Employer’s Policy of Rounding Employee Hours to Nearest Quarter Approved by California Court of Appeal

On June 25, 2018, a California court of appeal offered employers who use rounding systems to calculate employee payroll a reassuring ruling, approving a policy that rounded employee’s time to the nearest quarter hour. In AHMC Healthcare, Inc. v Superior Court (2018) No. B285655, the issue arose out of AHMC Healthcare’s use of a payroll system that automatically rounded employee hours up or down to the nearest quarter hour prior to calculating wages and issuing paychecks (instead of using the employee’s exact check-in and check-out times). Emilio Letona and Jacquelyn Abeyta, both employees of AHMC Healthcare, brought a class-action suit against AHMC Healthcare, Inc. for failure to pay wages and failure to furnish timely and accurate wage statements. The plaintiffs claimed this rounding system was in direct violation of the Labor Code, and presented evidence of time records from San Gabriel Valley Medical Center L.P. (where Letona was employed) and AHMC Anaheim Regional Medical Center L.P. (where Abeyta was employed).

AHMC Healthcare employee time records covering the span of four years (dating back to August 2, 2012) were reviewed by Deborah K. Foster, an economic and statistics expert. Foster found that overall, the number of minutes added to AHMC employee time by the rounding policy exceeded the number of minutes subtracted at each location, despite 49.5% (San Gabriel) and 52.1% (Anaheim) of the AHMC workforce losing time on a day-to-day basis. Both parties stipulated to the accuracy of these findings. The parties also stipulated to the net effect of the rounding policy on the two named plaintiffs. Letona lost 3.7 hours at Anaheim over the four year period, and Abeyta lost 1.6 hours in nine months at San Gabriel. The trial court denied both parties motions for summary adjudication, finding issues of material fact to be decided by a jury. Both parties appealed.

Despite the fact that a larger number of employees lost time on a day-to-day basis at Anaheim, the court of appeal found AHMC Healthcare’s rounding system to be fair and neutral on its face. In reaching this decision, the court relied on Corbin v. Time Warner Entm't-Advance/Newhouse P'ship. (9th Cir. 2016) 821 F.3d, the first case to review such a rounding policy, which states that fluctuations from pay period to pay period are expected under a neutral rounding system and therefore it is not a requirement that every employee gain or break even over every pay period or set of pay periods. Furthermore, the court looked to See's Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, where the court held that a system that results in a net surplus of compensated hours and a net economic benefit to employees as a whole is fair and neutral on its face and does not systematically undercompensate employees. Therefore, the weight of the bare majority who lost out on a minimal amount of time was not enough to outweigh the fact that overall, more minutes were added to employee payroll than were subtracted.

Lastly, the court went on to remark that nothing in their decision precludes a trial court from looking at multiple data points to determine whether a rounding system is in fact fair and neutral and therefore could uncover a biased system like one that overcompensates lower paid employees at the expense of higher paid employees.

While this decision is a positive development for employers because it expands the holding of See's Candy, and approves of a timekeeping system that rounds to the nearest quarter hour, the court was very careful not provide blanket approval of time rounding systems. The expanded approval of rounding in this decision grants employers more freedom when it comes to implementing a rounding policy, but also more room to make a mistake, which can lead to costly litigation down the road. The lawfulness of any particular rounding system, whether based on a tenth or a quarter of an hour, is highly fact specific. Therefore, if you plan on implementing or maintaining a rounding policy, it is recommended that you consult with your usual counsel at Atkinson, Andelson, Loya, Ruud & Romo or the authors of this article to ensure that your policy is compliant with California law.

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