Many California employers round employees’ clock-in and clock-out times to the closest quarter hour, tenth of an hour, or five-minute interval. This practice is commonly referred to as “rounding.” On June 25, 2018, California’s Second District Court of Appeal upheld an employer’s rounding system in AHMC Healthcare, Inc. v. Superior Court of Los Angeles County, No. B285655 (June 25, 2018). The decision reaffirms the Ninth Circuit Court of Appeals’ 2016 ruling on the subject and expands on the criteria used to evaluate whether a rounding policy is neutral in practice, and thus lawful.

Background 

AHMC Healthcare rounds employees’ clock-in and clock-out times to the closest quarter hour. For example, if an employee clocks in at 6:53 a.m. or 7:07 a.m., he or she is paid as if he or she clocked in at 7:00 a.m.

A statistical study of two AHMC Healthcare locations revealed that the employer’s rounding practices resulted in the addition of 1,378 hours of compensable time over the course of 4 years at its San Gabriel location, and the addition of 3,875 hours of compensable time over the course of 4 years at its Anaheim location. The study also found that, due to the rounding policy, certain employees were paid less than they would have been paid if AHMC Healthcare calculated wages based on employees’ exact clock-in and clock-out times. In fact, at the Anaheim location, 52.1 percent of the workforce lost time, with an average reduction of 2.33 minutes per shift.

Two affected employees, Emilio Letona and Jacquelyn Abeyta, lost an average of .86 of a minute per shift and 1.85 minutes per shift, respectively, due to the rounding policy. They sued AHMC Healthcare on behalf of themselves and other similarly situated employees, arguing that “a rounding policy that resulted in any loss to any employee, no matter how minimal, violates California employment law.”

The Court of Appeal’s Analysis

California’s Second District Court of Appeal found that AHMC Healthcare’s rounding practices were in compliance with California law, as they were neutral on their face as well as in practice. The employer’s rounding system was facially neutral because all time punches were rounded systematically to the nearest quarter-hour without an eye towards whether the employer or employee benefitted from the rounding.  It was also neutral in practice, as evidenced by the statistical study’s results, which found that although certain employees were undercompensated, the employer overcompensated employees as a whole. The court concluded that the evidence established that the rounding system “did not systematically undercompensate employees over time.”   

The court recounted the Ninth Circuit Court of Appeals’ determination in Corbin v. Time Warner Entertainment-Advance/Newhouse Partnership that a “rounding policy is not meant to ‘ensure that no employee ever lost a single cent over a pay period.’” There is no requirement that “every employee gain or break even over every pay period or set of pay periods analyzed; fluctuations from pay period to pay period are to be expected under a neutral system.” Instead, a policy’s neutrality is based on its effect on an entire group of employees over a period of time. Notably, a plaintiff cannot engage in “strategic pleading” by “limiting his proposed class to only those employees who happen to come out behind during the class period.”

The court also found that “[t]he fact that a bare majority at one hospital lost minor sums during a discrete period did not create an issue of fact as to the validity of the system.” In this case, 52.1 percent of employees at the Anaheim location lost compensation due to the rounding policy. This percentage was not large enough to demonstrate a lack of neutrality.

At the end of its decision, the court left open the possibility that courts could look at multiple data points when determining whether a company’s rounding practices are neutral in practice. As an example, it stated that “a system that in practice overcompensates lower paid employees at the expense of higher paid employees could unfairly benefit the employer.” 

Key Takeaways

AHMC Healthcare reaffirms the validity of neutral rounding policies and provides a reasonable, common-sense approach to evaluating whether the policy is also neutral in practice. However, the case also highlights that there is an inherent risk with rounding policies, which is that employees, even “bare majorities” of employees, may lose minor sums of time worked over a discrete period of time. Plaintiffs’ lawyers and their experts can seize on these discrete records with the aim of certifying class actions with claims of unpaid time. Employers may want to consider conducting regular audits to ensure that their rounding practices do not systemically undercompensate employees, and instead have an impact that is neutral or results in the overcompensation of employees as a whole.