By: Philip A. Toomey, Esq.

Under California law, an employer is required to pay employees for all time they are at work and subject to the employer’s control. The failure to pay all wages, especially at termination, exposes the employer to substantial penalties which often exceed the actual amount of wages owed. It also exposes the employer to class-action lawsuits and attendant litigation costs and lawyer fees. A California employer is strictly liable to properly calculate, and then pay, all wages and overtime owed. And as we recently reported, even when there isn’t a class-action lawsuit, the California Labor Commissioner seems more than willing to cite employers for their failure, and in some cases their subcontractor’s failure, to pay all earned wages and overtime.

Recently, a California state appellate court reviewed an employer’s policy of rounding employees hours up or down to the nearest quarter hour (AHMC Healthcare, Inc. v. Superior Court (No. B285655, 2018 WL 3101350)). The June 25, 2018 AHMC Healthcare decision held that a rounding policy, neutral on its face and not designed to favor either the employer or the employee, was lawful. Some publications have drawn the conclusion that because of the AHMC Healthcare decision, all rounding policies are lawful. We do not draw that conclusion, and urge serious caution.

Punch to Punch Policies
Some employers, wanting to avoid problems and management headaches, simply pay employees “punch to punch.” The disadvantage of this system is sometimes employees are paid for time not actually engaged in productive activity, and minimal amounts of overtime are normal. The advantage to the system is the employer, if it consistently and accurately applies the system, has an excellent chance to avoid violating California’s complex wage and hour laws, is freed from monitoring rounding policies so as to avoid not paying employees for all hours worked, and avoids the uninsured costs associated with class-action litigation (in California, almost all employment practice insurance liability insurance policies exclude defense or indemnification of wage and hour claims). If an employee, without authorization, shows up early or stays late (incurring minimal amounts of overtime), the situation is handled by counseling or discipline.

De Minimus Policies
Some employers utilize a punch to punch system, but modify it to exclude “de minimus” early/late punches, and do not pay for that time. In the California Division of Labor Standards Enforcement (DLSE) Enforcement Manual, it states employers may round hours worked to the nearest five minutes, one-tenth of an hour, or one quarter of an hour, as long as the rounding policy doesn’t deny employees compensation for hours they actually work. Employers willing to risk litigation have found guidance in court decisions paid for by other employer’s defending their policies, mainly See’s Candy Shops v. Superior Court [(2012) 210 Cal.App.4th 889, 1/10th of an hour rounding lawful under the facts presented], Corbin v. Time Warner Entertainment [821 F.3d. 1069 (9th Cir. 2016), ¼ of an hour rounding lawful under the facts presented] , and Lindow v. United States [738 F.2d 1057 (9th Cir. 1984), employees not entitled to overtime pay if time is de minimus, using a common sense standard]. The advantage of a de minimis policy is the employer avoids paying for minor amounts of time where an employee may clock in, but simply socialize. The disadvantage is that since an employer must compensate for even small amounts of daily overtime, it must actively monitor the situation and ensure that what it considers de minimis is not actually work being performed on a regular basis. Any employer having a de minimis policy should proceed with caution. A case now pending before the Ninth Circuit (Troester v. Starbucks (No 14-55530)) is analyzing if the de minimis rule remains applicable for claims under the California Labor Code. Recognizing the California Supreme Court has never directly address the issue, the Ninth Circuit requested it to do so, and the Supreme Court agreed. It heard oral argument on May 1, 2018, but has yet to issue an opinion (Troester v. Starbucks (No. 234969)).

Automated Rounding
Some employers have policies, or use timekeeping systems, that automatically round up or down an employee’s punch to their actual shift. Under this type of policy, employers rely upon the DLSE Enforcement Manual, and attempt to draw and enforce a neutral policy. A neutral policy means it favors neither the employer or the employee. This was the type of policy reviewed in AHMC Healthcare. The advantage of an automated rounding policy is obvious. The employee is paid only for authorized shift work. The disadvantage is also as obvious- the policy must be neutral. In fact, the AHMC Healthcare opinion contains a very specific warning to employers- any rounding policy that unfairly impacts a group of employees will most likely be invalid. And once again, the employer must invest the resources to monitor the situation and ensure employees are not performing productive labor during that time and for which they are not being compensated.

Analysis
We believe that while AHMC Healthcare provides an employer unfortunate enough to be in a class-action lawsuit or facing DLSE enforcement activity with a plausible defense, it should not be read more broadly than the facts actually proved in that case. We hold this position for at least two reasons. First, even under AHMC Healthcare the employer must still prove: (1) neutrality, (2) that employees are being compensated for all time they actually work, and (3) any overtime is so minuscule that it cannot, as an administrative matter, be recorded for payroll purposes. Drafting and policing a policy that meets all three criteria may require more cost and management attention than is offset by overtime savings. And proving those facts in a legal setting will involve detailed statistical evidence, most likely by paid professional witnesses. Second, and more importantly, the California Supreme Court has yet to issue an opinion in the Troester case. If the Court rules the de minimus doctrine has no application in California, it is difficult to imagine any situation where automated rounding is also lawful, irrespective of AHMC Healthcare.

In light of the most recent Supreme Court decisions involving employee rights in the wage and hour area, any employer that compensates employees under anything other than a punch to punch policy should carefully review such policies with experienced employment counsel, and document how those policies are actually applied in the workplace.

Leech Tishman’s Employment Practice Group can help clients ensure compliance with California’s complex and technical employment laws and can assist clients with defending against civil or administrative actions.

If you have any questions regarding California’s unique employment laws or these employment law updates, please contact Philip Toomey. Phil serves as Leech Tishman’s West Coast Business & Employment Client Relations Partner and practices in the firm’s Employment, CorporateLitigation and Real Estate Practice Groups. Phil is based in Leech Tishman’s El Segundo, CA office. He can be reached at 424.738.4400 or ptoomey@leechtishman.com.

Leech Tishman’s Facebook Page: https://www.facebook.com/leechtishman

Leech Tishman’s Twitter: https://twitter.com/LeechTishman

Leech Tishman’s Company Page on LinkedIn: https://www.linkedin.com/company/leech-tishman

Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, aviation & aerospace, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in El Segundo, CA, Chicago, Los Angeles, New York, Sarasota and Wilmington, DE.