Court Says Rounding Policies Are Permitted Under California Wage Law
Yesterday a California court issued its decision in Silva v. See's Candy, holding that California employers may lawfully use rounding policies—policies that round an employee's time worked to the nearest tenth of an hour worked (or other similar increment) for purposes of calculating pay. This is the first published California decision holding that rounding policies are permitted under California law, though such policies are permitted under federal law and California's Department of Labor Standards Enforcement previously has opined that such policies are also permitted under California law.
In the See's Candy case, See's employees were required to use a timekeeping system known as Kronos to record their start and end times of work. See's had a rounding policy indicating that these times would be rounded to the nearest tenth of an hour (up or down) for purposes of payroll. A former See's employee filed a class action claiming the rounding policy resulted in underpayment of wages to employees. The trial court ultimately granted class certification. See's defended the case by arguing, among other things, that its rounding policy was lawful. The plaintiff employee moved for summary adjudication of See's rounding defense, asking the court to rule as a matter of law that See's rounding policy was unlawful. The trial court ultimately granted the motion, precluding See's from relying on its rounding defense.
Yesterday, a California court of appeal overturned the trial court's ruling and reinstated See's rounding defense. Critically, the court 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.” Thus, the legality of a rounding policy depends on whether it, in practice, operates over time to pay employees for all time worked and not to short employees. In the See's case, there was an expert report before the court analyzing the impact of See's rounding policy over time and concluding that the policy actually had a net effect of slightly overpaying employees. The plaintiff in the case did not present evidence sufficient to rebut this expert report or to demonstrate that the rounding policy actually underpaid employees. As a result, the appellate court held that the trial court erred in disposing of See's rounding defense.
The See's case is an important one for California employers because it is the first published California decision to uphold the use of rounding policies under California law. Employers should understand, however, that this does not mean that all rounding policies will hold up in court. In the See's case, the employer did not win the case (yet). The court simply ruled that See's must be permitted to prove its rounding defense at trial and that this defense should not have been precluded. Ultimately, the legality of a rounding policy depends on whether the policy operates, on average and over time, to properly compensate employees for hours worked or whether it results in a net underpayment to employees. Without such analyses, rounding policies continue to present some level of risk and class action exposure to California employers.