California Court of Appeal Approves Time Clock Rounding In Principle (See’s Candy Shops, Inc. v. Superior Court)

For the first time, a California Court of Appeal has reviewed, and approved in principle, an employer’s policy that rounds employee punch in/out times to the nearest one-tenth of an hour. It reversed summary adjudication entered against the employer (See’s Candy) and sent the case back for trial. It held that the policy as written complied with law. The question for trial is whether, in practice or effect, it was biased against employees.

Under the See’s Candy nearest-tenth rounding policy, in and out punches are rounded (up or down) to the nearest tenth of an hour (every six minutes beginning with the hour mark). Time punches are thus rounded to the nearest three-minute mark. For example, if an employee clocks in at 7:58 a.m., the system rounds up the time to 8:00 a.m. If the employee clocks in at 8:02 a.m., the system rounds down the entry to 8:00 a.m. A former employee filed a wage & hour class action suit alleging that See’s “rounding policy” violated California law because it resulted in employees not being paid “all” wages every two weeks or premium wages for “any work” over 8 hours in a day. Although the See’s policy is legal under federal regulations, the employee argued that California Labor Code sections 204 and 510 made it illegal under California law.

Section 210 provides “All wages … earned by any person in any employment are due and payable twice during each calendar month … .” Section 510 provides “Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek … shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee.” The employee argued that these sections effectively forbade an employer from rounding time down even by a minute.

The court rejected this argument on the basis that section 204 regulated the timing of payment not the measurement of the time actually worked and that section 510 has nothing to do with rounding or calculating time and merely sets the multiplier for the rate at which “any” overtime work must be paid.

The court adopted the relevant federal regulation which provides: “It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees’ starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” (29 C.F.R. § 785.48(b), italics added.)

See’s had presented evidence of analysis of the time cards of all class members in from 2005 to 2011 which showed that, on balance and over time, there was a net gain of 2,749 hours to the class as a whole. 59.1% had a net gain, 33% a net loss and 7.9% no change. With respect to the entire class, the expert opined that rounding policy: (1) “is both mathematically and empirically unbiased”; (2) resulted in a total gain of 2,749 hours for the class members as a whole; and (3) “did not negatively impact employees’ overtime compensation” as neither employer nor employee benefited with respect to overtime pay. As to the named plaintiff, the expert stated that she had received a net benefit of 5 seconds per shift (111 minutes out of 10,000 hours) and a net loss of 3.6 seconds of overtime credited.

The court concluded that See’s evidence was sufficient to create a triable issue whether See’s “rounding policy” in actual practice did not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.

The court also rejected the employee’s argument that the policy, of necessity, was unfair because of California’s 8-hour overtime rule. Since any time over eight hours in a day must be compensated at a premium rate, the employee argued that the policy could not be neutral. The court focused on whether employees were undercompensated and not whether their hours were under-recorded. Since See’s offered evidence that employees under its policy in the aggregate actually received more compensation than they were due, this remained a factual issue for a jury.

The court did not decide whether See’s “grace period” policy (permitting employees to clock in up to 10 minutes before their shift so long as they did no work before the official shift start time) or progressive discipline policy (including discipline for “repeated tardiness”) “necessarily means that the nearest-tenth rounding rule is unfair to, or biased against, the employees in the class.” Nor did the court find See’s policy lawful as a matter of law.

The court did validate a rounding policy as an affirmative defense subject to proof by the employer that it in actual practice was fair to employees over time.

As with many employer-favorable decisions, it is important for employers not to exaggerate the extent of the decision or to overreach in implementation of their own policy. Policies that end up, over time, shorting employees (for instance, always rounding down) will likely not be upheld, exposing that employer to substantial liability.

For the first time, a California Court of Appeal has reviewed, and approved in principle, an employer’s policy that rounds employee punch in/out times to the nearest one-tenth of an hour. It reversed summary adjudication entered against the employer (See’s Candy) and sent the case back for trial. It held that the policy as written […]