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This is so common in Quebec that I have trouble believing it's illegal. I think it might be a loophole.
How do they know when you're not working your full 40 if you aren't clocking in or out? I'm not familiar with Canadian labor law so you may very well be right, but it is kind of hard to imagine a legal pay structure where they can dock you for working fewer hours but don't compensate you for working more.
Friendly reminder that wage theft is very common and just because lots of people are breaking the law doesn't mean it's actually legal. For example in the States, there is a fairly narrow definition of which jobs qualify as overtime exempt but go to a jobs board and you'll find pretty much anything under the sun. Many employees are incorrectly classified as exempt and are completely unaware they are even entitled to overtime pay.
Well they don't know know, but there are signs. For one, we fill in timesheets, and lying on them is a no-no. I could probably get away with stretching the truth a little, but if they notice I only commit between X and Y time, or that I'm seldom available for developer questions at a particular time, they might get suspicious and investigate my hours.
As for overtime... Well I think how companies handle it is they don't actually ask us to stay late; they just give us unrealistic targets that kinda require overtime unless you're a god if we ever complained they'd say they never asked for us to stay late.
We used to be able to accumulate time indefinitely and take time off according to the bank of extra time we'd worked, but once, someone accumulated hundreds of hours and just left on an unplanned vacation for nearly a full month and they really didn't like that. So now, you need to work your quota (which you can have them adjust to your capabilities; 30, 35, 40...) on average every month. So, sure, I can work only 20 hours one week, but that's 15 hours of extra time I need to do within that month.
And if you have extra at the end of the month, well, that's lost.
Which sucks, because I used to use those as sick days over the legally required two paid ones we get per year; my health isn't exactly resplendent.