Delaware Employment Law Blog

In Pitts v. Terrible Herbst, Inc., the 9th Circuit held that an offer of judgment made by an employer to an employee-plaintiff in an FLSA case will not moot the case where the Court has not yet ruled on certification. As a practical matter, what this ruling meant was that the plaintiff—who alleged that he was owed less than $100—could continue to litigate his collective-action claim, despite having rejected an offer of judgment in the amount of $9,000. In other words, employers who are sued for unpaid wages can do nothing to prevent being targeted by a class-action lawsuit.

The 9th Circuit’s decision in Terrible was a terrible one for employers. And, making it worse, the 3d Circuit is on the side of Terrible.

Background

In Symczyk v. Genesis Healthcare Corp., the defendant-employer made an offer of judgment in the full amount of the plaintiff’s claim plus reasonable attorney’s fees. Because the offer provided for all of the relief that the plaintiff could have received had she pursued the claim through trial, the offer constituted “full relief” of her claims. The employee did not accept the offer.

Ten days after the offer expired, the court held a scheduling conference. The offer was not addressed and the court provided for a 90-day period for discovery, after which the plaintiff could move for conditional certification of a class of putative plaintiffs. Thereafter, the employer moved to dismiss the lawsuit on the ground that the court lacked subject matter jurisdiction because the offer of judgment for full relief had mooted the plaintiff’s claim. In other words—there was nothing more that she could have recovered and, therefore, she no longer had a “legally cognizable interest in the outcome.”

Analysis

Standard of Law for Conditional Certification

Before addressing the mootness issue, the court first discusses the plaintiff’s burden at the conditional-certification stage. The court notes that there has been a split among district courts in the 3d Circuit, with some courts requiring the plaintiff’s pleadings to contain “substantial allegations,” with others requiring the plaintiff to make a “modest factual showing.” By no means is either test a difficult one to satisfy and, in all reality, the motion is likely to be granted. Nevertheless, the court did adopt the higher-burden test, which requires, the court explained, the plaintiff to produce some evidence “beyond pure speculation” of a factual nexus b/w how the employer’s policy affected her and how it affected other employees.

The Effect of an Offer of Full Relief on FLSA Collective Action

The court then turned to the main issue—whether an offer of full relief made pursuant to Rule 68 of the Federal Rules of Civil Procedure moots the claim of an FLSA plaintiff who has not yet moved for conditional certification. Like the 9th Circuit, the Third Circuit held that the answer is “no.”

The court acknowledged that an offer of complete relief will generally moot the plaintiff’s claim. But the court then went on to offer several policy-based reasons why this “general” rule limiting the jurisdiction of the federal courts should not be applied in the context of an FLSA collective action.

The court opined that, although Rule 68 was designed “to encourage settlement and avoid litigation,” the Rule can be manipulated in the class-action context to “frustrate rather than to serve those salutatory ends.” The court then states that, if the “general” rule were applied, the defendant would be able to “pick off” the claims of the named plaintiff and avoid certification of the class. This, in turn, would require “multiple plaintiffs to bring separate actions, which effectively could be picked off.” This application of the rule “obviously would frustrate the objective of class actions and waste judicial resources.”

Continue reading for my take on why this decision is so terrible for employers . . .

Can a prospective employer be held liable under the retaliation provision of the FLSA? Not according to the Fourth Circuit and its decision in Dellinger v. Science Applications International Corp..

The case arose when Ms. Dellinger applied for work with Science Applications. Science Applications made Ms. Dellinger a job offer, contingent upon her providing certain information—including a list of pending civil litigation in which she was a party. Shortly after revealing that she was involved in FLSA litigation against her former employer, Science Applications withdrew the job offer to Ms. Dellinger. Ms. Dellinger then filed suit against Science Applications, alleging that it violated the retaliation provisions of the FLSA. Science Applications moved to dismiss the suit on the grounds that the FLSA protects employees only, not prospective employees. The District Court dismissed the suit, and Ms. Dellinger appealed.

The Fourth Circuit affirmed the District Court decision. In its opinion, the Court emphasized that the FLSA’s anti-retaliation provision relates to circumstances in which an employee alleges a violation by the employer. Given that context, the Court found that the retaliation provision cannot be expanded to cover prospective employees who have made no allegation against the prospective employer.

The Court also distinguished the FLSA from other statutes, including the National Labor Relations Act and the Occupational Safety and Health Act, noting the definition of “employee” under those statutes and enabling regulations is broader than the definition under the FLSA.

