(San Diego County Super. Ct. No. 37-2009-00100692-CU-OE-CTL) PROCEEDINGS in mandate after the superior court granted summary adjudication in favor of real party in interest. Joel M. Pressman, Judge.
The opinion of the court was delivered by: Haller, J.
CERTIFIED FOR PUBLICATION
Pamela Silva brought a wage-and-hour class action complaint against her former employer, See's Candy Shops, Inc. After certifying a class of current and former California employees, the trial court granted Silva's summary adjudication motion on four of See's Candy's affirmative defenses and entered an order dismissing the four defenses. In a writ petition, See's Candy challenged the dismissal of two of the affirmative defenses. These defenses pertained to See's Candy's timekeeping policy that rounds employee punch in/out times to the nearest one-tenth of an hour ("nearest-tenth rounding policy").
After we summarily denied the petition, the California Supreme Court granted See's Candy's petition for review and ordered this court to vacate its prior order and issue an order to show cause in the matter. We thereafter issued the order to show cause and the parties filed extensive writ briefing. We also granted requests by several amici curiae to file briefs in the matter.
We conclude See's Candy's petition has merit. Based on the factual record before it, the trial court erred in granting summary adjudication on the two affirmative defenses pertaining to See's Candy's nearest-tenth rounding policy. We order the court to vacate the summary adjudication order and enter a new order denying summary adjudication on See's Candy's 39th and 40th affirmative defenses. Our ruling leaves open the issue whether the parties will prevail in proving their various claims and defenses relating to See's Candy's nearest-tenth rounding policy and a related grace period policy.
FACTUAL AND PROCEDURAL BACKGROUND
See's Candy uses a timekeeping software system, known as Kronos, to record its employee work hours. Employees are required to "punch" into the system (located in the back room of each See's Candy store) at the beginning and end of their shifts, as well as for lunch breaks. A Kronos punch shows the actual time (to the minute) when the employee punched into the system. During the relevant times, See's Candy calculated an employee's pay based on his or her Kronos punch times, subject to adjustment under two policies: (1) the nearest-tenth rounding policy; and (2) the grace period policy.
Under the nearest-tenth rounding policy, in and out punches are rounded (up or down) to the nearest tenth of an hour (every six minutes beginning with the hour mark). The Kronos time punches are thus rounded to the nearest three-minute mark. For example, if an employee clocks in at 7:58 a.m., the system rounds up the time to 8:00 a.m. If the employee clocks in at 8:02 a.m., the system rounds down the entry to 8:00 a.m.
Under the separate grace period policy, employees whose schedules have been programmed into the Kronos system may voluntarily punch in up to 10 minutes before their scheduled start time and 10 minutes after their scheduled end time. Under See's Candy's rules, employees are not permitted to work during the grace period, but they are permitted to punch in early (or punch out late) and use the time for their own personal activities. Because See's Candy assumes the employees are not working during the 10-minute grace period, if an employee punches into the system during the grace period, the employee is paid based on his or her scheduled start/stop time, rather than the punch time. In other words, Kronos time-punches made during the grace period accurately show when the employee punched in or out, but they do not show the beginning or end of the employee's work shift, i.e., compensable time. If the employee performs work during that time, the manager must make a timekeeping adjustment. Generally, if the grace period rule is applied, the nearest-tenth rounding policy becomes irrelevant because the start and/or stop time will be exactly the employee's scheduled time and there will be no need to round down or up to the nearest tenth of an hour.
See's Candy employed Silva in a nonexempt hourly position from about 1993 to 2010. In October 2009, Silva filed a class action complaint. As amended, the complaint alleged See's Candy violated various California wage and hour laws, including by failing to: (1) pay for all work performed; (2) pay overtime compensation, (3) maintain lawful meal and rest period policies; (4) pay for each meal or rest period that was not provided; and (5) provide accurate itemized wage statements. Silva also alleged See's Candy's labor practices constituted an unfair business practice under Business and Professions Code section 17200 and violated Labor Code section 2698 et seq.*fn1
The court thereafter certified a class of "All persons employed by See's Candy . . . in . . . California as non-exempt, non-union employees at any time . . . from October 20, 2005 to the present, with respect to Plaintiff's claims that See's time-stamping policies (rounding policy and grace period policy) are illegal under California law." The court certified the class on two separate issues: (1) "Whether class members suffered a loss of compensation when they clocked in and out on the Kronos timekeeping system utilized by See's [Candy] which rounded time to the nearest six minutes" (the nearest-tenth rounding policy); and (2) "Whether class members suffered a loss of compensation when they clocked in or out on the Kronos timekeeping system utilized by See's [Candy] during the 'grace period,' defined as up to ten minutes before their scheduled start times and up to ten minutes after their scheduled quitting times" (the grace-period policy).
