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Court Finds Neutral Rounding Is Lawful

California employers that utilize neutral rounding practices to calculate time for non-exempt employees have received some very welcome news.

In Silva v. See’s Candy Shops, Inc., the Court of Appeal overturned a trial court decision, which previously found that rounding violates California law.  The appellate court held that employers may round employee time to the nearest tenth of an hour, provided that such rounding is fair and neutral on its face, and it will not result, over a period of time, in a failure to properly compensate employees for all hours worked.

A contrary decision could have wreaked havoc to longstanding employer practices.  Prior to Silva, there were no California statutes or published cases specifically authorizing or prohibiting rounding.  But under the Fair Labor Standards Act (FLSA), federal law has long recognized that rounding is permissible if it does not consistently result in the failure to pay employees for all time worked.  In other words, as long as employers avoided timekeeping policies that systematically under compensated employees, such as ones that always round employee time down, federal law deemed rounding as acceptable.

For years, the California Division of Labor Standards Enforcement (DLSE) followed suit.  The DLSE Manual states that employers may round employee hours to the nearest five minutes, or one tenth or quarter of an hour.  Rounding in this manner has been accepted because it would presumably average out and employees would be fully compensated.  While the DLSE Manual is not controlling legal authority, it is a useful guide that courts have relied upon in construing wage and hour law.  As a result, it was perhaps understandable that many California employers believed neutral rounding was lawful and acted in accordance with that belief.

Not surprisingly, the trial court’s decision in Silva sent shock waves through the business community.  What was believed to have been a lawful practice suddenly had the potential to become yet another costly wave of class action litigation in the wage and hour field – a dire prospect for employers.  Fortunately for employers, the Court of Appeal in Silva rejected the trial court’s analysis.

One word of caution for California employers: don’t assume that all rounding is necessarily lawful.  They key to the Silva decision is that lawfulness depends on whether rounding, over a period of time, is neutral.  If it skews in favor of the employer, watch out because it could have significant ramifications.  Employers with questions about rounding are well advised to seek legal counsel to review timekeeping policies and practices.