Many businesses that use overtime on a regular basis write overtime terms and conditions and rates of pay into employee’s contracts, leaving little confusion or misunderstanding. However, if there is a provision for overtime in your employee’s contract, but no specific rate mentioned, you will still be expected to pay a reasonable rate for overtime.
This sentiment was confirmed in a recent case heard by the Court of Appeal in which it concluded that the law will imply a reasonable rate is to be paid for overtime if no set rate has been previously agreed.
The case in question was Driver v Air India Ltd. Mr Driver’s contract of employment stated that terms relating to overtime payments were “set out in notices and circulars issued by Air India from time to time”.
However, Air India had never issued any notices or circulars about overtime. They, therefore, argued that the employee had no contractual right to payment for overtime.
In response to this, Mr. Driver argued that, as he had been paid for previous overtime he should continue to receive overtime pay at the same rate.
The Court of Appeal found that Mr Driver’s contract clearly intended that he would be paid for overtime. The fact that no rate was ever specified did not mean that payment was not owed. The general position will be that where the amount of a contractual payment is not specified, the law will imply a reasonable sum.
This recent case demonstrates the importance of having clear terms and conditions, especially relating to overtime and rates of pay, set out in your employees’ contracts. This will reduce the risk of uncertainty and claims for you. You should regularly review your terms and conditions to ensure they reflect your working practices.
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