The legal maxim, “bad cases make bad law” was applied in full in a recent decision by the Ninth Circuit. In Pitts v. Terrible Herbst, Inc., the plaintiff-employee, Gareth Pitts, filed a complaint in Nevada state court, alleging that his employer, Terrible Herbst, Inc., had failed to pay him and other similarly situated employees overtime and minimum wages in violation of the FLSA, state labor laws, and state breach-of-contract laws. The employee alleged a mere $88 in unpaid wages.

Procedural Background

The employer removed the case to federal court and the district court entered a scheduling order. The employee served a discovery request in which he sought a list of the names and addresses of all of Terrible’s employees “who work or have worked in [its] retail locations . . . on an hourly . . . basis.” Terrible refused to produce the information. The case law on this question—whether, in a collective FLSA action, an employer must produce the names and contact information of all employees in the putative class before a class has been certified—differs between jurisdictions. Some courts require that this information be produced, even when no class has been certified and others do not require it until there has been at least a conditionally certified class.

The employee filed a motion to compel Terrible to produce the requested information. The magistrate judge heard arguments on the motion but hadn’t yet ruled on it when the discovery period was scheduled to end. The employee moved to extend the discovery schedule, in light of the pending motion to compel. The motion to extend was granted and the motion to compel remained undecided.

In the meantime, Terrible made an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure in the amount of $900. Keep in mind—the employee had alleged he was owed $88 in back wages. The offer of judgment was for more than ten times the amount of damages the employee claimed he was owed. The offer also provided for costs and reasonable attorney’s fees—both are necessary if the offer is to constitute an offer of full relief under the Federal Rules in an FLSA case. The employee, for reasons unexplained, did not accept the offer.

The District Court’s Decision

The employer filed a motion to dismiss, arguing that, because it had offered to fully compensate the employee for all damages that he sought, including reasonable fees and costs, the court lacked subject-matter jurisdiction to hear the case. In other words, there was no longer a live case or controversy that required a decision by the court—the employee’s refusal of the offer of judgment had rendered his claim moot. The district court denied the motion and held that a Rule 68 offer of judgment does not moot a putative class action, so long as the class representatives can still file a timely motion for class certification.

Nevertheless, the court went on to conclude that, despite there being no deadline for the employee to file a motion for class certification, the employee had “pushed beyond the limits of timeliness in waiting for certification” and that the employee’s “failure to move for class certification before the initial deadline for discovery demonstrates untimeliness on his part” and dismissed the entire action with prejudice for lack of subject-matter jurisdiction, entered judgment in the defendant’s favor, ordered the employer to pay $900 to the employee and $3,500 to the employee’s attorneys.

Huh? If you’re confused, you’re in good company. But wait, there’s more.

In the same order, the court dismissed the state-law wage claim on alternative grounds. The court concluded that a Rule 23 class action is inherently incompatible with an FLSA collective action and, when both actions are brought together, only the FLSA action may proceed. This conclusion was reached despite the fact that the employee had previously agreed to waive his FLSA claim, although he had not yet amended his complaint to reflect that waiver.

The 9th Circuit's Decision

On appeal, the Court of Appeals for the Ninth Circuit had a fine time trying to straighten out the district court’s ruling. Unfortunately, the appellate court fared only mildly better than the trial court in ruling on the several issues raised on appeal. For the purposes of this post, though, I’ll limit the discussion to the mootness issue.

Specifically, the court was asked whether a putative class action becomes moot when the named plaintiff receives an offer of settlement that fully satisfies his individual claim before he files a motion for class certification. The court answered in three parts as follows:

(1) If a class has been certified, then the offer does not moot the claim;

(2) If class certification had been denied, then mooting the putative class representative’s claim does not necessarily moot the class action because he still has an interest in obtaining a final decision on certification; and

(3) If certification has not yet been addressed, then mooting the putative class representative’s claims does not necessarily moot the class action because it could be “so transitory a claim that the court may not have enough time to rule before the representative’s interest expires.”

In other words, the employer is, for all intents and purposes, totally out of luck. Despite having tendered an offer of judgment in an amount more than ten times the amount the employee alleged he was owed, it is going to be stuck in litigation of a collective action. There is, in other words, no way to remedy the employee’s harm and resolve the case.

Pitts v. Terrible Herbst, Inc., No. 10-15965 (9th Cir. Aug. 9, 2011).

