The Ruling

California Courts of Appeal have historically permitted fair and neutral rounding policies which, over a period of time, result in a net surplus of compensation and benefit to the employees collectively. However, Camp v. Home Depot U.S.A., Inc. calls into question the very viability of rounding policies in California in their entirety. Indeed, on October 24, 2022, the California 6th District Court of Appeal ruled that where an employer could, and did, track the exact time in minutes that an employee worked each shift, a facially neutral rounding policy was not a complete defense to an employee’s unpaid wage claims.

Background

California law requires employers to pay employees for “all work performed” and to maintain accurate records of time worked by nonexempt employees. In recognition of administrative and practical difficulties in recording small amounts of time for payroll purposes, facially neutral rounding policies that do not ultimately benefit the employer have been considered legal under California law. 

In Camp, however, Home Depot utilized just such a rounding system, which tracked actual time worked by employees to the minute and then rounded hourly employees’ total daily work time to the nearest quarter hour. Thus, a time increment of seven minutes or less was rounded down to the nearest quarter hour (e.g., six hours and three minutes are rounded down to 6.00 hours), while a time increment of eight minutes or more was rounded up to the next quarter hour (e.g., six hours and eight minutes are rounded up to 6.25 hours). The trial court determined that this quarter-hour rounding policy was fair and neutral on its face because, in the aggregate, employees were paid more due to rounding, even though the plaintiff employee had lost approximately 470 minutes over four and a half years.

The 6th District Court of Appeal disagreed. It held that if an employer has the ability to capture (and did capture) the exact amount of time worked by an employee, the employer is required to pay the employee for “all time worked,” down to the minute recorded. Even a facially fair and neutral rounding policy, which would have been considered a viable defense under prior appellate court decisions, may no longer be a defense for employers with electronic timekeeping systems, exposing employers to significant wage and hour liability and Private Attorney General Act (PAGA) penalties.

Takeaway

Does this mean that all rounding policies are now prohibited in California? Not explicitly, but Camp certainly raises that question. The court expressly stated that it does not make an opinion whether all time-rounding practices are in conflict with California law or even whether an employer who has the ability to track all of an employee’s minutes worked is required to do so. Additionally, the California Supreme Court has never reviewed the legitimacy of time rounding policies in California, and it remains to be seen whether the Camp decision will be appealed. However, given the trend in California to be more protective of employees, and given the very active and aggressive wage and hour Plaintiff’s bar in California, employers should anticipate the future policy in this area to shift similarly.

Even minor errors in payroll procedures can multiply in class action lawsuits or representative actions seeking penalties under PAGA, exposing employers to significant liability. As a matter of best practice, employers who utilize electronic timekeeping software should promptly review their timekeeping and rounding policies and consult with counsel to ensure their current practices do not expose them to liability consistent with the Camp opinion. Employers should otherwise continue to implement and enforce policies and procedures which accurately capture time worked by employees, eliminate occurrences where employees may perform off-the-clock work and, with the assistance of counsel, perform regular audits to ensure their policies and practices conform to California wage and hour law.