In Dispute Over Timecard Rounding, California Court of Appeals Issues ‘Balanced’ Ruling

Timecard rounding is a tricky area of employment law. Employers like rounding because it streamlines timekeeping and payroll; employees like it because it gives them the chance to get paid for time they did not actually work (think of the employee who clocks in at 8:03 a.m., only to have her timecard rounded down to 8:00 a.m.). The trick is that the law requires that the rounding practice “balance out” over time, such that employees do not end up being systematically undercompensated for time worked (e.g., always clocking in at 7:57 a.m. and having their timecards “rounded up” to 8:00 a.m.).

But what does it mean for time to “balance out”? Does it literally mean that the rounding practice must benefit the employee at least as much as it benefits the employer? Courts have been grappling with that question for some time. But a recent decision by the California Court of Appeals provides some clarity.

In Ferra v. Loews Hollywood Hotel, LLC, the court considered the legality of a practice that rounded workers’ pay to the nearest quarter hour. The data showed that the rounding practice benefited the employer 54.6% of the time. It benefited employees 26.4% of the time. For the remainder of the time, the practice was neutral — benefiting neither the employer or employees.

Pointing to the fact that the practice benefited the employer a majority of the time, the plaintiff argued the practice was illegal. But the court rejected that argument. In doing so, it emphasized that the practice was neutral on its face. It further explained that the practice need only be “fair and neutral” under the law, and that “a system can be fair or neutral even where a small majority loses compensation.”

This analysis makes sense. A snapshot of a system with an inherent give and take like rounding is bound to show slight favoritism to one group or the other, depending on exactly what time period was at issue. The Ferra’s court recognition of that fact prevents “gotcha” litigation tactics that penalize employers with fair rounding practices by failing to consider them holistically.

Employers still need to ensure that their rounding practices do not systematically undercompensate employees. But the Ferra court’s sensible analysis makes clear that slight fluctuations in the benefits analysis do not make rounding practices illegal. This is good for employers and employees alike, both of whom benefit from rounding in the long run. That, after all, is what the law is supposed to encourage.