The FLSA continues to strike fear in the hearts of many employers. And for good reason. The law is difficult to understand and not always easy to apply. Moreover, the penalties for failure to comply are steep and litigation of an FLSA claim--particularly one brought as a class (collective) action--is costly.

The U.S. Supreme Court's recent opinion in Kasten v. Saint-Gobain Performance Plastics Corporation gives employers yet another reason to worry about the FLSA. In Kasten, the Supreme Court ruled that an employee who complains to his employer about unpaid wages has engaged in "protected activity" under the FLSA. If the employee is subject to some adverse action (i.e., termination), in retaliation for his complaint (protected activity), the employer can be held liable. The critical holding in Kasten is the Court's finding that, to qualify as a protected activity, the complaint need not be written; oral complaints are covered under the anti-relation provision of the FLSA.

The U.S. District Court for the Middle District of Florida (Tampa), is one of the first courts to apply the Kasten decision and may be the very first to decide a retaliation claim in the context of social media. In Morse v. JP Morgan Chase & Co., the plaintiff, Lilli Morse, alleged that her former employer failed to pay her overtime wages. She also alleged that she was terminated in violation of the FLSA's anti-retaliation provision when she complained on her Facebook page.

The employer moved to dismiss both counts. The court ruled that the plaintiff had pleaded sufficient facts on her unpaid-overtime claim but dismissed the retaliation claim. The question before the court on the motion to dismiss was:

Whether a posting on an employee's Facebook page constitutes the filing of a complaint within the meaning of the FLSA.

Morse does not allege that she made anything close to a serious complaint to her employer. In fact, she never complained to her employer at all. She simply voiced her disagreement with her employer's payment practices on her Facebook page. This "letting off steam" falls far short of the activity protected by [the FLSA's anti-retaliation provision].

Morse v. JP Morgan Chase & Co., No. 8:11-CV-779-T-27EAJ (M.D. Fla. June 23, 2011).

Exempt or nonexempt? That can be a tough question.  With wage-and-hour litigation on the rise, wise employers are aware that the classification question is an important one, as well.  The U.S. Department of Labor's Wage and Hour Division (WHD), has announced a proposed rule that, if adopted, would have significant impact on the process employed by companies in determining whether or not an employee should be classified as exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act.

The proposed rule would require employers to conduct a written classification analysis for each exempt employee.  This analysis would have to be provided to the employee and a copy retained on file to be provided to the WHD in the event of an investigation.  The same records would need to prepared and retained for any individual the employee classifies as an independent contractor--as opposed to an employee.

This proposed revision to the recordkeeping requirements of the FLSA is consistent with the DOL's initiative to target employers who misclassify workers. It also seems to be indicative of a continued interest in initiatives that involve giving notice to employees of their various workplace rights.  See You've Got Rights: NLRB's Proposed Notice to Employees.

Reversing a long-held position, the IRS announced yesterday that breast pumps and other lactation supplies are now deductible.  Employees can now use pre-tax funds from their flexible spending accounts and health savings accounts for these supplies. The ruling is effective immediately and can be used on 2010 returns.

In conjunction with the FLSA amendment, which was went into effect in March of 2010, this ruling signals that policymakers are finally coming to appreciate the health benefits of breastmilk for newborns, that medical professionals have long touted.

Breast pumps and related supplies can run as high as $1,000 in the baby’s first year. The fact that employers are now required to accommodate lactation breaks of reasonable length, combined with the change in IRS policy is likely to have a measurable effect on the number of mothers returning to work who opt for the benefits of breastmilk.

See also:

Court Ruling on Breastfeeding at Work Brings a Downpour of Criticism

New Guidance on Law Requiring Breaks for Nursing Mothers

The U.S. Supreme Court opened its new term earlier this week.  For the first time, three of the justices are women, creating an historic moment for the Court.  Employers anticipate several important decisions coming from the cases being heard this term, as well.  In this first part in a series, we'll post about three of the most interesting employment-law cases scheduled for oral argument this Fall.

Next week, the Court is scheduled to hear argument in Kasten v. Saint-Gobain Performance Plastics Corp. Kasten sued his employer, alleging a retaliation claim under the Fair Labor Standards Act (FLSA). Kasten’s employer had issued Kasten several disciplinary warnings because of his failure to properly clock-in and out of the company’s timekeeping system. Kasten claimed he made verbal complaints to his supervisors about the legality of the location of the timekeeping clock. Kasten claimed that the clock’s location prevented employees from being paid for donning and doffing their required protective gear. Kasten was eventually terminated for failing to follow the company’s policy with respect to clocking in and out. Kasten sued his employer for retaliation under the FLSA, alleging that he was terminated in retaliation for his verbal complaints.

