On May 1, the California Supreme Court held oral arguments in the highly anticipated Troester v. Starbucks (9th Cir. 2016) 680 Fed.Appx. 511, 512, case currently pending before the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit deferred ruling while it awaits the California high court's critical decision on whether the federal Fair Labor Standards Act (FLSA) de minimis rule—on which employers frequently rely—applies to wage claims under the California Labor Code. Although that decision could have wide-ranging consequences for California employers, it should not significantly impact the use of time-rounding software to record employee work time even if the court concludes that the de minimis doctrine does not apply to Labor Code claims of unpaid wages.

Time-Rounding Software and Practices

Gone are the days of manual time cards. Most employers use some form of electronic workforce-management system to create employee schedules and to track hours. These systems can record employee work time down to the minute, or can be programmed to round the time in increments of five, 10 or 15 minutes. For example, if a company uses 10-minute increments and an employee works 44 minutes, the employer can round down to 40 minutes. But if the employee works 46 minutes, the employer must round up to 50 minutes.

Employers may round time so long as the practice is neutral, both facially and as applied. Time-rounding is lawful, unless it “systematically undercompensates employees.” Corbin v. Time Warner Entertainment-Advance/Newhouse Partnership (9th Cir. 2016) 821 F.3d 1069, 1078–1079, citing See's Candy Shops v. Superior Court (2012) 210 Cal.App.4th 889, 902. See also AHMC Healthcare v. Superior Court (Cal. Ct. App., June 25, 2018, No. B285655) at *3. The idea is that the time balances out such that employees are not underpaid. An employer is not required to show that every employee breaks even every pay period, but only that the rounding does not consistently or disproportionately favor the employer over an extended period of time.

As a secondary argument, employers typically assert that, even if their time-rounding practice results in underpayment of wages, the unpaid time is “de minimis” and therefore not compensable.

'De Minimis' Rule

The de minimis doctrine is a defense to claims of unpaid wages under the FLSA. The doctrine provides that employers need not compensate employees for small increments of time spent on tasks that are difficult or impractical to track, such as off-the-clock time spent getting ready for or completing a shift. Though there is no precise amount of time that is de minimis per se, “most courts have found daily periods of approximately 10 minutes de minimis even though otherwise compensable.” Corbin, 821 F.3d at 1082.

Employers routinely assert the federal de minimis doctrine as a defense to California Labor Code claims. However, the Labor Code and Industrial Welfare Commission Wage Orders are silent on its application, while California's Division of Labor Standards Enforcement has incorporated the de minimis rule into its Enforcement Manual and a published opinion letter. Although neither the manual nor opinion letter has precedential value, they demonstrate how the law is currently interpreted by the agency charged with enforcing it. On the other hand, California appellate courts typically decline to apply federal limitations to employee-protective Labor Code provisions. For its part, the California Supreme Court has never addressed the issue, although at least one panel of the Ninth Circuit has predicted that the high court would decide the doctrine is applicable to such claims. Gillings v. Time Warner Cable (9th Cir. 2014) 583 Fed.Appx. 712, 714.

All of this sets the stage for Troester.

'Troester v. Starbucks'

Douglas Troester, a former Starbucks shift supervisor, filed a class action in state court in 2012, claiming that Starbucks violated the California Labor Code by failing to compensate employees for time they spent off the clock closing the store while performing tasks such as turning off computers and lights, activating the store alarm and locking the door.

Starbucks removed the case to federal court. The federal trial court granted Starbucks summary judgment, concluding that Troester's off-the-clock work was de minimis and therefore not compensable. Troester appealed to the Ninth Circuit, arguing that the de minimis rule is not a defense to California Labor Code claims. Starbucks countered that the rule applies, as recognized by several state and federal courts.

The Ninth Circuit withheld a decision on the merits, instead requesting the California Supreme Court to decide whether the FLSA's de minimis doctrine applies to wage claims brought under California's Labor Code.

'Troester' Should Not Prevent the Continued Use of Lawful Time-Rounding Practices

Troester did not involve any time-rounding policy and simply addressed whether Starbucks could rely on the de minimis rule as a bar to off-the-clock claims under California's Labor Code.

If the California Supreme Court holds that the de minimis doctrine applies, there will not be any significant changes in how employers defend against wage-and-hour claims. If, however, the Court deems the de minimis rule inapplicable to wage claims asserted under California law, employers will no longer be permitted to rely on that defense and will face an influx of wage-and-hour class actions seeking unpaid wages—and, more significantly, resultant penalties—for mere minutes of time spent getting ready for, or wrapping up, their work.

This should ultimately not affect time-rounding policies even if de minimis time is deemed compensable. Time-rounding is permitted not because the time for which employees are uncompensated is de minimis, but rather because a proper rounding practice should not result in underpayment in the first place. In other words, rounding is lawful when the system is neutral, applied fairly and does not result in a net benefit to the employer over time. A proper rounding policy ensures that the minutes and compensation employees may lose for time spent working ultimately balances with the minutes and compensation they gain for paid time when they are not working. The de minimis rule would apply only as a defense when the employer's time-rounding policy is found to be unlawful.

Employers who use time rounding will continue to face legal challenges and the expense of defending their practice regardless of how the California Supreme Court rules in Troester. Properly drafted and applied time-rounding policies will obviate the need to rely on the de minimis defense.

Delia A. Isvoranu is a partner with Duane Morris, based in San Francisco. She can be reached at [email protected].