Clocking out Injustice: Eighth Circuit Rules Hospital's Timekeeping System Resulted in Systematic Under-compensation.

ABSTRACT: The U.S. Court of Appeals for the Eighth Circuit reversed summary judgment granted in favor of an employer that used an automated timekeeping system, finding that its rounding method resulted in the under-compensation of two-thirds of its employees. Although the court did not rule that all time-rounding was unlawful, it opened the door for plaintiffs to challenge facially neutral rounding policies under the Fair Labor Standards Act (FLSA).

In Houston v. Saint Luke’s Health Sys., Inc., the United States Court of Appeals for the Eighth Circuit reversed the United States District Court for the Western District of Missouri’s grant of summary judgment entered in favor of the employer, finding that its timekeeping system used a rounding method that resulted in under-compensation. Although the Eighth Circuit limited its ruling to the facts of the case, the Court called into question the generally accepted practice of rounding time.

A former employee and other similarly situated employees brought an action challenging Saint Luke’s timekeeping system, claiming that it violated overtime provisions of the FLSA and its regulations by failing to compensate employees for work performed. See 29 U.S.C. § 207(a)(1); 29 C.F.R. § 778.103.  The FLSA requires employers to pay overtime compensation to employees who work more than forty hours in a week, though longstanding regulations permits employers to “round” an employee’s time for ease of calculating “worked time.” 

The District Court granted summary judgment in favor of Saint Luke’s, concluding that the rounding policy was neutral as applied because: (1) the time lost per shift was insignificant; (2) the rounding policy both added and subtracted time during the period; and (3) on a per-shift basis, the rounding policy took time from about half of the shifts while it added to or left neutral the other half.  The Eighth Circuit reversed and remanded the case to the District Court, finding that the “court erred by concluding that the rounding policy was neutral as applied.”

The Eighth Circuit grounded its ruling in the parties’ stipulation that the employees engaged in compensable work at all times “on the clock.” In turn, the Eighth Circuit did not have to adjudicate the significant question of whether all rounded-off time was compensable time.  Instead, the only issue on appeal was the narrow question of whether the employees presented sufficient evidence to raise a genuine dispute that Saint Luke’s policy results in systematic under-compensation.

In confronting what it means for a rounding policy to “average[] out” such that employees are compensated properly, the Eighth Circuit relied on Tenth and Ninth Circuit opinions for guidance. Specifically, the Court examined Aguilar v. Mgmt. & Training Corp., 948 F.3d 1270, 1289 (10th Cir. 2020) (finding that if the policy “routinely rounds off . . . compensable overtime, as the officers’ evidence suggests, then the officers’ rounding theory remains viable”); and Corbin v. Time Warner Entm’t-Advance/Newhouse P’ship, 821 F.3d 1069, 1079 (9th Cir. 2016) (holding that a small “fluctuat[ion] from pay period to pay period” was not enough to raise a genuine dispute of material fact as to whether the employer’s rounding policy averaged out over time”).  In turn, the Eighth Circuit looked to the data before it, finding that “[n]o matter how one slices the data, most employees fared worse under the rounding policy than had they been paid according to their exact time worked.”

Thus, because Saint Luke’s failed to present evidence to the contrary, the Eighth Circuit concluded that the employees raised a genuine dispute that the rounding policy did not average out over time.  The Court reversed and remanded the case to the District Court to consider their ruling.

Implications