In California, employers with non-exempt employees often utilize time-rounding policies to determine whether employees have been fully paid for time worked, as well as whether employees have taken a meal break in the manner prescribed by law. Notwithstanding, in Donohue v. AMN Services, LLC,¹ California's Supreme Court rejected the employer's practice of rounding time punches or timesheets to determine whether it afforded employees the opportunity to take a meal break. The court also held that time records showing noncompliant meal periods create a rebuttable presumption of meal period violations.

The court's decision as to the use of rounding will come as a surprise to many California employers. Regardless, California employers with rounding policies should immediately stop the practice for purposes of calculating the timing and length of meal periods for California non-exempt employees (including to determine if any meal premium payments are owed).

California's Pay and Meal Break Requirements

In California, employers must pay certain California employees—including those working in professional, clerical, mechanical, and similar occupations—at least the applicable minimum wage for all hours worked and, unless the employee is exempt from overtime, overtime rates for all overtime hours worked. California employers must also afford such non-exempt employees the opportunity to take at least a 10-minute, paid rest break for every four hours of work or major fraction thereof, as well as unpaid meal breaks that meet the minimum legal requirements.² Meal breaks must be at least 30 minutes long, free from work duties and employer control, and uninterrupted by the employer.³ Unless waived by the employee as permitted by California law, employers must generally provide a first meal period of at least 30 minutes no later than the end of an employee's fifth hour of work (if an employee works for a period of more than five hours in a day), and a second meal period of at least 30 minutes no later than the end of an employee's tenth hour of work (if an employee works for a period of more than 10 hours in a day).⁴ Failure to provide California employees with an opportunity to take timely, full, duty-free meal breaks requires employers to pay the employee a premium payment in the amount of one hour of pay for each workday in which the employer failed to provide the employee a compliant meal break.⁵ Notably, California employers are not required to ensure that their non-exempt employees actually take their meal breaks, and are liable only if they do not provide employees with the opportunity to take a compliant meal period."⁶

The Use of Rounding in Pay and Meal Break Contexts

"Rounding was developed as a means of 'efficiently calculat[ing] hours worked' and wages owed to employees."⁷ Examples include rounding the times an employee clocks in or out of their shift or meal break to the nearest tenth or quarter hour. By rounding the time at which employees clock in and out of work, employers are not doing an exact accounting of hours worked from one workday to another. Instead, it is expected that there will be instances in which some of the employee's working time is unpaid because the time was excluded by the rounding (i.e., an underpayment) and there will be other instances in which the rounding credits an employee with more time worked than the employee actually worked (i.e., an overpayment). The idea is that the rounding up and rounding down, and the resulting overpayments and underpayments, will essentially balance out and leave the employee, over a period of time, appropriately paid for all hours worked. Many California employers similarly use such rounding practices to determine whether an employee, over a period of time, is taking full and timely meal breaks, even if during some workdays the meal period was too short or too late based on actual, unrounded clock-in and clock-out data.

In California, rounding has been generally accepted as a way to account for hours worked if the rounding policy "is fair and neutral on its face and '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.'"⁸ In other words, the policy cannot only round up or only round down (it must round up and down in equal increments), and over time it must not underpay employees for the time they worked.

The California Supreme Court's Donohue Decision

To be clear, in Donohue, the court did not decide, and was not asked to decide, the question of whether the employer's rounding policy at issue resulted in the proper compensation of employees for all time worked. Rather, the question it answered was whether the rounding policy resulted in the proper payment of premium wages for meal period violations. On that precise question, the court's holding is clear: "…[E]mployers cannot engage in the practice of rounding time punches—that is, adjusting the hours that an employee has actually worked to the nearest preset time increment—in the meal period context."⁹

In reaching this conclusion, the court reasoned that "[t]he practice of rounding time punches for meal periods is inconsistent with the purpose of" California meal break law.¹⁰ California law, the court said, precisely sets forth the time requirements applicable to a meal period (e.g., "[e]ach meal period must be 'not less than 30 minutes,' and no employee shall work 'more than five hours per day' or 'more than 10 hours per day' without being provided with a meal period"). Moreover, the court pointed out that California law in this area "is concerned with small amounts of time," and that "even relatively minor infringements on meal periods can cause substantial burdens to the employee."¹¹ The imprecise calculations associated with rounding, the court stated, were simply at odds with the law's exacting requirements. Accordingly, an employer cannot use rounded time punches to assess the adequacy and timeliness of the meal period, and it must use the actual times at which the employee clocked in and out to determine whether the meal period was timely and complete. If an employer does not provide an employee with a compliant meal period, then the employer must provide the employee with premium pay for the violation, regardless of any minor infraction.¹²

