Does extra work require extra pay?

A vast number of employers remunerate their workers with a fixed salary. In doing so employers can create an agreement whereby they do not necessarily have to pay additional wages if an employee works additional hours. Generally speaking employment agreements with employees on a salary don’t require payment for “overtime”.

Payment can’t fall below minimum wage

A risk, however, has always been that if an employee works too many hours his or her rate of remuneration may fall below the minimum wage (as can sometimes occur in the dairy industry during peak season). A straightforward way to make sure this does not happen is to set the employee’s salary at a level which ensures the rate of remuneration doesn’t fall below the minimum wage, even when the employee is working hours well above the norm.

This, obviously, comes at a cost to the business, but at least employers could protect themselves from being hit with a claim for wage arrears. It seemed certainty could be achieved. A recent decision of the Employment Court, however, highlights another area where employers need to be cautious when requiring, or even allowing, an employee to work hours above the norm.

The case: Sam & the Building Company

The facts of the case were this. The employee (whom we shall call Sam) was a long time employee of a construction company (which we shall call the Building Company). Sam was paid a salary, and the salary was at a level which meant it would not be humanly impossible to work enough hours for his remuneration to fall below the level of the minimum wage. Nonetheless an issue arose as to Sam’s entitlement to remuneration for hours worked above the norm.

Bonus promised, but not given

Some years ago Sam and the Building Company discussed Sam increasing his work on a specific project. The idea was that Sam would work more hours and would be given a bonus (in addition to his salary) upon completion of the project. Sam worked more hours but when the project was complete he was not given a bonus.

Alleged breach of contract

Sam commenced proceedings against the Building Company alleging a breach of his contractual right to the bonus. The issue came before the Employment Relations Authority and then the Employment Court on a preliminary issue. The Building Company argued Sam’s claim to the bonus was time-barred because proceedings weren’t commenced until more than six years after the fact. If the Building Company was right there would be no need to go on to consider whether there had been a requirement to pay Sam a bonus.

Whilst the case did not require the Authority or Court to examine the full merits of the claim, it did require both bodies to look into its nature. The nature of the claim would have an impact upon when it arose, which would have a flow on effect in terms of whether Sam was time-barred from pursuing the matter.

No specific agreement as to amount, so no bonus?

The Employment Court Judge held there was no express contractual entitlement to a bonus payment. This was because there had been no specific agreement as to the amount Sam would receive for the additional work. Obviously there can be no agreement without certainty as to this vital term.

But wait….

That, however, was not the end of the matter. The Court went on to consider the cause of action quantum meruit. In essence such a claim allows a person to seek compensation where he or she has provided a service, which has been freely accepted by the other party, in circumstances where the other party knew (or ought to have known) the claimant expected reimbursement for that service. Even where there is no agreement to pay for the service this does not necessarily defeat a claim of quantum meruit.

In Sam’s case the claim was simple. Sam had undertaken additional work and provided an additional service to the Building Company. The Building Company had freely accepted that service in circumstances where it knew Sam expected reimbursement.

That is not to say the claim will necessarily succeed. As I said the matter came before both the Authority and the Court on a preliminary basis only; to see whether the claim was time-barred The Court determined it was not, and could proceed to a substantive hearing.

Risk to employers

The case demonstrates a risk for employers even with workers who are paid a generous salary. The Building Company argued Sam had already been remunerated for the additional work; he was paid a salary after all. However, without fully determining the matter, the Court rejected that argument on the basis Sam’s work had increased when he had accepted the offer of a bonus.

Notwithstanding the fact there was no agreement as to what the bonus would entail, the Building Company may be ordered to pay a substantial amount of money for the additional service Sam provided. Employers need to be aware that just because matters are not in writing, making promises (even if only by implication) can lead to liability; even many years down the track. For the Building Company this may end up costing it in the long run.