Rounding Policy Not Complete Defense to Wage and Hour Claims in California

​When an employer tracked the exact time in minutes that employees worked, and those time-keeping records showed that an employee was not paid for all the time he worked, the employer could not simply rely on its neutral rounding policy as a defense to the employee's wage and hour claim, a California court of appeals recently ruled. The employee was entitled to a trial to determine whether he was paid for "all hours worked," as required by California law.

Although the employer acknowledged that the employee had lost a total of 470 minutes over approximately 4½ years due to the rounding policy, it contended it was still entitled to dismissal of the employee's claim for unpaid wages because its rounding policy was neutral on its face and neutral as applied. Therefore, the employer argued, its rounding policy should serve as a defense to the wage and hour claim, based on the standards established in a previous California court of appeals case (See's Candy Shops Inc. v. Superior Court, 210 Cal. App. 4th 889 (2012)). The trial court agreed and dismissed the lawsuit. The employee appealed.

On appeal, the employee claimed that neither the state Labor Code nor the relevant wage order authorizes time rounding that results in an individual employee failing to receive compensation for all time worked. The appeals court agreed and ruled that the employee could take his claim to trial.

General Wage and Hour Principles Under California Law

Wage and hour claims in California are governed by the Labor Code and by wage orders adopted by the Industrial Welfare Commission, the appeals court explained. The purpose of the Labor Code and wage orders is the protection of employees.

The wage order applicable to this case, Wage Order No. 7, defines "hours worked" as "the time during which an employee is subject to the control of an employer," including "all the time the employee is suffered or permitted to work, whether or not required to do so." The phrase "suffered or permitted to work" includes the time during which the employer knew or should have known that the employee was working on its behalf.

Wage Order No. 7 sets the minimum wage for employees and requires that wages must be paid to an employee "for all hours worked."

The Labor Code also contemplates that employees will be paid for "all work performed."

At issue in this case, the appeals court said, was whether the employee could go forward with his claim for unpaid wages when the employer could and did capture the exact number of minutes that he worked each shift but, due to the employer's quarter-hour time-rounding policy, the employee was not paid for all the time he worked, according to the employer's own time-keeping records.

Impact of California Supreme Court Cases

In reaching its decision, the appeals court examined two recent California Supreme Court cases: Troester v. Starbucks Corp., 5 Cal. 5th 829 (2018), and Donohue v. AMN Services LLC, 11 Cal. 5th 58 (2021). The court explained that in Troester and Donohue, the California Supreme Court made clear that the Labor Code and wage orders mandate that employees be paid for "all" work performed and that California's regulatory scheme for employee compensation is concerned with "even small amounts of worktime." A few extra minutes of work time periodically lost due to a purportedly neutral time-rounding policy can add up over time, the court noted.

The appeals court stressed that the California Supreme Court appeared to call into question the efficiencies historically attributed to time rounding, given that advances in technology have enabled employers to more easily and more precisely capture time worked by employees. Because of the growing availability and use of electronic time-keeping systems (such as the one used by the employer in this case) that capture exact time records and work directly with payroll systems, the benefits formerly gained by time rounding are less apparent, the court noted.

It concluded that based on these two California Supreme Court cases, if an employer can capture and has captured the exact amount of time an employee has worked during a shift, the employer must pay the employee for all the time worked.

The court acknowledged that its holding called into question the continuing validity of See's Candy and with it the formerly "well-settled" principle that neutral time rounding is lawful under California law. It "invited" the state Supreme Court to step in to review the issue of neutral time rounding by employers.

Camp v. Home Depot U.S.A. Inc., Calif. Ct. App., No. H049033 (Oct. 24, 2022).

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.