A court of appeal recently concluded that California law does not prohibit the application of a federal regulation that allows employers to compute employees’ work time by using a nearest-tenth rounding method as long as the rounding does not result in the failure to compensate employees properly for the time they have worked. (See’s Candy Shops, Inc. v. The Superior Court of San Diego County (— Cal.Rptr.3d —-, Cal.App. 4 Dist., October 29, 2012).
See’s Candy Shops, Inc. (“See’s Candy”) records its employees’ work hours with Kronos, a timekeeping software system. Employees must punch into the system at the beginning of their shifts, at their lunch break, and again at the end of their shifts. Pamela Silva (“Silva”) worked for See’s Candy from 1993 to 2010. In 2009, Silva filed a class action complaint alleging that See’s Candy violated various California wage and hour laws. One of Silva’s claims centered on whether See’s Candy violated California law by utilizing a policy that rounds employees’ punch in and punch out times to the nearest one-tenth of an hour. Pursuant to the rounding policy, an employee’s “in and out punches are rounded (up or down) to the nearest tenth of an hour (every six minutes beginning with the hour mark).” The Kronos time punches are rounded to the nearest three-minute mark so if an employee clocks in at 7:58 a.m., the Kronos system rounds up the time to 8:00 a.m. If an employee does not clock in until 8:02 a.m., the Kronos system rounds down the time to 8:00 a.m.
In its answer to Silva’s complaint, See’s Candy asserted affirmative defenses pertaining to the nearest-tenth rounding policy. See’s Candy asserted that its nearest-tenth policy is consistent with state and federal law and that the policy did not deny Silva or other class members “full and accurate compensation.” Silva filed a motion for summary adjudication. The trial court ultimately granted the motion in favor of Silva on See’s Candy affirmative defenses.
The court of appeal vacated the trial court’s summary adjudication in Silva’s favor on See’s Candy’s affirmative defenses pertaining to its nearest-tenth rounding policy. The United States Department of Labor (“DOL”) adopted a regulation approximately 50 years ago under the Fair Labor Standards Act (“FLSA”) that allows an employer to use time rounding policies under certain circumstances. The regulation, found at 29 C.F.R. § 785.48(b) states, “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.” The regulation further states, “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.”
Federal courts have interpreted the regulation as providing that employers may use a rounding policy as long as that “policy does not ‘consistently result in a failure to pay employees for time worked.’” A policy must not, on average, favor overpayment or underpayment. A rounding policy violates the DOL regulation if it systematically undercompensates employees.
There are no California reported decisions holding that the DOL regulation applies under California law. However, the California Division of Labor Standards Enforcement (“DLSE”) has adopted the DOL regulation in its manual. The DLSE manual provides that the DLSE utilizes the DOL practice of rounding an employee’s hours, subject to certain restrictions. The manual recognizes “[t]here has been [a] practice in industry for many years to follow this practice, recording the employees’ starting time and stopping time to the nearest 5 minutes, or the nearest one-tenth or quarter of an hour.” DLSE declares it will accept this method of computing time as long as it is used in “a manner that will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”
California courts will generally look to federal regulations under the FLSA for guidance where there is no controlling or conflicting California law. Here, the court followed this practice and held “[a]ssuming a rounding-over-time policy is neutral, both facially and as applied, the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.” The court noted that the rounding practice has long been used by employers throughout the United States and that to hold otherwise would preclude employers in California from using a method of calculating work time that is available to employers throughout the rest of the country.
Relying on the rounding standard set out by the DOL, the court held that a California employer may use the nearest-tenth rounding policy if the policy is fair and neutral on its face and the employer uses the policy in a way that does not fail to compensate the employees for the time they have worked. See’s Candy presented evidence that over time, its rounding policy did not result in a loss of compensation to its employees.
The court of appeal concluded that See’s Candy presented evidence creating a triable issue of fact on whether Silva and other class members were fully compensated for the time they worked. Therefore, the trial court erred in granting summary adjudication in favor of Silva. The court of appeal, however, did not rule on which party would prevail as that matter will be left to the trier of fact.
If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.