This sounds ripe for a lawsuit or some really bad PR. Wait until the labor groups find out you punish the people desperate for more hours to make ends meet.
It’s better to implement an hour cap or require approval for any overtime.
But this is an hour cap. The employer is saying, don't work more than 20 hours, or I'll lower your rate. It's better than a strict cap, since it does offer people to work more if they want.
It would only be unfair if the employer would then instruct workers to work overtime; I assume that could be illegal (depending on where in the world this happens).
The risk is that the employer is saying “don’t declare more than 20 hours”, but everybody knows that you have to do more if you want to meet your targets / not be dropped
It’s better to implement an hour cap or require approval for any overtime.