California Court Holds That California Follows Federal Law On Time Clock Rounding

by Sheppard Mullin Richter & Hampton LLP
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[author: Thomas Kaufman (follow me on Twitter)]

In See's Candy Shops v. Superior Court, the Fourth District Court of Appeal, Division One (San Diego) reversed an entry of summary adjudication that had been entered in the plaintiff's favor in a certified wage/hour class action. The key issue for the Court of Appeal was whether employers in California lawfully may round their employees' time clock entries to the nearest tenth of an hour for purposes of calculating the employees' work hours — a common practice across the U.S. As explained below, the Court of Appeal did not set a hard and fast rule that it is always lawful to have automatic rounding, but it clearly held that California has adopted the federal standard which generally permits such time clock rounding, as long as the rounding is mechanically to the nearest increment.

The main issue in the case was whether it was lawful that See’s Candy’s employees' clock punches were always rounded to the nearest tenth of an hour. A punch out at 5:02 p.m. would be rounded to 5:00 p.m., but a punch out at 5:04 p.m. would be rounded to 5:06 p.m. The evidence was undisputed that this rounding could increase or decrease the total work time in any given day depending which tenth of an hour the punch was closest to.

The trial court had certified a class on the rounding issue, and it ultimately granted summary adjudication in the plaintiff's favor that this practice violated California law because it resulted in "inaccurate" time records and failed to pay some employees for "all hours" worked, as Plaintiff argued that Labor Code Section 204 requires. See’s Candy took a writ which the Court of Appeal initially denied, but was ordered to take up by the California Supreme Court. Sees argued to the Court of Appeal that, under federal law, systems that round to the nearest tenth of an hour are generally lawful if the rounding is automatic and mechanical as opposed to rounding in just one direction or at a supervisor’s individual discretion. The Court of Appeal sided with See's Candy at least insofar as it reversed the grant of summary judgment in the plaintiff's favor (See’s Candy had not moved for summary adjudication, so the court did not address whether the evidence would have supported summary adjudication for See’s Candy).

In reaching its conclusion the Court first held that California follows the federal standard on rounding, which were codified in FLSA regulations more than 50 years ago (29 C.F.R. Section 785.48(b)). The Court quoted the pertinent part of that federal regulation as follows:

“[The regulation] allows employers to compute employee work time by using a nearest-tenth rounding method ‘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.’”

To conclude that federal and California law were parallel, the Court relied on the general rule that "California courts . . . look to [federal law] as guidance for interpreting analogous provisions of California law." That is, in the absence of some contrary California provision that supports the inference that California intended to diverge from similar federal law, California follows FLSA standards for like issues (e.g., the lawfulness of time clock rounding).

Second, the Court held that Labor Code Section 204 does not signal that California intended to diverge from the FLSA on the lawfulness of rounding even though that statute nominally requires the payment of "all wages" at various intervals. The Court properly recognized that Section 204 merely addresses the timing of paychecks, but is not a statute that provides a vehicle for employees to recover shortfalls in wages that are otherwise paid on the proper paydays:

"Despite Section 204's used of the word 'wages,' section 204 does not provide for the payment of any wages nor create any substantive right to wages. The only right furthered by this section is the timely payment of wages."

This quote is quite useful to employers as it supports the argument that Labor Code Section 204 cannot be utilized as a general "you did not pay me all the wages I am owed" statute, but rather is only to address pay systems that generate paychecks too infrequently or after too much delay from when the wages are earned. Indeed, it is not even clear that there is a private right of action to sue under Labor Code Section 204 (other than through PAGA for penalties). See’s Candy thus provides grounds to demur or move to dismiss Section 204 claims that are routine in class actions.

So, we know that California follows the federal standard on rounding, but how have federal courts interpreted that standard in the context of a class action? In deciding evenhandedness, does the court look at the whole class, or each class member separately? What time period does it examine to evaluate evenhandedness? What if the rounding benefits some employees but not others? Does it matter if the winners outnumber the losers? The easiest answer to this question would simply be to hold that if the rounding is mechanically to the nearest increment, it is lawful, but the Court never fully reaches that issue.

The court certainly implies that any rounding system that merely rounds time to the nearest increment would be lawful because such a system should not, "over a period of time, [result] in failure to compensate the employees properly for all the time they have actually worked." In fact, at page 18 of the slip opinion the court cited favorably a raft of federal cases that had found systems lawful that involved rounding to the nearest increment and found systems unlawful that rounded either on an ad hoc basis or only in one direction. The best quotable quote that supports an interpretation that mechanically rounding to the nearest increment is always lawful is at page 18 where the Court states:

"[A]n employer's rounding practices compl[ies] with [the DOL rounding regulation] if the employer applies a consistent rounding policy that, on average, favors neither overpayment nor underpayment.”

Again, the limitation to this decision is that the Court of Appeal was merely addressing whether the plaintiff was entitled to summary adjudication. It was not asked to rule whether See’s Candy would be entitled to summary adjudication on the rounding claim. The facts also were somewhat unusual in the employer’s favor. That is, See’s Candy’s expert's analysis of the data showed that the rounding had actually increased paid time by 2,749 hours over raw clock entries for the class as a whole, even though rounding reduced the overall time recorded for about 1/3rd of the class. The court held that such evidence allowed an inference that the rounding was sufficiently "evenhanded," precluding summary adjudication for the plaintiff. But the Court of Appeal did not decide whether such a conclusion was mandatory as a matter of law. In fact, it expressly disclaimed any opinion on that issue (at footnote 7):

“Although a minority of the employees (33 percent) had a net loss of a minimal amount during the class period, it is questionable whether those employees would be entitled to a recovery for these wages if See's Candy establishes that over time the rounding policy is neutral. However, we need not address this legal issue because even assuming there was a basis for recovery for a portion of the class on these facts, a court cannot grant summary adjudication on part of a defense.”

Despite the ambiguity in the scope of the court's holding, employers can cite See’s Candy for the proposition that it blesses a line of federal cases that, in turn, hold that the employer should prevail unless the employee shows that the rounding is not really always to the nearest increment and that a substantial majority of the class is shorted by a substantial amount. That will rarely be the case if the rounding really is mechanical and evenhanded. If an employer can get an expert to analyze the classwide rounding data and craft an opinion that the rounding does not change overall time to the class materially (e.g. less than 2 minutes per shift on average) and that it benefits some people and reduces the time of others, the employer should have a good chance at prevailing on summary judgment.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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