Retail Employment Law Blog : U.S. Lawyers & Attorneys for Labor Law

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.
 

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A federal court in Pennsylvania has held conclusory allegations that a retailer required a putative class of non-exempt store managers to work off the clock and failed to pay them overtime, in violation of the Fair Labor Standards Act (“FLSA”), are insufficient to state a claim under the relatively new pleading standard the Supreme Court set forth in Ashcroft v. Iqbal, 556 U.S. ___, 129 S.Ct. 1937 (2009).  Mell v. GNC Corporation, 2010 U.S. Dist. LEXIS 118938 (2010). Because the plaintiffs had already amended their complaint once, the court dismissed their first amended complaint without leave to amend.

Plaintiffs alleged the putative class of Store Managers each worked more than 40 hours a week and were “eligible to be paid overtime under GNC’s uniform compensation system for calculating overtime due salaried employees.” However, GNC allegedly “failed to credit and pay overtime hours properly for all of the overtime hours worked by Plaintiffs and other workers in the asserted class, due in part to a policy or practice by [GNC] of requiring or suffering Plaintiffs and such workers to work through lunch while off the clock, to work scheduled overtime hours while off the clock, and to work additional hours or shifts while off the clock, all as part of a pervasive system to control overtime expense.” Plaintiffs alleged they “cannot precisely allege with specificity” the number of uncompensated hours or the extent of the inaccuracies in Defendants’ records without discovery.” Finally, they alleged, “[b]ecause the pay system at issue calculates overtime at a different rate for each workweek with varying hours and varying regular pay (including incentives that are part of regular pay), Plaintiffs cannot precisely allege with specificity the overtime pay rates applicable to each workweek at issue without further discovery of the regular pay made to Plaintiffs each week, including varying incentive payments included in regular wages from time to time, and the extent of uncompensated hours.”

Relying on similar cases such as Deleon v. Time Warner Cable LLC, 2009 U.S. Dist. LEXIS 74345 (C.D. Cal. 2009), the court held the plaintiffs’ factual allegations were insufficient to state a claim. The court reasoned it “cannot even infer from the Amended Complaint that there was a ‘mere possibility of misconduct’ unless [it] accept[s] as a ‘fact’ that Defendants had a policy or practice of requiring their employees to work ‘off the clock.’”  Plaintiffs, however, “failed to provide any factual allegations to support this claim.  For example, they provide no information about who advised them of this policy, when they were told they were required to work ‘off the clock’ or what the work consisted of, how the policy was imposed, approximately how many hours each week they worked without being paid, and whether either Plaintiff or any other GNC employee complained to a supervisor about the practice and, if so, what GNC’s response was. Plaintiffs provide no facts about the timekeeping practices of GNC, for instance, was there literally a time clock that employees used to record their time or was it simply understood that regular working hours would be from, say, 10 a.m. to 6 p.m.?”

Further, the court noted that “although Plaintiffs allege that they are unable to state ‘with specificity’ the number of uncompensated hours they worked, they do not offer an approximation of such hours or a vague description of the ‘uniform compensation system for calculating overtime’ for salaried employees.  For example, neither Plaintiff alleges that he or she kept a personal diary of the hours actually worked that could be used to refute the hours recorded by Defendants.  There is no explanation of what is meant by the pay system allegedly used by Defendants that ‘calculates overtime at a different rate for each workweek with varying hours and varying regular pay (including incentives that are part of regular pay).’”  While the Court agreed that discovery might be necessary in order for former employees to get copies of the alleged uniform compensation system policy, “surely they would be able to estimate the time periods in which they worked without proper overtime compensation.”

Next, although plaintiffs alleged that defendants adopted “a pervasive system to control overtime expense” by “requiring or suffering” its employees to work off the clock, they “fail[ed] to provide any details about this ‘system.’” Finally, plaintiffs’ allegations that defendants’ actions were “knowing” and “willful,” to try to take advantage of the FLSA’s three-year statute of limitations for willful violations, were similarly inadequate.  The court held that to satisfy Iqbal, “it is insufficient to merely assert that the employer’s conduct was willful; the Court must look at the underlying factual allegations in the complaint to see if they could support more than an ordinary FLSA violation.”  Here, however, “there are no factual allegations which would support a claim that the violations were willful, for example, reports of complaints to supervisors about having to work off the clock which were rebuffed or ignored.”

Finally, because plaintiffs filed an amended complaint after the defendants had pointed out similar shortcomings in their original complaint, the court concluded plaintiffs were unable to cure the deficiencies, and dismissed their claims with prejudice.

The Mell decision and the cases it cited are a very useful tool for retailers fighting frivolous actions alleging wage and hour violations. Rather than being required to engage in costly discovery and then either settling to avoid defense costs or filing an expensive motion for summary judgment, retailers can use decisions such as Mell to dispose of these cases at the much earlier pleading stage.

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