In its amended answer, See's Candy denied Silva's allegations and asserted 62 affirmative defenses, including defenses based on See's Candy's claim that: (1) any unpaid amounts are de minimis; (2) the nearest-tenth rounding policy is consistent with federal and state law; and (3) the grace period policy is lawful under federal and state law.
Silva then moved for summary adjudication on four of See's Candy's affirmative defenses. Two of these defenses (10th and 41st) concerned See's Candy's claim that any unpaid wages based on off-the-clock claims or its rounding policies were "de minimis."*fn2 The other two challenged defenses (39th and 40th) encompassed See's Candy's claim that its nearest-tenth rounding policy is consistent with state and federal laws "permitting employers to use rounding for purposes of computing and paying wages and overtime" and that the nearest-tenth rounding policy did not deny Silva or the class members "full and accurate compensation." Silva did not move for summary adjudication on See's Candy's affirmative defense that its grace period policy is "lawful under both federal and California law."
In moving for summary adjudication on the nearest-tenth rounding defenses, Silva argued there is no California statutory or case authority allowing See's Candy to use a rounding policy, and its policy violates section 204, which generally requires an employer to pay an employee "All wages" every two weeks, and section 510, which requires an employer to pay an employee premium wages for "Any work" after eight hours per day or 40 hours per work week.
To show the defenses lacked factual merit, Silva relied primarily on three paragraphs in a 2010 report by See's Candy's expert, Dr. Ali Saad, a labor economist and statistician, who was initially retained to analyze the impact of See's Candy's nearest-tenth rounding policy for purposes of the earlier class-certification motion. Because the proposed class at that point consisted only of retail (and not administrative) employees, Dr. Saad analyzed only the retail employee time records.
In the portions of Dr. Saad's declaration relied upon by Silva, Dr. Saad concluded: "[From] October 2005 through March 2010 for all hourly [See's Candy] employees in California, . . . [¶] [t]he total impact of rounding actual time punches to the nearest tenth of an hour for all shifts worked . . . produced a net surplus of rounded over actual shifts of 2,230 employee work hours [which] . . . resulted in a net economic benefit to the employees as a group. . . . Per shift the rounded shifts exceeded actual shifts by on average .002 hours, which is equal to 0.12 minutes, or 7 seconds per employee, per shift." (Italics added.) However, for plaintiff Silva, Dr. Saad found an "aggregate shortfall" of .47 hours or 28 minutes, which he said "equates to a shortfall in the average rounded relative to actual shift of 2 seconds." Silva also relied on Dr. Saad's graph depicting the distribution of the difference in shift lengths calculated based on the original time punches and on the rounded time punches. Dr. Saad concluded that the total difference "across the more than 860,000 shifts studied is 2,230 hours in favor of employees." (Italics added.)
Silva additionally relied on the deposition testimony of Mary Ann Mazelin, designated by See's Candy as the person most knowledgeable. When asked whether See's Candy had performed any investigation to determine whether, using the rounding rules, the employees are paid for all the time they actually work, including overtime, Mazelin responded: "I am not aware. I do not believe See's has made any investigation, using your term, for that. However, I have done my own analysis for Pam Silva for the last year comparing actual time clocked in recorded by See's to what Kronos calculates and therefore she ends up being paid."
Silva also relied on Exhibit N, which consisted of a series of charts which Silva said reflected that See's Candy's rounding practices resulted in her loss of $725 in wages. Silva did not include any foundational or authentication evidence explaining the nature of the charts, including who prepared them and/or the manner in which they were prepared.
