California and Oregon Courts Nix Time-Clock Rounding

By Clay Creps

For years, many employers have used the practice of time-clock rounding. This is a practice of rounding time entries by employees to the nearest five-minute, six-minute, or 15-minute interval. This practice is lawful under the federal Fair Labor Standards Act (FLSA) as long as it is applied neutrally and in a fashion which does not tend to underpay employees. Generally, this means employers need to both round up and round down.

For states that generally follow federal wage and hour laws in the absence of contrary state law, such as Oregon and California, employers might have reasonably concluded in the past that  the practice was also lawful under state law. After all, nothing in California or Oregon statutory or regulatory law prohibits time-clock rounding.

Two very recent decisions out of the California Court of Appeals and the U.S. District Court for the District of Oregon, however, have called time-clock rounding into question in these jurisdictions. The courts in Camp v. Home Depot and Eisele v. Home Depot both held that the practice is likely not lawful under state law in those states, particularly when there is a timekeeping system in place that permits employers to precisely track how much time employees work. State law requires an employee to be paid for all hours worked. Over time, for a large number of employees, the rounding practice may result in a situation where the amount paid is as large as or greater than what would be paid if each employee was paid precisely for the hours worked. On an individual basis, however, the practice can result in the underpayment of employees. The courts noted that when timekeeping systems do not permit employers to track precisely how much time employees actually work, the rounding practice may be lawful.

In Oregon, however, this issue is not completely settled. The Eisele decision was handed down by the U.S. District Court on November 29, 2022. More recently, the Oregon Supreme Court decided Buero v. Services, Inc., in which it held that for purposes of determining what activities are compensable to employees, Oregon follows federal law. Given the limited nature of the decision in Buero, and the specific reasoning of the Court in Eisele, we believe the most prudent course of action is to assume time clock rounding is not permissible under Oregon law.

In light of the potential for high liability and class action exposure for this issue, the safest option for employers in California and Oregon is to avoid time-clock rounding. While there has been no decision from Washington on the issue, it is highly probable a Washington court will follow California and Oregon in this regard, particularly when the Oregon court itself relied heavily on the California decision in reaching its conclusion.

This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions about the issues raised here, please contact any of the attorneys in our Labor & Employment Practice Group, or the attorney with whom you normally consult.

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