The trial court granted summary judgment in favor of the employer, finding that intra-company complaints are protected activities under the FLSA, but unwritten complaints, like Kasten’s verbal complaints to his supervisors, are not included in the act as a protected activity.

Although there is a split among the circuits on this issue, the Seventh Circuit affirmed the trial court’s decision. The Seventh Circuit held that while the FLSA’s anti-retaliation provision includes internal complaints as a protected activity, “to file” such a complaint means to file written complaint, not to merely submit a verbal complaint to one’s supervisor.

Kasten appealed the Seventh Circuit’s opinion after seeking rehearing, which was denied with a dissenting opinion. Oral argument on the question of whether an oral complaint is protected conduct under the FLSA’s anti-retaliation provision is scheduled for October 13, 2010.

The Delaware Wage Payment and Collection Act ("DWPCA"), is the state equivalent of the federal Fair Labor Standards Act ("FLSA"). Both the Delaware statute and the FLSA provide for individual liability for unpaid wages. In other words, an individual can be sued personally if he knowingly permitted a violation of the wage statute.  19 Del. C. Sec. 1101(b) states:

The officers of a corporation and any agents having the management thereof who knowingly permit the corporation to violate this chapter shall be deemed to be the employers of the employees of the corporation.

The Delaware Court of Common Pleas was recently asked to interpret the definition of "employer," for the purposes of individual liability, leading to an interesting and potentially important result. 

In Chasnov v. Brady, No. CPU4-09-8966 (Del. CCP Mar. 23, 2010), the Delaware Department of Labor sued two lawyers on behalf of their former law partner, Chasnov.  Chasnov was ordered to step down as a member of their law firm by the Office of Disciplinary Counsel but he continued to practice with the firm.  He alleged that he was not paid the full amount of fees he was owed.

The Department of Labor brought the suit on Chasanov's behalf to recover the fees he claimed were due. The suit was brought only against the two partners--not against the law firm--based on the provision of the statute cited above.

The partner-defendants moved to dismiss the suit on the ground that the Wage Payment Act does not impose individual liability on members and managers of an LLC.  Instead, they argued, the Wage Payment Act creates liability only for officers and agents of a corporation who knowingly permit the corporation to violate the Act. An LLC is not the same as a corporation and, therefore, members and managers of an LLC cannot be held individually liable for unpaid wages under state law.

The Court agreed with the defendants' argument, finding that the members and managers of a Limited Liability cannot be held personally liable under the state Wage Payment Act.

This is an important decision for employers in Delaware--especially those who operate an entity other than a corporation.  The decision supports a very narrow interpretation of who can be an "employer" for the purposes of individual liability under the Delaware Wage Payment Collection Act--a definition more narrow than the definition of "employer" under the federal Fair Labor Standards Act.

Employers are affected by the health-care legislation, also known as the Patient Protection And Affordable Care Act, in numerous ways. One of the lesser-known parts of the Act is Section 4207, which amends the Fair Labor Standards Act (FLSA).  Section 4207, also called Reasonable Breaks for Nursing Mothers, requires employers to provide nursing mothers reasonable breaks to express breast milk and a separate room where they can take the break for up to the first year after the child’s birth. (See FLSA Now Requires Breastfeeding Breaks and a Place to Take Them). 

The law took effect in March but employers have been without any guidance on what the law requires.  Until now, that is.  The Department of Labor has issued an official fact sheet providing some guidance on the specific requirements under the law.  Fact Sheet #73 offers the following guidance:

Who Is Eligible for Breaks

Only non-exempt employees are affected by the law.

Frequency and Duration of Breaks

Breaks must be provided “as frequently as needed by the nursing mother.”  The frequency of breaks and the length of each break “will likely vary.”

Location of Breaks

The Fact Sheet makes clear that a bathroom, even if private, is not considered a suitable location for nursing mothers to express milk.  The Fact Sheet states that, “[i]f the space is not dedicated to the nursing mother’s use, it must be available when needed in order to meet the statutory requirement.  A space temporarily created or converted into a space for expressing milk or made available when needed by the nursing mother is sufficient provided that the space is shielded from view, and free from any intrusion from co-workers and the public.”

Exceptions to the Rule

Employers with less than 50 employees are not subject to the rule if it would impose an undue hardship. “Hardship” is relative, compared to the employer’s size and financial resources.

