California Appellate Court Allows Time Clock Rounding

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

See’s Candy Shops, Inc. v. Superior Court, No. D060710 (Cal. App. 4th, Oct. 29, 2012): In a recent decision by the Fourth Appellate District of California, the court struck down a trial judge’s finding that rounding the time worked by employees to the nearest tenth of an hour violated California law. The court of appeal reversed the summary judgment that was granted in favor of the plaintiff in a certified wage and hour class action, and it held that rounding was not, on its face, in violation of California law, as long as the rounding practice averaged out so that employees were fully compensated for the time that they actually worked.

Pamela Silva, a former employee of See’s Candy Shops, Inc., who represented a certified class of current and former See’s Candy employees, challenged the company’s timekeeping policy of rounding to the nearest tenth of an hour. The lawsuit alleged loss of compensation in violation of California Labor Code section 204, which “generally requires an employer to pay an employee ‘[a]ll wages’ every two weeks,” and section 510, which requires an employer to pay overtime to an employee “for ‘[a]ny work’ after eight hours per day or 40 hours per week.”

The court determined that, since there was no California statute or case law specific to employee time-rounding, the appropriate standard for determining whether See’s Candy violated the law by rounding was the federal standard under the Fair Labor Standards Act, which has also been adopted by the U.S. Department of Labor. The same standard has also been adopted by the California Division of Labor Standards Enforcement (DLSE), the agency charged with enforcing California’s wage and hour laws. The adopted standard allows for rounding employee’s hours to the nearest five minutes, or one-tenth or quarter of an hour, and presumes that in doing so, the time that is rounded “averages out so that the employees are fully compensated for all the time they actually worked.”

See’s Candy presented expert testimony, on which the court relied, showing that the company’s nearest-tenth rounding policy was “both mathematically and empirically unbiased” and actually resulted in a gain of 2,749 hours for the employees.

In rejecting the plaintiff’s argument that rounding violated California law, the court noted that the plain language of Labor Code section 204 pertains only to the timing of wages being paid every two weeks and does not require the employer to perform a “mini actuarial” every two weeks when rounding employee hours.

As to the plaintiff’s argument that rounding violated overtime provisions under California Labor Code section 510, the court stated, “whether California’s overtime rules mean a rounding rule is biased against employees is a factual issue” and one that has to be decided at trial.

In reversing the summary judgment, the appellate court was persuaded by the evidence that See’s Candy’s nearest-tenth rounding policy “rounded both up and down from the midpoint” and by evidence that over a span of time, “the rounding policy did not result in a loss to the employees.”

Jack Sholkoff, a shareholder in Ogletree Deakins’ Los Angeles office, who filed a successful amicus brief in this case notes that the court’s decision is a positive development for employers that use rounding practices. However, he cautions that rounding practices may still violate California law if, unlike in the See’s Candy case, the practice does not ultimately average out in a neutral way. Although See’s Candy makes rounding practices legal in California, it does not necessarily make them easy to implement. Employers should contact legal counsel to review and analyze their rounding practices before implementing them.

Note: This article was published in the November 14, 2012 issue of the California eAuthority.

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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