FLSA Rounding Practices Do Not Require Every Employee to Gain or Break Even on Wages

Employers may continue to follow the Fair Labor Standards Act (“FLSA”) regulation that permits rounding employees’ hours to the nearest quarter hour (the “Rounding Regulation”),[1] even where an individual employee fails to earn their entire compensation over a period of time due to a neutral rounding policy.  The Ninth Circuit became the first appellate court to address this issue in Corbin v. Time Warner Entertainment-Advance/NewHouse Partnership (“TWEAN”), and ruled that despite the employee demonstrating he lost hours due to the employer’s neutral rounding policy, the Rounding Regulation protected the employer from FLSA liability.[2]  This article analyzes the Rounding Regulation, the Ninth Circuit’s decision, and the practical implications for employers.

The FLSA Rounding Regulation and the Corbin Decision

Employers across several industries, and particularly where time clocks are used, calculate their employees’ hours using the “Rounding Method” pursuant to the FLSA’s Rounding Regulation, which is meant to provide a practical and efficient way for employers to calculate their employees’ wages.  The Rounding Regulation permits employers to round their employees’ hours to the nearest quarter hour, provided that the employer properly compensates all employees on average over a period of time for all the time they have actually worked.[3] 

In Corbin, TWEAN implemented a new policy in May 2010 to calculate their employees’ time by rounding their employees’ hours to the nearest quarter hour pursuant to the Rounding Regulation.  Between May 2010 and June 2011, Corbin lost $15.02 due to TWEAN’s rounding policy.[4]  After Corbin resigned in June 2011, he brought a claim against TWEAN arguing that TWEAN’s rounding policy violated the FLSA because the policy failed to properly compensate him for all the time he actually worked.[5]  The District Court granted TWEAN’s summary judgment motion, and Corbin appealed to the Ninth Circuit.[6]

On appeal, Corbin argued that the Rounding Regulation does not permit an employee to lose compensation, but may only permit an employee to break even or gain wages.[7]  The Ninth Circuit rejected Corbin’s argument noting first that Corbin’s interpretation reads into the FLSA Rounding Regulation an individual requirement, despite the Rounding Regulation explicitly stating that the averaging-out of rounding time up or down applies to all “employees.”[8]  The Ninth Circuit further found that Corbin’s interpretation would require employers to determine the exact amount of hours each employee worked to ensure the employee broke even or gained wages, which is precisely what the Rounding Regulation serves to avoid.[9]  According to the Ninth Circuit, the key to the Rounding Regulation is that the employer’s policy be neutral and permit both rounding up and rounding down.[10]  The court found that TWEAN’s rounding policy was neutral because it: (1) both rounded up and down; (2) was mechanical and walled off from supervisory editing; and (3) on average and over time would properly compensate all their employees.[11]  Accordingly, the Ninth Circuit affirmed the lower court’s grant of summary judgment in favor of TWEAN.[12]

Employer Takeaways

Employers may continue to round their employees’ time pursuant to the FLSA Rounding Regulation, but must ensure that their policy permits both upward and downward rounding.  Employers should also consider having all time punches controlled by one system that is walled off from supervisory editing to ensure neutrality.  Further, employers should consider conducting random audits to ensure that their rounding policy is operating in a neutral fashion and the company is, on average and over a period of time, properly compensating all employees. 

 

[1] 29 C.F.R. § 785.48(b).  The Rounding Regulation also permits employers to round to the nearest five minutes or one-tenth of an hour.

[2] Corbin v. Time Warner Entertainment-Advance/NewHouse P’ship, 2016 WL 1730403 (9th Cir. May 2, 2016).  While the Ninth Circuit is the first appellate court to rule on the Rounding Regulation, numerous district courts throughout the country have frequently upheld neutral rounding practices.  See Lisa Nagele-Piazza, Time Warner Defeats Call Center Wage Claims, Bloomberg BNA Daily Labor Report (May 2, 2016).

[3] 29 C.F.R. § 785.48(b).

[4] Interestingly, the $15.02 loss does not seem to be significant, but Corbin brought the case as a proposed class and collective action.  See Nagele-Piazze, supra note 2.

[5] Corbin, 2016 WL 1730403, at *1-2. 

[6] Id.

[7] Id. at 4-5. 

[8] Id. at 4.

[9] Id. at 5.

[10] Id. at 6.

[11] Id.

[12] Id. at 12.

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