Yesterday, the California Supreme Court issued an important decision for employers that rejects the application of the federal de minimis defense to unpaid wage claims arising under California law. In Troester v. Starbucks, Case No. S234969 (July 26, 2018), the Supreme Court held that California law prohibits requiring employees to "routinely work for minutes off the clock without compensation." However, the Court left open the possibility of applying the rule to certain employee activities that are so "irregular or brief in duration" that it would be unreasonable to require employers to track and compensate employees for such time.

This alert provides employers with the key points from this long-awaited opinion as well as guidance for maintaining compliant timekeeping policies and procedures.

Background of the De Minimis Rule

Federal and state wage laws generally require employers to record and pay wages for all hours worked by non-exempt employees. Under the federal Fair Labor Standards Act, however, employers are relieved from this requirement for "insubstantial or insignificant" periods of "off-the-clock" time spent on otherwise compensable tasks. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946). The factors for determining whether such time is "de minimis" include: (1) the practical administrative difficulty of recording the additional time; (2) the total amount of compensable time; and (3) the regularity of the additional work. Lindow v. United States, 738 F.2d 1057, 1063 (9th Cir. 1984). Under some circumstances this rule permits employers to require as much as 10 minutes of uncompensated work per day. While the de minimis doctrine is a well-established defense under federal law, the California Supreme Court had not previously addressed whether the doctrine applied to California Labor Code claims for unpaid wages.

Troester v. Starbucks

Douglas Troester was a Starbucks shift supervisor who routinely performed “store closing” activities after clocking out, including transmitting sales data to headquarters, activating the store alarm, locking the door, walking co-workers to their cars, and occasionally waiting with them for their rides. These daily closing tasks ranged from 4-10 minutes of uncompensated time, and were all required under Starbucks' policy. He sued Starbucks in a class action for unpaid wages for that time, along with related penalties.

In the lower courts, Starbucks successfully argued that the federal de minimis rule applies under California law, and as a result, Starbucks could legally require employees to perform the required tasks without compensation. The Supreme Court disagreed that the de minimis rule could be applied on these particular facts, where the work was routinely required. However, the Court expressly left open the question of whether a "de minimis principle may ever apply to wage and hour claims given the wide range of scenarios in which this issue arises."

Employer Takeaways

• California wage law does not incorporate the broad de minimis defense found under the Fair Labor Standards Act. This means that employers may not require employees to routinely work off-the-clock without compensation, even for a few minutes a day. However, the de minimis doctrine may still apply when employee activities are "so irregular or brief in duration" that it would be unreasonable to require employers to compensate for them.
• Employers should:
  • Review handbooks, job descriptions, and other policies and procedures to ensure that non-exempt employees are not being required to perform duties after clocking out.
  • Review timekeeping and payroll systems to ensure that non-exempt employees are being compensated for all regularly occurring tasks.
  • If any regularly occurring tasks are not being compensated, consider solutions which would permit tracking such time, such as restructuring the work, customizing existing time tracking systems, or developing new ones (e.g., by utilizing smartphones, tablets, or other devices).
  • Consider options for reasonably estimating time spent on off-the-clock tasks—e.g., through surveys or time studies—in order to fairly compensate employees for that time.

Importantly, this decision specifically endorses the use of fair and neutral "rounding" policies. As we wrote about previously, in AHMC Healthcare, Inc. v. Superior Court (Letona), Case No. B285655 (June 25, 2018), the Court of Appeal recently re-affirmed the use of payroll systems that automatically round employee time up or down (e.g., to the nearest 5 minutes or quarter hour) so long as the system "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 Troester Court expressly confirmed that when properly implemented, such policies constitute a practical and legal solution for capturing (through reasonable estimation) all work time.