Overlayfs - mount problem

I have a problem to mount anything as overlay e.g
mount -t overlay -o lowerdir=lower,upperdir=upper,workdir=workdir none merged
ends with error
mount: mounting none on merged failed: Invalid argument
and from logread
kern.err kernel: [ 1227.580526] overlayfs: filesystem on 'upper' not supported as upperdir.

This type of mount is used by aws greengrass core software and it fails with the same error.

Output of mount:
/dev/root on /rom type squashfs (ro,relatime)
proc on /proc type proc (rw,nosuid,nodev,noexec,noatime)
sysfs on /sys type sysfs (rw,nosuid,nodev,noexec,noatime)
cgroup on /sys/fs/cgroup type cgroup (rw,nosuid,nodev,noexec,relatime,memory,devices)
tmpfs on /tmp type tmpfs (rw,nosuid,nodev,noatime)
/dev/mtdblock7 on /overlay type jffs2 (rw,noatime)
overlayfs:/overlay on / type overlay (rw,noatime,lowerdir=/,upperdir=/overlay/upper,workdir=/overlay/work)
/dev/mtdblock5 on /mnt type jffs2 (rw,relatime)
tmpfs on /dev type tmpfs (rw,nosuid,relatime,size=512k,mode=755)
devpts on /dev/pts type devpts (rw,nosuid,noexec,relatime,mode=600,ptmxmode=000)
debugfs on /sys/kernel/debug type debugfs (rw,noatime)

Output of df:
/dev/root 20.3M 20.3M 0 100% /rom
tmpfs 1010.0M 92.0K 1009.9M 0% /tmp
/dev/mtdblock7 1003.9M 50.1M 953.8M 5% /overlay
overlayfs:/overlay 1003.9M 50.1M 953.8M 5% /
/dev/mtdblock5 32.0M 960.0K 31.1M 3% /mnt
tmpfs 512.0K 0 512.0K 0% /dev

Kernel info:
Linux 4.9.44 #0 SMP PREEMPT Fri Jun 29 15:02:02 2018 armv7l GNU/Linux

What is wrong here? How can I fix that problem?