Employment Law Alert: Nearest-Tenth Rounding Policies not Improper Per Se under California Law

On October 29, 2012, the California Fourth District Court of Appeal in See’s Candy Shops, Inc. v. Superior Court (Silva), Case No. D060710, held that an employer is entitled to use a policy of rounding employees’ in and out punch times to the nearest tenth of an hour so long as the policy is fair, neutral and fully compensates employees for actual time worked over a period time.

Plaintiffs employees brought a wage-and-hour class action against former employer See’s Candy Shops, Inc. (“See’s), for, among other things, underpayment of wages. In calculating employees’ time worked, See’s uses Kronos, a timekeeping software system. See’s calculation of employees’ pay is based on each employee’s Kronos punch times, subject to adjustment under two policies: rounding in and out punches to the nearest tenth of an hour (six minutes), and a ten minute grace period policy. See’s asserted in two affirmative defenses that its rounding policy was consistent with state and federal law. Plaintiffs brought a motion for summary adjudication of the employers’ defenses on the grounds the rounding policy violated Labor Code provisions requiring employers to pay “all wages” every two weeks (§ 204) and for “any work” after eight hours per day or forty hours per week. (§ 510.)

Overturning the trial court’s order granting plaintiffs’ motion, the Court adopted the federal regulatory standard, holding an employer is entitled to use the nearest-tenth rounding policy if the 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 time they have actually worked.” (See 29 C.F.R. § 785.48(b).) In holding that See’s raised triable issues of fact as to whether its policy met this standard, the Court referenced an expert report concluding See’s’ rounding policy resulted in a total retail shop employee gain of 2,749 hours; and that, although a minority of employees had a minimal net loss during the class period (2005-2010), most were fully compensated, and a majority was overcompensated.

Accordingly, the Court issued a writ mandating the superior court to overturn its summary adjudication order on the two defenses at issue. Notably, the Court left open the issue whether California overtime rules mean that, under a nearest-tenth rounding policy, an employee will not be fully compensated if he or she works more than eight hours in a day.

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October 31, 2012