'There is no administrative hassle. This is not the old days of punch cards and hand arithmetic'
A recent decision by the U.S. Court of Appeals for the Eighth Circuit could have significant implications for time tracking at large organizations and the way they are paying for overtime.
The determination, made in the Kansas City court, showed that the decades-old “round off” rule is not a surefire defense against wage payment litigation.
Houston v. St. Luke’s Health System Inc. saw thousands of employees of a large health care company filing a Fair Labor Standards Act (FLSA) complaint that alleged that despite the employer’s use of the round off rule, staff were still being underpaid over time. According to digital timecard data they were able to access from the employer’s records, they showed that two-thirds of the time, employees were clocking in early without pay, which they maintained created an unfair circumstance.
Employment lawyer Jonathan Crotty with Parker Poe Adams & Bernstein LLP says the ruling is a reminder that the rounding regulation will not always protect employers from class action wage disputes.
“That's the takeaway we saw from this case,” he said. “Employers may think, ‘If I use the rounding rule, it's kind of a safe harbor, and I can't be sued.’ And I think this case points out that that's not the case.”
What is the “round off” rule?
The Department of Labor (DOL) created the round off rule to acknowledge the impracticality of employers needing to pay staff for the minutes they clock in early for a shift, and to subtract the minutes they clock in late, up to seven minutes on either side. There is a presumption that over extended periods, the minutes before and after shift start times would even out.
The St. Luke’s plaintiffs argued that this presumption was not accurate in their case, and the court of appeals judge agreed.
Crotty points out that this precedent may be a signal of things to come. Whereas such class action suits have previously been too costly for most employees to attempt, advancing technology around digital timeclocks and other methods of timekeeping can now make companies more vulnerable.
“Now plaintiff’s attorneys have access to software, that if they can get the payroll information in, they can fairly efficiently crunch those numbers and come up with a determination as to whether or not the employees were being fairly paid,” he said. “There are plaintiffs’ law firms who specialize in collective action and FLSA work. They're smart people, and they're always looking for new theories on which to base these claims, and I think this may be one that's going to get some interest from them.”
Mitigation strategies to avoid wage litigation
There are several ways employers and HR can work together to reduce risk of timecard litigation, Crotty says.
Companies can conduct their own reviews of their timekeeping to see how the round off rule is affecting employees in their workplace. If there are long-term discrepancies, make adjustments. Employers could also restrict employees from clocking in and starting work early, which Crotty admits could be “difficult to enforce.”
Alternatively, employers could opt to pay employees for their time clocked in early, but to not subtract late minutes.
“In other words, ‘We'll pay you more than the law requires us to do in this circumstance.’ That may be the response for some employers here, and to use their disciplinary policies to say, ‘Look, if you're continually clocking in late, that may be a disciplinary matter,’” Crotty said.
Lawsuit focused on long-term results
One of St. Luke’s main defences against the suit was that challenging the round off rule negates the rule’s purpose in the first place. An organization of its size, it said, cannot be expected to regularly audit its own timekeeping to ensure payment is always equitably distributed.
The court of appeals disagreed and reversed the district court’s initial decision in favor of St. Luke’s.
“The rounding regulation does not require rounding; it permits it,” the panel wrote in its review. “Here, with automated, electronic timing and accounting, this is easy to verify because the system records the exact time that an employee clocks in or out. There is no administrative hassle. This is not like the old days of punch cards and hand arithmetic.”
With this precedent set in the Eighth Circuit court, more cases like them might be coming, and larger companies will likely be the targets, Crotty says. If employees generally clock in early at a certain workplace, employers might want to mitigate for that.
“The rounding rule is not a Get Out of Jail Free card for employers,” he said. “You still have to pay people for hours that they work, and if employees are on average clocking in early, that opens the possibility for a wage and hour claim.”