St. Luke’s Hourly Wage Rounding Puts DOL Rule Under Microscope

Kansas City-area health care workers and the employer they accuse of conveniently ignoring approximately 75,000 hours of work will face off at the Eighth Circuit Tuesday over the proper application of rounding regulations.

The wage-and-hour dispute centers on the US Labor Department’s rounding rule. The regulation allows employers to round worker time up or down to the closest quarter hour instead of paying by the minute, so long as the rounded hours average out to properly compensate employees. Only the Ninth and Tenth circuits have squarely addressed the DOL regulation, so a ruling from the Eighth Circuit could provide additional clarity on how rounding should work.

That type of pay system, as used by Saint Luke’s Health System Inc. and its Saint Luke’s North unit, allegedly functioned as a “casino game that reliably favors the house,” rounding away more than $2 million in unpaid wages over six years, the workers say. They’re urging the US Court of Appeals for the Eighth Circuit to undo a district judge’s determination that the system complied with rounding regulations under the Fair Labor Standards Act.

Saint Luke’s contends the lower court got it right. Although the system’s overall cumulative net impact was negative for the workers, the policy itself is neutral, and workers lost as little as 38 seconds per shift on average, so the district judge was correct to apply the de minimis doctrine and side with the employers, it told the appellate court in December.

“All casino games are designed to favor the house,” but “the undisputed evidence in this case reveals no such scheme,” Saint Luke’s said, noting that more than a third of the workers ultimately benefited from the rounding policy.

An attorney for the workers declined to comment ahead of Tuesday’s arguments. An attorney for the health-care provider didn’t respond to a request for comment.

Automatic Rounding

Saint Luke’s timekeeping system notes the exact time employees clock in and out, but it doesn’t use those precise records to determine worker pay down to the minute. Instead, it automatically rounds down the hours of workers who clock in up to six minutes early or clock out up to six minutes past the end of their scheduled shifts, the employees said in a September brief.

There’s no dispute that the employees perform work both before and after their shifts, and experts for both sides concluded that the policy ultimately leads to underpayment for a majority of workers, according to the employees’ brief.

The health-care system responded that the policy either benefited employees or was neutral in more than half of the shifts the experts studied.

Although the FLSA allows for time rounding, the regulation doesn’t let employers avoid paying wages when rounding “consistently shortchanges” workers, the employees said. And the de minimis doctrine doesn’t apply when an employer “precisely records” all hours worked—like Saint Luke’s did—and then refuses to pay for some of that time, according to the workers.

The judge who heard the case in the US District Court for the Western District of Missouri sided with Saint Luke’s, ruling in March 2022 that the rounding policy was both facially neutral—didn’t intentionally increase or decrease hours—and neutral as applied.

DOL Backs Workers

But that decision misapplied the regulations, DOL said in an amicus brief filed in support of the workers. Rounding policies must “average out so that employees are fully compensated for all time they actually work,” and the employees here demonstrated that Saint Luke’s policy doesn’t do so, the agency said.

The Ninth and Tenth circuit rounding decisions—issued in 2016 and 2020, respectively—both make clear that rounding policies don’t comply with the FLSA if they fail to compensate employees for all hours worked in the long term, DOL said.

The FLSA’s de minimis exception doesn’t apply here, either, according to DOL’s brief. The workers’ hours were “precisely recorded,” and even if the exception applied, the evidence wasn’t sufficient to show that those hours could be “disregarded,” making summary judgment inappropriate, the department said.

Making employers “perpetually audit” time records to ensure rounding never results in cumulative underpayment would undercut the reasons for allowing rounding at all, Saint Luke’s said. The workers’ proposed interpretation “would leave even the most prudent employers gambling with FLSA noncompliance,” the health-care company said.

Judges Raymond W. Gruender, Morris S. Arnold, and Jane L. Kelly are set to hear the case in St. Louis.

Apollo Law LLC; Liberty, Mo.-based Ryan McClelland; and Osman & Smay LLC represent the workers. Littler Mendelson PC represents Saint Luke’s.

The case is Houston v. St. Luke’s Health Sys. Inc., 8th Cir., No. 22-01862, oral arguments 6/13/23.