“Round” At Your Own Risk – Timekeeping “Rounding” Requirements Clarified

The Ninth Circuit in Corbin v. Time Warner Cable held that state of California and federal regulations allowing employers to “round” employees’ clock-in and -out times to the nearest quarter hour do not require all employees to break even for every pay period. Here, the plaintiff benefited from rounding in some pay periods and did not in other pay periods. The Corbin decision clarifies that while rounding systems must be facially neutral—i.e., must permit even upward and downward rounding—and cannot favor the employer “over the long term,” the employer is not required to show that every employee breaks even every pay period. The California Court of Appeal has previously confirmed that the federal rounding rule applies to California state labor claims, so long as a company’s rounding policy is “neutral, both facially and as applied.” (For an analysis of this prior decision, please see our advisory on rounding payroll time in California).

Background

The employer’s timekeeping software rounded clock-in and -out times to the nearest quarter-hour. For example, an employee who clocked in at 8:07 AM would see his wage statement reflect a clock-in time of 8:00 AM, whereas a clock-in time of 8:08 AM would be rounded to 8:15 AM. Plaintiff gained compensation or broke even for 58% of the 269 shifts he worked under the rounding policy. The parties agreed, however, that Plaintiff ended up losing a total of $15.02 in compensation from the rounding policy at the end of his employment. Plaintiff argued that the rounding policy violated federal law because he lost compensation due to the operation of the policy. Plaintiff separately argued that he was entitled to one minute of unpaid work because he had once logged into a computer program before clocking in. The district court disagreed, granting summary judgment for the employer. Plaintiff appealed.

The Ninth Circuit Approves of Rounding Policies and Clarifies When Policies are “Neutral in Application.”

The Ninth Circuit affirmed summary judgment for the employer. The court held that the employer’s time-rounding policy was “neutral on its face” because it rounded both up and down to the nearest quarter of an hour.

More importantly, the court held the rounding policy was also “neutral in application,” even though Plaintiff ended up with a slight net negative impact of $15.02 as a result of the policy. The court reasoned that the policy was neutral in application because Plaintiff sometimes gained and sometimes lost minutes and compensation. The amount gained and lost fluctuated from pay period to pay period, and a few more pay periods of employment may have tilted the total time/compensation tally in the other direction, resulting in a gain for the employee. Accordingly, the employer’s rounding policy operated “exactly as the federal rounding regulation intended,” and Plaintiff failed to show that “over a period of time,” he was not properly compensated for his work.

Separately, the Ninth Circuit held that Plaintiff was not owed compensation for his one minute of unpaid work because the single minute amounted to non-recoverable “de minimis” time. The court found the single minute met all three factors of the established de minimis analysis: 1) practical administrative difficulty of recording the additional time; 2) low aggregate amount of compensable time; and 3) irregularity of additional work.

Take-Away Messages Regarding Rounding

Many employers do not round time, and this decision does not establish any broader right than was previously permitted under the federal DOL regulations and by the California State Labor Commissioner. If anything, this decision highlights that employers who use rounding may face legal challenges and the expense of defending the fairness of the practice in court. While some employers may find that rounding time is convenient and saves on administrative costs, any savings should be weighed against the potential costs of auditing rounded payroll records and justifying their fairness in litigation.

Employers who already utilize rounding can take comfort that time-rounding policies, when properly drafted and applied, are still permissible in California, so long as: (1) any rounding must be “fair and neutral,” meaning that time must be rounded up as well as down; and (2) as applied, the policy must not result in a failure to compensate employees fully “over time.” Employees cannot cherry-pick time periods to find instances where the rounding policy results in a loss. Any policy that consistently or disproportionally favors the employer, however, will likely violate federal and California law even if the policy is neutral on its face.

• Rounding employees’ time remains inherently risky, because employers need to ensure that a neutral rounding policy does not “short” an employee in practice. Employers who utilize rounding should conduct periodic audits of time and pay records to ensure that the rounding does not produce a net loss to employees. Employers should engage legal counsel to conduct the audit so that the analysis is protected by the attorney-client and attorney work product privileges.
• Employers should adopt written policies providing that off-the-clock work is not permitted, and that any employee who performs work while not clocked in should notify a supervisor so that he or she can be paid for the time. In addition, supervisors should be trained on these policies and directed to inform Human Resources if they become aware of off-the-clock work, so that payment can be made.
• Employers should not rely on small amounts of employees’ uncompensated time being considered non-recoverable de minimis time. The enforcement policy of the California Labor Commissioner is that even small amounts of work that occur with regularity will not be considered de minimis.