In opposing the motion, See's Candy urged the court to adopt a federal regulation utilized by the California Division of Labor Standards Enforcement (DLSE) that allows employers to compute employee work time by using a nearest-tenth rounding method "provided that it 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." (29 C.F.R. § 785.48(b), italics added.) See's Candy argued that Silva had not met her summary adjudication burden under this rule, noting that Silva had not presented any competent evidence that the rounding method prevented the class members from being fully compensated for their work.
See's Candy alternatively argued that even if the court found Silva presented sufficient evidence to shift the burden of proof, the summary adjudication motion should be denied because there are triable issues of fact on its nearest-tenth rounding policy affirmative defenses. In support, See's Candy relied on Dr. Saad's 2010 report, in which Dr. Saad concluded that a majority of the employees had a small net gain from the nearest-tenth rounding policy and that "mathematically, over a period of time, rounded times and actual times would even out." See's Candy also presented Dr. Saad's updated report, which was consistent with his 2010 report, but expanded the period of coverage to April 2011 and also included hourly employees who worked in See's Candy's administrative office locations. In the report Dr. Saad included additional analysis supporting his finding that the nearest-tenth rounding policy was neutral over time, even when taking into consideration California law providing a worker had the right to overtime pay after working an eight-hour day.
In his 2011 report, Dr. Saad stated that in analyzing the Kronos time records, he first applied See's Candy's grace period policy if the time records showed the employee punched in within 10 minutes before or after his or her scheduled start/stop times. In other words, if an employee punched in during this 10-minute period, Dr. Saad would assume the employee was not working during this time and instead was working from the scheduled start time or until the scheduled end time. In this circumstance, Dr. Saad assumed the employee would be paid from the scheduled start/end time and thus See's Candy would have no need to apply the nearest-tenth rounding policy because the employee's work time would have started and/or ended precisely at the scheduled start/stop time.
Dr. Saad then computed the hours worked for each employee shift by comparing the actual (unrounded) time stamps and the rounded time stamps, and then determining the difference for each of the shifts. Based on this mathematical analysis, Dr. Saad found that with respect to the entire class, See's Candy's nearest-tenth rounding policy: (1) "is both mathematically and empirically unbiased"; (2) resulted in a total gain of 2,749 hours for the class members as a whole; and (3) "did not negatively impact employees' overtime compensation" as neither employer nor employee benefited with respect to overtime pay.
Breaking down the 2,749-hour net gain for the class members as a whole, Dr. Saad prepared a chart showing that as a result of See's Candy's nearest-tenth rounding practice: 59.1 percent of the class (5,335 employees) had a net gain; 33 percent of the class (2,982 employees) had a net loss; and 7.9 percent of the class (717 employees) had no change. Based on his analysis, Dr. Saad concluded that See's Candy's nearest-tenth rounding policy is not "biased against employees in any way. . . . From a mathematical perspective . . . the methodology of rounding to the nearest tenth of an hour for pairs of punches is exactly neutral. The fact that the results came out in favor of the employees in this data is meaningless -- the extremely small excess amount could have been a minutely small shortfall with a different sample of data." (Italics omitted.)
In his 2011 report, Dr. Saad also modified his earlier conclusion with respect to plaintiff Silva based on his analysis of her entire employment period and not just the class period, and found that Silva was fully compensated for all of her work time. Specifically, Dr. Saad found: (1) Silva received a net benefit of five seconds per shift because of the nearest-tenth rounding rule for a total net benefit of 111 minutes, which out of 10,000 hours is essentially equivalent to zero; and (2) Silva had a net negative of 3.6 seconds of overtime credited, which Dr. Saad said effectively equals zero.
In addition to Dr. Saad's reports, See's Candy presented evidence that it maintained a policy prohibiting employees from performing any work during the grace period, the employees were periodically reminded of this policy, and employees were told that if they worked during this time they must notify the manager who would manually add time to the employee's Kronos records. See's Candy also presented declarations from numerous employees, each of whom explained that he or she was aware of the grace period policy, understood that the decision to use the policy is "always voluntary," and described the types of personal activities in which he or she engaged during this period, including using the restroom "to do my makeup or hair," going to the post office to drop off personal mail, "go[ing] across the street to the [drugstore], and "play[ing] games on my cell phone."
See's Candy also asserted numerous objections to Silva's evidence, including to Exhibit N, claiming the exhibit lacked foundation ...