In the Broadway musical Pajama Game, based on the 1953 novel 7½ Cents by Richard Bissell, employees at the aptly named Sleep-Tite Pajama Factory want a pay increase of 7½ cents per hour.

(Like I said, the novel was written in 1953.)

Toward the end of the second act of the musical, Plant Superintendent Sid Sorokin, who is in love with feisty Union Steward “Babe” Williams, leads the raucous workers in the title song of the show. (By that time in the story, Sid has learned that the company President is a miserly cheat.)

The lyrics go like this:

I figured it out
I figured it out
With a pencil and a pad I figured it out!
Seven and a half cents doesn't buy a hell of a lot,
Seven and a half cents doesn't mean a thing!
But give it to me every hour,
Forty hours every week,
And that's enough for me to be living like a king!

Pennies can add up quickly

Today, many small to medium-sized employers generate payrolls that exceed 100,000 hours a year. Larger companies generate annual payrolls with millions of work hours.

When adjusted for inflation, the 7½ cents coveted by the Sleep-Tite employees would be closer to 80 cents an hour today. Multiply that by a couple of million hours, and you’re talking serious money.

The perils of time rounding

We recently described how the failure to properly calculate an employee’s regular rate of pay for overtime compensation was low-hanging fruit for any plaintiff-side class or collective action litigator. No muss, no fuss, and most likely a straight shot to certification.

Regular rate mistakes are not the only low-hanging fruit for class action litigators. Although a little higher up on the tree, and a bit harder to pick, time rounding is a practice that can lead to class certification and substantial exposure.

A tale of two cases

Submitted for your consideration are two court decisions, decided less than a year apart, and involving the same practice of rounding time entries up or down to the nearest quarter hour. The legal principles applicable to both decisions were identical, but their outcomes (so far) were very different.

Rounding practices are permitted under the federal Fair Labor Standards Act, provided they are (1) facially neutral (that is, they provide for rounding up or down in equal increments), and (2) neutral in actual practice  (that is, on average and over time the rounding favors neither overpayment nor underpayment and does not result in systemic under-compensation of employees based on actual time worked).

In Van Bebber v. Dignity Health, federal district court in California found that the employer's rounding policy was facially neutral, but that a jury would have to decide whether it was neutral in application.

The neutrality-as-applied problems were created by an expert report based on a sample of approximately 10 percent of the workforce. The study indicated that the workers in the sample had been under-compensated by about 3,000 hours as a result of the company’s time rounding practices. As the judge saw it, if the sampling numbers were accurate, the entire class could have been undercompensated by tens of thousands of hours. No summary judgment for the employer, and the case continues to rock along.

On the other hand, in Adams v. Bloomberg, L.P., a federal district court in New York found that the employer’s former rounding policy was facially neutral and neutral as applied.

On the neutral-as-applied issue, the plaintiff had relied on a small sampling of her own time records, and those of a handful of other employees, to show “systemic underpayments.” There was no expert report from which to extrapolate impact on the entire class. Because the plaintiff’s evidence established that she had been undercompensated by only a few hours over the course of more than two years, the court concluded that she failed to present evidence of systemic underpayment.

However, the court left open the door for others to pursue rounding-related claims, since their claims may have independent merit. It is not clear whether the employer is truly out of the woods.

Rounding time. Is it needed? Is it worth it?

Both of these employers, like most employers today, have used timekeeping systems that record employee time punches to the minute. Nonetheless, both took the extra step of converting or rounding those punches up or down when calculating pay. Why?

What efficiencies are gained by taking exact data and rounding it to something else? On the other hand, what inefficiencies or exposures may be created by the overlap of rounding with policies on grace periods, tardiness, unauthorized overtime, and working only while punched in? Remember, if the purpose of your time rounding system is to reduce labor costs, and it does, then it is almost surely illegal.

Considering their outcomes, I do not often quote California state court decisions. But this quote from Camp v. Home Depot (a case brought under California wage and hour law) makes sense: “[I]f an employer…can capture and has captured the exact amount of time an employee has worked during a shift, the employer must pay the employee for all the time worked.” (This quote is on page 23 of the decision at the link.)

Rounding is permitted under federal law, but its days may be numbered in California and other states. Regardless, is the practice of converting exact time punches into something other than what they are worth the potential aggravation, cost, and exposure of a class or collective action?

If the answer is “yes,” then you probably should assess whether the practice has resulted in systemic underpayment of employees’ wages. If it has, someone eventually will take “a pencil and a pad and figure it out.”

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