Unaccounted time: Reading the tea leaves of Troester

With any California Supreme Court decisions of widespread reach, the question is not what it holds with respect to the case before it, but what it portends beyond the confines of the case from whence it arose. Case in point, the recent decision of Troester v. Starbucks Corp., 5 Cal. 5th 829 (2018), as mod., reh. den. (Aug. 29, 2018), in which the Supreme Court held that California employers cannot use the federal Fair Labor Standards Act's de minimis doctrine as a defense against claims for unpaid wages arising under California law. Without doubt, that holding is significant in and of itself, given that it upends the Department of Labor Standards Enforcement's guidance on the issue and effectively overturns a number of federal court decisions that assumed, with little but the DLSE's guidance, that the de minimis doctrine applied to claims asserting violation of California's wage and hour laws. But the true impact of Troester may not be fully known for years to come. Thus, whether employers should fear that the sky is falling -- one recent column soothing that they should not -- turns entirely on the full reach of Troester. The signs suggest that this is no Chicken Little moment.

Rounding: An Example of What Troester Portends

While it is difficult to predict all possible applications of Troester (particularly where the court expressly left some questions surrounding California's own de minimis doctrine unanswered), the court's discussion suggests at least one area where Troester's impact may soon be felt: rounding. In Troester, the court took note of the parties' disparate interpretations of See's Candy Shops, Inc. v. Superior Court, 210 Cal. App. 4th 889 (2012), a decision which addressed the theoretical legality of the rounding of employee time punch entries. As did to Troester with respect to the federal de minimis doctrine, See's Candy addressed rounding as a matter of first impression in California state courts. After observing that the See's Candy court found nothing that expressly prohibits rounding under California law, Troester identified the essential aspect of See's Candy stating that See's Candy accepted "the validity of the rounding policy only 'if the rounding policy is fair and neutral on its face and "it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked."'" Applying that construction of See's Candy to reject an argument advanced by Starbucks, Troester said, "See's Candy rested its holding on its determination that the rounding policy was consistent with the core statutory and regulatory purpose that employees be paid for all time worked." What, then, does Troester's circumscribed view of See's Candy presage for rounding practices? It predicts the demise of many such systems.

Prior to Troester, See's Candy has not been uniformly applied with an eye towards protecting the core statutory and regulatory purpose that employees be paid for all time worked. For example, some courts have construed See's Candy as holding that "where evidence shows that a rounding policy is neutral in the aggregate, it is lawful." See, e.g., Lemus v. Denny's Inc., No. 10CV2061-CAB (WVG) (S.D. Cal. July 31, 2015), citing See's Candy. But Troester casts significant doubt on the practice of aggregate rounding, a term that refers to a rounding policy that underpays one group of employees and overpays another is roughly equal measure. An employer that robs Peter to pay Paul with rounding would, under Troester, be obligated to explain why the employer required any "employee to bear the entire burden of any difficulty in recording regularly occurring work time." By emphasizing the policy that an employer cannot evade the obligation to pay every employee for all time worked, Troester appears to reject rounding systems that are evaluated as neutral in the aggregate but underpay some when judged on an employee-by-employee basis. For many employers where rounding has been implemented for on-site workers using digital timekeeping systems, Troester is not the acorn; it really is the sky.

More than 50 years ago, the United States Department of Labor adopted a regulation pursuant to the FLSA, permitting the use of traditional rounding practices. The regulation in relevant part states that in "some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees' starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour ... For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked." 29 C.F.R. Section 785.48(b) (2011). Given that no California statute, regulation, or court decision specifically permitted or prohibited rounding practices when See's Candy was decided, that court adopted the federal regulatory standard, thereby importing the aggregate rounding concept that comes with the federal standard. The analysis of the de minimis doctrine in Troester naturally limits See's Candy.

Troester emphasized employers' obligations to accurately record all compensable time and pay employees for it, using the decision in See's Candy to underscore where California courts have been and, more importantly, where they are headed when the issue involved is the full compensation of employees. One of the reasons, apparently, behind Troester's focus on See's Candy is that See's Candy exemplifies at least one answer to the all-encompassing question that employers wanted Troester to provide: how could employers possibly record all compensable time? The rounding practice was suggested by Troester as but one method to overcome employer-side challenges in capturing all compensable time and a rejection of the excuse that some regular work time is so minute that employers cannot reasonably be expected to record and pay for it. The discussion in Troester suggests the resolution -- just round up.

After Troester, it should be clear that California law means what it says when mandating that all hours worked must be fully compensated. It is the nature of the analysis supplied by Troester, however, that suggests more is yet to be said about the implications of this principle and how far-reaching Troester may ultimately prove to be.