A federal appeals court has revived a class and collective action arguing that a Kansas City healthcare provider has been underpaying its workers due to its practice of time clock rounding.

At issue is whether St. Luke’s Health System violated the Fair Labor Standards Act (FLSA) through its timekeeping system.

Background

St. Luke’s Health System has 10 hospitals and healthcare facilities across the Kansas City metro area. Under the health system’s automated timekeeping system, employees who clock in or out of work within six minutes of their shift have their clocked time automatically adjusted up or down to their scheduled shift time.

For example, an employee who clocks in at 8:56 a.m. for a 9:00 a.m. shift would not be paid for those four minutes. Likewise, an employee who clocks out early at 4:54 p.m. for a shift ending at 5:00 p.m. would still be paid for those six minutes they didn’t work.

In April 2017, former employee Torri Houston sued St. Luke’s in a collective action, claiming the practice violated the FLSA by consistently undercompensating her for her time. She also brought an unjust enrichment claim under state law.

The case was initially dismissed by a federal district court on the basis that the company had a neutral rounding policy as permitted by the FLSA. On appeal, however, the 8th Circuit found that the evidence suggested that employees were being underpaid more than they were overpaid.

Experts for both the plaintiffs and the defendant analyzed lookback periods and came to similar conclusions, namely that about half of employees had time cut and a little over a third had time added. St. Luke workers lost just 38 seconds per shift, on average. But the court found that across all employees, on average, St. Luke’s benefitted from one free hour of labor per year per employee.

Representatives for the plaintiffs have estimated damages at $140,000 in lost overtime pay for a two-year collective period and about $2.2 million in lost earnings for the Missouri unjust enrichment class over a six-year period.

To round or not to round?

FLSA regulations allow employers to use a rounding policy provided it has a neutral outcome and “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.”

The 8th Circuit found that most employees fared worse under the rounding policy than they would have if they had been paid according to their exact time worked. Therefore, it says, a genuine dispute remains over whether the rounding policy was lawfully applied.

St. Luke’s argued that finding for the employees would upend decades of labor law and nullify the rounding regulation altogether, and that requiring periodic audits would make the rounding regulation too burdensome to be worthwhile.

Employers with rounding policies should verify that they are achieving a neutral average over time. Likewise, in the current era of digital time keeping, employers may also want to evaluate whether rounding policies continue to serve a reasonable purpose in their payment practices.