Edgeworth Analysis Heavily Cited by Judge in California Court

An Edgeworth Economics team, led by Edgeworth Partner Dr. Deborah K. Foster as the testifying economist, was retained by two California hospitals—both part of the AHMC Hospital System—accused of violating California labor law by using a payroll system that automatically rounded employees’ hours up or down to the nearest quarter-hour. Both employees and the hospital system asked the Los Angeles Superior Court to rule on the legality of the rounding policies but were denied. AHMC Healthcare then appealed the trial court’s refusal to decide the question of law to the Second Appellate District.

In the lower court proceedings, Dr. Foster presented analyses of time records for the San Gabriel and Anaheim hospitals and examined the data over a four-year period from three perspectives:

1. the percentage of employees who gained by having minutes added to the time, compared to the percentage who lost by having minutes deducted;
2. the percentage of employee shifts in which time was rounded up, compared to the percentage in which time was rounded down; and
3. whether the employees as a whole benefitted by being paid for minutes or hours they did not work, or the petitioners benefitted by paying for fewer minutes or hours than actually worked. 

The Edgeworth analysis showed—among other things—that at one hospital, the overall number of minutes added to employee time by the rounding policy exceeded the number of minutes subtracted, adding 1,378 hours to the employees’ total compensable time. At the other hospital, overall the rounding procedure added 3,875 hours to the employees’ total compensable time.

In their appeal, the hospitals had sought a writ of mandate directing the trial court to grant its motion for summary judgment, contending they had established as a matter of undisputed fact that their system was neutral on its face and as applied. The appellate court ultimately found that “the undisputed facts established that petitioners’ system was in compliance with California law,” and in accordance, granted the hospitals the writ. The decision relied upon the evidence presented by Dr. Foster and found that “her analysis established that overall, at both hospitals, the rounding policy benefitted employees and caused [the hospitals] to overcompensate them.”

Jeffrey P. Fuchsman of Ballard Rosenberg Golper & Savitt LLP, counsel for AHMC, said that he believes “the decision provides much needed clarity on time clock rounding policies generally, and further establishes that neutral rounding policies which overall do not operate to systematically underpay employees are lawful in California.”