Click here to read the entire Fact Sheet #73 (PDF)

The Patient Protection and Affordable Care Act signed last week by President Obama will affect employers in numerous ways, many of which have not yet been explored in detail, owing to the newness of the law.  One provision of the law that is certain to have a very real impact on employers across the country but that we have heard virtually nothing about is Section 4207.  Section 4207, titled, Reasonable Break Time for Nursing Mothers amends the Fair Labor Standards Act (“FLSA”).  Because it is born to the FLSA, its provisions apply to almost all employers—every employer engaged in interstate commerce of at least $500,000 per year, hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies. 

So, what does the new law require?  Quite a bit. The Act adds the following to Section 7 of the FLSA as a new subsection (r):

An employer shall provide:

(A) a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth; and
(B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.

There are some exceptions to these requirements.

First, employers are not required to pay employees who take a breastfeeding break—unless, of course, there is a state law that says otherwise.  Second, an employer with less than 50 employees is exempt from the requirements if the requirements would “impose an undue hardship” by causing it “significant difficulty or expense” as compared to the employer’s size, resources, and the structure of its business. 

Wage-and-hour lawsuits filed under the Fair Labor Standards Act (FLSA), are the hottest thing going for plaintiffs’ lawyers. And a worst-case scenario for an employer named as a defendant. FLSA cases can be very difficult to defend; the law imposes what is almost strict liability under most circumstances. So, when a court issues a decision in favor of an employer, it is worthy of notice. And when the U.S. Supreme Court grants certiorari of such a decision, it’s definitely worthy of notice.

In Kasten v. Saint-Gobain Performance Plastics Corp., a Wisconsin factory worker filed suit alleging that he was unlawfully terminated in retaliation of his FLSA-protected activity (i.e., an FLSA-retaliation claim). The protected activity, he alleged, was his oral complaint about the placement of time clocks. Specifically, he alleged that he complained that employees were not being properly compensated for “donning and doffing time” because of the location of the time clocks.

The employer argued that the oral complaint was not sufficient—that only written complaints were protected by the FLSA. The trial court disagreed, finding that oral complaints were protected but the Seventh Circuit reversed and held that only a written complaint could trigger the protections of the FLSA. (Kasten v. Saint-Gobain Perform. Plastics Corp., No. 08-2820 (7th Cir. Oct. 15, 2009)) (pdf)

The law prohibits employers from retaliating against an employee “who has filed any complaint” against the employer. The Seventh Circuit concluded that an oral complaint cannot be “filed.” The conclusion seems perfectly logical, based on the plain language of the statute.

But, on the other hand, other employment laws do extend retaliation protection to oral complaints. For example, under Title VII, an employee is protected from unlawful retaliation for making an oral complaint about discrimination or harassment in the workplace.

The Supreme Court’s decision could redirect the course of FLSA litigation, either expanding the types of suits commonly brought to include retaliation claims—or by preventing retaliation claims from becoming the next-big-thing in employment-law litigation.

Scott Holt, Adria Martinelli, and I will be sure to cover this development in our panel discussion, Wage and Hour Update, at the Annual Employment Law Seminar on April 28, 2010. We hope to see you there!

Furloughs and other layoff alternatives have gotten quit a bit of press lately, largely because of the economy. Employers often want to know what the legal implications of these programs are before implementing them. The U.S. Department of Labor (DOL), Wage and Hour Division has issued a new FAQ addressing these questions.  (FAQ re: Furloughs and Other Reductions-in-Pay and Hours-Worked Issues). It's a good reference guide, which you should review if your organization is considering a flexible-downsizing initiative. 

Here are two of the questions addressed that I see most frequently with clients:

Is it legal for an employer to reduce the wages or number of hours of an hourly employee?

In short, the answer is "yes."  But Delaware employers should remember that employees must be notified of any change in pay in writing.  And a reduction in the predetermined salary for an exempt employee may result in the loss of exempt status, so employers should treat that idea separately.

Can a salaried exempt employee volunteer to take time off due to lack of work?

The question of paying exempt employees for time off is one of the most difficult in the wage-and-hour realm.  If the time off is (1) totally voluntary; (2) for a full day; and (3) is taken for personal reasons, other than sickness or disability, salary deductions may be made for the missed work.  Here, the key is that the choice must be truly voluntary.

