The California Court of Appeal has issued a new decision affirming an employer’s ability to round employee time clock entries, so long as the rounding is neutral, both facially and in practice, over a period of time. See's Candy Shops, Inc. v. Superior Court (Silva), Case No. D060710. The employer in the case, See’s Candy Shops, uses a payroll system that rounds employee punch clock time entries either up or down to the nearest six minute increment. Although California employers have long engaged in such time-rounding practices, no California statute or case specifically authorized or prohibited these practices before the See’s Candy decision.
Absent binding California authority, See's Candy argued that its policy was appropriate under the federal regulatory standard, which is also used by the California Department of Labor Standards Enforcement (DLSE), the state agency charged with enforcing California's wage and hour laws, and allows rounding if the employees are fully compensated "over a period of time" (29 C.F.R. § 785.48(b)). The appellate court agreed, and held the rounding practice used by See’s Candy to be lawful and consistent with the federal regulation. The court noted that the DLSE had adopted the federal regulation in its enforcement manual issued to hearing officers (the DLSE enforcement Policies and Interpretation Manual (2002, rev.)). The court further noted that while statements in the DLSE Manual are not binding precedent because they are not promulgated under the Administrative Procedures Act, they do have persuasive value.
The plaintiffs in the case argued that rounding is lawful only if the time entries are reconciled every two weeks. That is, the plaintiffs claimed that both federal and state law require that a reconciliation of rounded time be done every two weeks to ensure that employees receive their full compensation on a timely basis. The appellate court rejected this proposed standard, and instead found it sufficient that a mathematical analysis of the payroll records showed that, over time, the rounding system was empirically unbiased and either did not result in employees losing any time or actually benefitted employees by overstating their working time. The court therefore concluded that an employer is entitled to use a rounding policy 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."
The court also discussed See’s Candy’s grace period policy, which allowed employees to voluntarily clock in up to 10 minutes before the scheduled start time and clock out up to 10 minutes after the scheduled end time. See’s Candy’s timekeeping policies required employees to perform no work during the grace period, or if they did perform work, to report the time worked so that they could be compensated for it. See’s Candy then calculated the employee’s pay as if the employee had clocked in (or clocked out) exactly on time. The appellate court rebuffed the plaintiffs’ attempts to have such a grace period policy declared illegal in California, since plaintiffs had not shown that the practice resulted in employees engaging in any uncompensated time. In fact, in instances where the grace period was utilized, the court noted that See’s Candy’s rounding policy became irrelevant since the start and stop time would be exactly the employee’s scheduled shift start and stop times, and not some other rounded increment.
The See’s Candy opinion provides some practical guidance in an area little discussed in California case law. The opinion is also interesting because the California Supreme Court ordered the appellate court to specifically consider the issue mid-case on an interlocutory basis after the appellate court initially declined to do so. Appeals such as the one in this case are typically heard after the case is tried, but the Supreme Court deemed the issues involved to be important enough to require more immediate appellate attention. While the plaintiffs in the case may seek further appellate review of the ruling, the California Supreme Court is unlikely to agree to hear the matter in light of its prior directive to the court of appeal.
As always, employers must be vigilant in ensuring that their timekeeping and payroll policies comply with applicable state and federal law. Employers who use time entry rounding methods should ensure that such systems are facially neutral and do not penalize employees (e.g., by always rounding time entry down). Employers also should confirm on a periodic basis that their rounding systems are neutral in practice so that employees are compensated for all time worked.