be lawful for the employer to average that employee’s hours of work, even if the employer has an approval that applies to a class that includes that employee. However, the fact that some of the employees who fall into the class do not have valid averaging agreements may cause the Director to decide to revoke the approval, thereby also making it unlawful for the employer to average the hours of employees who were in the class who do have valid averaging agreements.

Further applications — s. 22.1(16)

This provision clarifies that nothing in s. 22.1 prevents an employer from re-applying for an approval after:

• An earlier approval expires;
• An earlier approval was revoked; or
• An earlier application was refused.

Refusal to approve — s. 22.1(17)

This section requires the Director to provide notice to the employer if an application for approval has been refused. If notice of a refusal is given, employers will no longer — as of the date the notice is received — be allowed to rely on the pending approval provision in s. 22(2.1) to average an employee’s hours, since one of the conditions that must be satisfied in order to use s. 22(2.1)(e) — "the employer has not received a notice that the application has been refused" — will no longer be met.

Termination of old approvals — s. 22.1(18)

This section provides that certain approvals granted before March 1, 2005 expire on March 1, 2005, which is the date the amendments made by the Employment Standards Amendment Act (Hours of Work and Other Matters), 2004 that require employers to obtain approval from the Director to engage in any averaging came into force.

The approvals that expire are those that were granted pursuant to O Reg 285/01, s. 30, which was subsequently revoked. Prior to its revocation, O Reg 285/01, s. 30 allowed an employer and employee to agree to average hours of work over a period of more than four weeks for the purpose of determining the employee’s entitlement to overtime pay if the Director approved the agreement.

These approvals ceased to have effect on March 1, 2005 even though the approval may have contained an expiry date later than March 1, 2005.

An employer that had an approval under the revoked O Reg 285/01, s. 30 is required to apply for an approval under s. 22.1 in order to average its employees’ hours on and after March 1, 2005. Applications may be made on or after December 9, 2004, the day that the Employment Standards Amendment Act (Hours of Work and Other Matters), 2004 received Royal Assent — see s. 22.1(19).

Time for applications — s. 22.1(19)

This section provides that applications for approval to average hours under s. 22.1 can be made on or after December 9, 2004, the day that the Employment Standards Amendment Act (Hours of Work and Other Matters), 2004 received Royal Assent. Although any approval that is issued before March 1, 2005 can take effect no earlier than March 1, 2005, as that is the date the amendments to the ESA 2000 by the Employment Standards Amendment Act (Hours of Work and Other Matters), 2004 came into force, this provision was intended to facilitate a seamless transition between the old rules and the new rules.

Section 22.2 — Delegation by Director

Delegation by Director — s. 22.2(1)

Section 22.2(1) sets out the authority of the Director of Employment Standards to delegate his or her powers under s. 22.1. The delegation may be made orally or in writing to anyone employed in the Ministry of Labour. In contrast, the Director’s general delegation power in s. 88(3) of the Employment Standards Act, 2000 extends only to employment standards officers.

Residual powers — s. 22.2(2)

Section 22.2(2) preserves the Director’s ability to exercise powers under s. 22.1 even if they have been delegated under subsection (1).

Duty re policies — s. 22.2(3)

Section 22.2(3) provides that an individual to whom the Director has delegated his or her s. 22.1 powers must follow any policies established by the Director under s. 88(2) respecting the interpretation, administration and enforcement of the Act.