This does not mean that actual and unrounded time records showing missed, short, late, or delayed meal periods results in "automatic liability" for employers. If an employer's time records show noncompliant (e.g., missed, short, or delayed/late) meal periods, then the time records raise a rebuttable presumption of meal period violations. An employer can rebut this presumption of noncompliance by presenting evidence that it compensated the employee for noncompliant meal periods or that it did in fact been provide compliant meal periods during which the employee voluntarily chose to work.¹³ Significantly, Donohue makes clear that in the face of time records showing noncompliant meal periods, an employer's assertion that it did relieve the employee of duty, but that the employee waived the opportunity to have a work-free break, is an affirmative defense that the employer must both plead and prove.¹⁴

Finally, two additional points raised in Donohue merit comment. First, in explaining why a rebuttable presumption arises where an employer's records show noncompliant meal periods, the court stressed an employer's obligation to maintain accurate records of meal periods, and noted that "where the employer has failed to keep records required by statute, the consequences for such failure should fall on the employer, not the employee."¹⁵ Second, while the court's decision on rounding is limited to the meal break context, California employers will want to consider the court's comments on rounding generally. Specifically, the court noted that "technological advances may help employers to track time more precisely" (i.e., without the use of rounding), that "employers are in a better position than employees to devise alternatives," and that "[a]s technology continues to evolve, the practical advantages of rounding policies may diminish further."¹⁶ Donohue will likely be read by many as casting a dark shadow over the practice of rounding generally.

What Should Employers Do Now?

On balance, Donohue increases the likelihood of wage and hour suits for California employers using rounding policies—especially those using rounding for purposes of determining whether employees have been afforded legally compliant meal breaks. In short, an employer's use of rounding to calculate when and for how long a meal period has been taken now offers no defense to an otherwise unlawfully late, short, or missed meal break. Accordingly, California employers should consider the following actions:

1. Understand whether and how the company is using rounding of time for purposes of whether employees have been fully paid for time worked, as well as whether employees have taken a meal break in the manner prescribed by law. In many instances, employers will need to confer with payroll services or others to understand the practices being utilized. Do not assume that third-party services are handling the matter correctly;
2. Where applicable, employers must immediately eliminate the use of rounding for meal break purposes;
3. In light of Donohue's statement that "even relatively minor infringements on meal periods can cause substantial burdens to the employee," depending on the work environment and timekeeping methods used, employers should consider affording employees longer meal periods (e.g., 35 minutes), so that even if employees clock back in a few minutes early they are more likely to have taken at least 30 minutes off work;
4. Implement mechanisms through which employees can record their actual meal periods and confirm if they were provided a compliant meal period but chose to work, or if they were unable to take a compliant meal period (the latter triggering premium pay for the employee). For example, Donohue suggests that an employer may permissibly use a dropdown menu for employees to indicate whether they were provided a compliant meal period but chose to work. Other verification methods may be used as well;
5. Consider reviewing timecards on a recurring basis to assess whether non-exempt employees are taking compliant meal breaks and, if they are not, investigate and take prompt remedial action;
6. Consider eliminating altogether the use of rounding for calculating hours worked;
7. Even if an employer does not utilize rounding, all employers should evaluate timekeeping and payroll record keeping practices for non-exempt employees to ensure that the company is doing what is necessary to establish that its employees have been fully paid for time worked. Similarly, California employers should assess whether their timekeeping and record practices are sufficiently robust to permit them to defend themselves successfully against individual or group wage and hour challenges. Early stage companies in particular should understand the risks of failing to keep accurate time records—whether for meal break purposes or otherwise; and
8. Consider adopting a mandatory arbitration agreement that includes a class waiver (or adding such a waiver to an existing arbitration agreement). Doing so may reduce significantly the risk of potential wage and hour class action litigation. While California's PAGA statute (Private Attorneys General Act of 2004) may diminish some of the utility of a class waiver for California employers, a class waiver may nevertheless be of value.

In taking these steps, employers should consult with counsel to ensure proper consideration of the relevant legal requirements and risks.

[1] Donohue v. AMN Services, LLC, No. S253677, ___ P.3d ___, 2021 WL 728871 (Cal. Feb. 25, 2021).

[2] Cal. Lab. Code § 512(a); IWC Oder 4-2001, Section 12(A).

[3] IWC Oder 4-2001, Section 12(A); Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004, 1040 (Cal. 2012).

[4] Cal. Lab. Code § 512(a); Brinker Restaurant Corp., 53 Cal. 4th at 1041, 1042.

[5] IWC Order 4-2001, Section 11(B).

[6] Donohue, 2021 WL 728871, at *11 (emphasis added); Brinker Restaurant Corp., 53 Cal. 4th at 1034.

[7] Donohue, 2021 WL 728871, at *9.

[8] Id. at *7 (quoting See’s Candy Shops, Inc. v. Superior Court, 210 Cal. App. 4th 889, 907 (Cal. Ct. App. 2012)).

[9] Id. at *1.

[10] Id. at *5.

[11] Id. at *5-6.

[12] Id. at *5.

[13] Id. at *12.

[14] Id. at *10.

[15] Id. at *10 (citations omitted).

[16] Id. at *9.