California Court of Appeals Seal2.pngCo-authored by Brandon McKelvey, Jeffrey Berman, and David Kadue

We previously reported that a San Diego Superior Court found See’s Candy Shops violated California law by rounding employee time entries to the nearest-tenth of an hour, and that the California Supreme Court ordered the Fourth District Court of Appeal to review the case and decide the rounding issue.  On Monday, the Court of Appeal decided the issue of first impression in a published decision and held that “the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and ‘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.”  This comes as great news to thousands of employers across California who utilize similar neutral rounding policies.    

The Court of Appeal became the first appellate court in California to adopt the long-held position of the US Department of Labor (“DOL”) and the state Division of Labor Standards Enforcement (“DLSE”) that rounding employee time entries “to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour” is lawful.  Both the DOL’s regulations and the DLSE’s Enforcement Manual note that rounding is acceptable provided that the practice 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.”  The Court of Appeal endorsed the DOL and DLSE’s position whole heartedly.  The Court said that “[a]ssuming 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.”

The Court of Appeal rejected the plaintiff’s argument that rounding time entries violated various provisions of the Labor Code generally requiring payment of “all wages” and for “any work in excess of eight hours.”  The Court explained that the question of whether all wages have been paid is different from the issue of how an employer calculates the number of hours worked by a method such as rounding.  The Court further explained that none of the provisions in the Labor Code discussing payment of wages address rounding time entries and thus these Labor Code provisions do not invalidate or prohibit rounding.

Having found that neutral and unbiased rounding over time does not violate California law, the Court of Appeal vacated the trial court’s order granting summary adjudication in favor of the plaintiff as to several of See’s Candy Shops’ affirmative defenses.  The Court of Appeal held that determining whether a rounding rule is biased against an employee is a factual issue and not a legal one.  Because See’s Candy Shops presented evidence showing that its neutral rounding policy was unbiased over time there was a disputed issue of fact as whether the rounding policy operated over a period of time to undercompensate employees.  As such, the Court of Appeal found that summary adjudication in favor of the plaintiff was not proper.             

California employers have closely watched the See’s Candy Shops case as neutral time rounding is a common practice in California and throughout the country.  In April, Seyfarth Shaw authored an amicus brief in the case on behalf of Employers Group, California Employment Law Council, and the California Chamber of Commerce urging the Court of Appeal to decide the rounding issue in line with the DOL and DLSE’s position.  The Court of Appeal provided much needed clarity on the issue and the decision may stem the tide of class action lawsuits in California challenging employer rounding practices on the basis that they violate the California Labor Code.  Employers in California who currently round employee time entries should nonetheless review their rounding policies and practices with counsel to evaluate potential issues and exposure.