Employer's Time-Rounding Policy Might Violate FLSA

​The 8th U.S. Circuit Court of Appeals reversed a trial court's grant of summary judgment for an employer as to whether the Fair Labor Standards Act (FLSA) was violated. The timekeeping policy of the employer, a hospital system in Missouri, was to round off time at the beginning and end of shifts that was within six minutes of a shift's scheduled start or end.

A former employee of St. Luke's Health System sued on behalf of herself and other employees, claiming that St. Luke's violated the FLSA overtime provisions by failing to fully compensate employees for work performed. She also brought an unjust enrichment claim under state law and asserted individual claims under Missouri's minimum-wage law and for breach of contract. The court certified two classes: 1) an FLSA collective consisting of employees who worked for St. Luke's from September 2016 to September 2018, and 2) an unjust enrichment class consisting of all people employed by St. Luke's in Missouri between April 2012 and September 2018.

After discovery, St. Luke's moved for summary judgment. It stipulated, for purposes of its motion, that all employee time on the clock was compensable work time and that issues about why employees clocked in early or clocked out late were immaterial.

Each side submitted expert reports analyzing the rounding policy's effect on compensation. The employee's expert analyzed pay records across all six years of data. Their reports showed that the rounding policy across different time periods benefited St. Luke's more often than not. The plaintiff's expert determined that the rounding policy cut time from about half of shifts, added time to a little over a third and had no effect on the rest.

The net loss to employees allegedly increased steadily over time. The employees' expert estimated that the policy favored St. Luke's to the tune of 74,000 employee hours from April 2012 to September 2018. For damages, the expert estimated about $140,000 in lost overtime pay for the two-year FLSA collective and about $2.2 million in lost earnings for the Missouri unjust enrichment class over the corresponding six-year period.

From April 2012 to September 2018, the plaintiff herself was determined to have lost time on about half her shifts and to have gained time only on a fifth. Overall, she lost 7.6 hours, amounting to $205.13, or about $32 per year. The St. Luke's expert's report generally tracked the plaintiff's expert report, although it found that the lost time on a per-shift basis was small.

The district court granted summary judgment to St. Luke's on all claims. It found that the rounding policy was neutral as applied because the time lost per shift was small, the policy both added and subtracted time during the period, and on a per-shift basis, the policy took time only from about half of the shifts and added time or was neutral to the other half.

The plaintiff appealed to the 8th Circuit, which questioned the district court's reasoning. Citing the FLSA regulations on rounding policies, the 8th Circuit noted that such a policy should average out so that the employees are fully compensated for the time they actually work. According to those regulations, the use of the policy may not result in the failure to compensate employees properly for all time worked over an extended period.

In this case, both expert reports demonstrated that the policy undercompensated employees as a whole. For employees who lost time, St. Luke's gained, on average, nearly two hours of free work per year per employee.

The appeals court also said that St. Luke's made an unwise concession in stipulating that all clocked time was worked time. The 8th Circuit reversed the decision of the district court and remanded the case for further consideration.

Houston v. St. Luke's Health System Inc., 8th Cir., No. 22-1862 (Aug. 11, 2023).

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.