Starbucks Corp. has to pay for California workers’ off-the-clock work that lasts a few seconds or minutes past a scheduled shift, the state Supreme Court ruled.

The ruling could expose businesses in California to lawsuits that say they owe millions in unpaid wages under state law, such as pay for time an employee spends locking up after clocking out. The Starbucks shift supervisor’s lawsuit is still making its way through the judicial system, but the Supreme Court’s ruling creates a new precedent that applies for all employers throughout the state.

“This decision for California law and employers in the state is a message that you’d better figure out a way to have employees capture that time and pay them for it,” Seth Neulight, a partner in Nixon Peabody LLP’s San Francisco office who represents employers in wage-and-hour matters, told Bloomberg Law. Employers may want to try to restructure work requirements to minimize off-the-clock work, he said.

Restructuring job duties is what Starbucks did. Douglas Troester, a supervisor at a Starbucks in Burbank, filed a lawsuit because the checklist for closing the store required him to clock out so he could upload data about employees’ hours, sales, and other information before leaving work, which he said required a few minutes of off-the-clock work. Starbucks changed its system so that punching out initiated the information upload.

Short amounts of work time can add up. One uncompensated minute for an employee who earns minimum wage could cost a business up to $2,520 in penalties, the California Retailers Association said in a brief to the state high court. The group argued in favor of applying the federal minimal time rule, which doesn’t require pay for certain kinds of small, or “de minimis,” amounts of off-the-clock work.

“Most courts have been, up until today, rendering rulings that if your employer doesn’t pay you for up to 10 minutes of off-the-clock work, that’s fine and they can nickel and dime you all they want,” Shaun Setareh, a lawyer for Troester, told Bloomberg Law. “Some studies that we looked at said Californians are being underpaid billions of dollars because of this rule.”

Companies use sophisticated systems to track and predict aspects of their business like customer demand, Setareh said. A company as big as Starbucks should be able to come up with a system that can accurately capture employees’ work hours, he said.

Setareh estimated there could be “in excess of 10,000" employees who might be eligible to join the case if it receives class action status. A lower court ruled for Starbucks and dismissed Troester’s lawsuit before he moved for class certification.

A Starbucks spokesperson said the company is disappointed by the decision and “will await further disposition of the case” as it moves through the courts.

Federal Court to Decide Outcome

Although the state Supreme Court gave its view—that California law requires businesses to account and pay for de minimis work—the case is actually still in the Ninth Circuit. The federal appeals court will factor in the Supreme Court’s decision when it rules.

The state’s high court addressed the issue in response to a request by the U.S. Court of Appeals for the Ninth Circuit, which heard oral arguments in April 2016. The Ninth Circuit asked the state court to give its view of whether California law has a minimal time rule like federal law does.

The federal Fair Labor Standards Act requires employers to pay for time employees spend working, but it doesn’t require pay for small amounts of work that can’t be practically accounted for. Some criteria for determining whether a period is de minimis are how difficult it is to document the time and how frequently the extra work occurs. The U.S. Supreme Court adopted the de minimis times rule in 1946.

Many of the problems that the high court attempted to address 70 years ago existed because tracking employee hours meant punching a physical time card, Justice Goodwin Liu wrote for the California Supreme Court. Technological advances in the decades since can take advantage of tools like “smartphones, tablets, or other devices” to provide accurate timekeeping, he said.

Setareh, Thomas Segal, and Scott Leviant with Setareh Law Group in Beverly Hills; David Spivak with the Spivak Law Firm in Beverly Hills; and Louis Benowitz in Beverly Hills represented Troester.

Rex Heinke, Gregory Knopp, Mark Curiel, and Jonathan Slowik with Akin Gump Strauss Hauer & Feld LLP in Los Angeles represented Starbucks.

The case is Troester v. Starbucks Corp., 2018 BL 265635, Cal., S234969, 7/26/18.