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The California Supreme Court Takes a Giant Step Toward Outlawing Employers’ Rounding Policies

March 5, 2021, by Catherine Dellecker

The California Supreme Court issued a decision last week that upends the state’s historic ambivalence toward, if not tacit approval of, “neutral” rounding policies for calculating employee work time. Although limited to the rounding of meal breaks for now, the Court expressed its unequivocal aversion to rounding policies generally, signaling a potential future ruling on the issue.

California is well-known for its intense regulation of employees’ working hours. See, e.g., Cal. Lab. Code §§ 510-556, 1171, 1205. The law typically considers work in excess of eight hours in one workday and work in excess of 40 hours in any one workweek as overtime requiring compensation of 1.5 times the employee’s regular rate of pay. Cal. Lab. Code § 510(a). In addition, employers generally must provide employees with one 30-minute meal period that begins no later than the end of the fifth hour of work, and another 30-minute meal period if the employee is still working at end of the tenth hour. Cal. Lab. Code § 512(a). If an employer fails to provide a compliant meal period, it must pay premium to the employee of “one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal . . . period is not provided.” Cal. Lab. Code § 226.7(c).

Although California law has not expressly addressed the permissibility of rounding to calculate employee worktime, a few courts in California have cited a regulation of the U.S. Department of Labor in allowing employers to “use a rounding policy for recording and compensating employee time as long as the employer’s rounding policy does not ‘consistently result[] in a failure to pay employees for time worked.’ ” Alonzo v. Maximus, Inc., 832 F. Supp. 2d 1122, 1126 (2011), citing 29 C.F.R. § 785.48(b) (2011). In other words, rounding policies have been considered lawful so long as they favored neither overpayment nor underpayment. Id. (citations omitted). In Alonzo, for example, the court determined that a policy requiring employees to self-report their time to the nearest quarter hour was facially neutral. Id. at 1127; see also See’s Candy Shops, Inc. v. Superior Court, 210 Cal. App. 4th 889, 903 (2012) (“Assuming a rounding-over-time policy is neutral, both facially and as applied, the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.”); AHMC Healthcare, Inc. v. Superior Court, 24 Cal. App. 5th 1014, 1027 (2018) (approving a system that rounds all employee time punches to the nearest quarter hour as neutral on its face and in practice).

Last week, the California Supreme Court delivered a blow to that practice in Donohue v. AMN Services, LLC, which holds that employers cannot engage in rounding in the context of meal periods. In Donohue, the employer’s electronic timekeeping system rounded the time of employees’ clocking in and out for work and meal breaks to the nearest 10-minute increment:

For example, if an employee clocked out for lunch at 11:02 a.m. and clocked in after lunch at 11:25 a.m., [the system] would have recorded the time punches as 11:00 a.m. and 11:30 a.m. Although the actual meal period was 23 minutes, [the system] would have recorded the meal as 30 minutes.

If the employee did not record a compliant meal period, the timekeeping system required employees to choose the reason for the noncompliant meal period, and if the employees indicated it was voluntary, no penalty was paid. The state’s highest court concluded that the practice of rounding time punches for meal periods is inconsistent with California law’s “precise time requirements” for such breaks (i.e., not less than 30 minutes), stating that “vigilance is warranted” to avoid potential significant incursion by rounding into a relatively short 30-minute break. The Court emphasized its antagonism at the rounding policy in Donohue by dismissing the undisputed fact that the employees were actually overcompensated because the policy failed to result in their receipt of premium wages for meal period violations. In other words, even a rounding policy that results in proper compensation is improper under Donohue.

Donohue’s holding with respect to an employer’s rounding of an employee’s time in the context of meal periods is unambiguous: it violates California labor law. Additionally, because the case concerned rounding done as early as September 2012, the ruling likely will be considered retroactive to at least that date. Although the California Supreme Court has not yet addressed whether rounding employee work time outside of the meal context is permissible, it seems ready to pounce. The justices in Donohue lasered in on the decision in See’s Candy, which approved rounding employee work time to tenths of an hour, to highlight that the Supreme Court has not yet decided the validity such a rounding standard. Moreover, the Court noted that “the practical advantages of rounding policies may diminish further” as “technological advances may help employers to track time more precisely.” The Supreme Court seems poised to invalidate rounding policies as soon as the opportunity arises.

In light of the Supreme Court’s ruling in Donohue, employers should ensure that their timekeeping systems track the exact amount of time employees spend taking meal breaks, refrain from rounding of the time of employee meal periods, and require employees to confirm if they voluntarily choose to take short or late meal periods or to skip breaks altogether. It also would be prudent for employers to cease rounding the hours worked by their employees in all circumstances as soon as possible.