California court holds California employers may follow federal regulations permitting rounding of employee time
A California court of appeal has held that California law permits employers to round employees’ time so long as employees are not disadvantaged by the procedure, as employers are permitted to do under federal law. (See’s Candy Shops, Inc. v. Superior Court (Cal. Ct. App. Oct. 29, 2012) D060710.) About 50 years ago, the United States Department of Labor (“DOL”) adopted a regulation under the Fair Labor Standards Act (“FLSA”) permitting employers to use time rounding policies under certain circumstances. The regulation states: “It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees’ starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that 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 the time they have actually worked.” (29 C.F.R. § 785.48(b).)
As long interpreted by the federal courts, this “regulation permits 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.” (See’s at p. *18.) Under this standard, “an employer’s rounding practice complies with the DOL rounding regulation if the employer applies a consistent rounding policy that, on average, favors neither overpayment nor underpayment.” (Id.) “On the other hand, an employer’s rounding policy violates the DOL rounding regulation if it systematically undercompensates employees, such as where the defendant’s rounding policy encompasses only rounding down.”
Prior to See’s, the agency empowered to enforce California’s labor laws, the California Division of Labor Standards Enforcement (“DLSE”), adopted the federal regulation in sections 47.1 and 47.2 of its Enforcement Policies and Interpretations Manual. Although the DLSE Manual is not binding on the courts because the rules were not adopted under the California Administrative Procedure Act, courts may consider the manual for its persuasive value. In See’s, the court was persuaded that the federal standard is consistent with California law. The court reasoned that “the policies underlying the federal regulation—recognizing that time-rounding is a practical method for calculating work time and can be a neutral calculation tool for providing full payment to employees—apply equally to the employee-protective policies embodied in California labor law. 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.”
Moreover, the court reasoned, “the rounding practice has long been adopted by employers throughout the country. Under these circumstances, it is reasonable for the court to construe the requirements of the California wage law in a manner consistent with the FLSA. To hold otherwise would preclude California employers from adopting and maintaining rounding practices that are available to employers throughout the rest of the United States.” (See’s at pp. *20-*21.)
See’s rounds its employees’ time to the nearest tenth of an hour. Applying the time-rounding standard to the company’s practice, the court held the lower court erred when that court had held the company’s practice violates California law.