Click here for other posts on the Fair Labor Standards Act

An appellate court has overturned a jury verdict awarded to a class of Starbucks baristas in a tip-pooling case  last year.  The wage-and-hour claim had alleged that the baristas were made to wrongfully share their tips with a shift supervisor.  The trial court had determined that California state law prohibited the supervisors from sharing the shift's tips, despite the fact that the supervisors performed normal Barista duties in addition to their supervisory duties. 

The Court of Appeal found this determination to be in error, explaining:

The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. . . . There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.

This decision is limited to California wage-and-hour law but has positive implications for all employers--especially those in the hospitality industry, who are most often the target of tip-pooling lawsuits.

Read the full court decision:  Chau v. Starbucks.  Or see these blogs for additional summaries:  Overtime Advisor; California Labor & Employment Law Blog; Shaw Valenza, LLP; San Francisco Employment Law Firm Blog.

Wage-and-hour lawsuits may be the worst feared by many employers, and for good reason. If successful, an employee who brings a wage claim is entitled to double damages and an award of   his attorney’s fees and costs. A claim for $1,000 of unpaid overtime could translate to $2,000 in damages and, if an attorney was involved, several times that amount for fees and costs.

Over the past few years, there has been an explosion of wage-and-hour class actions, as well. Financial powerhouses such as Smith Barney were hit with damages in the tens of millions for collective claims brought by employees who had been improperly classified as exempt and were due unpaid overtime.

Even well-intended employers aren’t necessarily safe from suit. In many industries, standard wage practices are unlawful but, because it’s been the way of business for so long, many employers may not know of the error until it’s too late. And employers who do audit their wage-payment practices may be more confused than ever after trying to make sense of the very complicated Fair Labor Standards Act (FLSA). (Review the FLSA courses from our HR Summer School to see just how well you know the ins and outs of this complex statute.)

It doesn’t look like this grim picture will be improving any time soon. A report from the Government Accountability Office (GAO), released this week, claims that the Department of Labor (DOL), is failing miserably with its enforcement duties. The DOL’s Wage & Hour Division (WHD), is charged with enforcing minimum wage, overtime, child labor, and other similar laws. Employees who believe they’ve not been properly compensated can file a claim with the WHD, which will investigate it on the employee’s behalf. If the WHD determines that the employee’s claim is valid, it has authority to seek resolution for the employee or to refer the case for suit.

The GAO’s report states that the WHD is miserably understaffed, which has resulted in investigations that drag out for months. Other claims are simply dropped when the investigator is unable to reach the employer.

Under the Fair Labor Standards Act (FLSA), nonexempt employees must be paid for every minute worked. It is the duty of the employer to maintain records of time worked by its employees.  To accomplish this, many employers have an electronic time clock, which employees use to "punch in" and "punch out" at their starting and ending times.  Neither the FLSA nor the Delaware Wage Payment and Collection Act ("DWPCA"), require employers to use time clocks  but there is a great number of reasons to do so. 

One question that often arises from employers who use time-clock systems is how to handle "rounding time worked"?  If an employee must be paid for all time worked and he clocks in at 8:01 a.m., must the employer's payroll system generate a payment for 1 hour and 1 minute?  If not, does the employer have to pay the employee for 1 hour and 15 minutes if its payroll system is set up to pay in 15-minute increments?

The FLSA explicitly permits "rounding" of an employee's starting and stopping times.  In fact, the Department of Labor has promulgated a regulation that deals directly with this question.  According to 29 C.F.R. Sec. 785.48(b):

It has been found that in some industries, particularly where timeclocks are used, there has been the practice for many years of recording the employee's starting time and stopping time to the nearest five minutes, or to the nearest one-tenth or quarter of an hour.  Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work.

As an example, assume that the employer pays in 15-minute increments and has an established practice of rounding working time in this amount.  This method is acceptable, provided that the rounding must not always benefit the employer--the rounding method must "average out."  To ensure that you are "averaging out" the employee's working time when using a rounding method to calculate time worked, you have three options:

1.  Always round up to favor the employee.  (This works just fine for some employers due the easy calculations and certainty of compliance).

2.  Round up to favor the employee at starting time and round down to favor the employer at ending time. (A little complicated for many payroll systems but workable for others).

3.  Round up and down based on the increment.  For example, if the employee reports to work at 8:08 a.m, he would be paid for time worked beginning at 8:15 a.m.  If he clocked in at 9:07 a.m., he would have to be paid for time worked beginning at 9 a.m.  

Over time, the presumption is, this system would even out in a way that is fair to both employer and employee. 

See our previous posts on the wage and hour requirements of the Fair Labor Standards Act.