THE BEST DECISION HE EVER MADE

Steven Cesare, Ph.D.

A business owner from California called me the other day to talk about the process one of his colleagues was going through as part of selling his company. The business owner and I discussed many human resources issues that accompany a business sale: I-9 Forms, employee census data, terminating and rehiring the workforce, OSHA paperwork, employee benefit plans, employment agreements, compensation, Fair Labor Standards Act regulations, and of course, compliance with state and local employment laws.

Through our conversation, the business owner stated his colleague (i.e., the seller) relied on a daily timekeeping system that automatically clocked in every non-exempt field employee at 7:00 a.m. signifying the start of the work shift, clocked out every non-exempt field employee for an unpaid meal period at noon, clocked in every non-exempt field employee back to work after the unpaid meal period ended at 12:30 p.m., and clocked out every non-exempt field employee at 3:30 p.m. representing the end of the work shift.

This timekeeping system is manifestly a self-evident choice of convenience over compliance.

By way of context, we all know the various timekeeping systems available to landscapers: time clocks, daily written timesheets, weekly written timesheets, manual cell phone applications, and automated timekeeping systems. Each of these alternatives clearly has resident pros and cons attached to them. My professional preference is a weekly written timesheet completed by each Crew Leader on every Crew Member in his/her work crew every day, with the Crew Leader forwarding those completed weekly written time sheets to his/her Field Supervisor for approval at the end of each work week.

I know that is a lot of paper. I like the specific, personal, daily accountability. I’ll hug a tree later.

During our dialogue, the business owner expressed skepticism of his colleague’s timekeeping system, though he could not cite any legitimate rationale for his doubt, in that, like many of us, we all know numerous companies that employ similar electronic methods for beginning and ending a work shift coupled with automated pre-specified time deductions for meal periods.

Seeking taut insight from me, I informed the business owner that the Fair Labor Standards Act is very clear in that employers are ultimately required to keep accurate time records for all non-exempt employees. That said, I commented that each state in the union may have some degree of unique legal nuance worthy of investigation before asseverating a universal, declarative conclusion. From that point, I told the business owner that the same FLSA employer-standard is the legal requirement in California. Anticipating his next question, I told him I would double check with the state of California Department of Labor Standards and Enforcement (DLSE) to confirm my answer and thus, truly put his mind at ease.

I called the DLSE, and explained my “hypothetical” claim that a potential buyer was reluctant to purchase a company that relied on the aforementioned automated timekeeping system. Instantaneously, the DLSE representative stated “that’s the best decision he (i.e., potential buyer) ever made.” To buy such a company would lead the buyer to legally assume all historical wage and hour risks, fines, and penalties related to a timekeeping system that is knowingly inaccurate and fraudulent in that it is verifiably impossible for every non-exempt employee to have the same work shift start and end times and meal period start and end times, every day. The financial penalties extend back three years, for each employee, for every pay period.

To wit: Here are the key recommendations I have offered to other business owners on this topic.

Call the state Department of Labor to verify their automated timekeeping system meets legal standards.
Ensure that such timekeeping issues are included in their company’s Employment Practices Liability Insurance policy as part of the Wage and Hour Add-on feature; keep in mind that EPLI only pays for legal defense fees on wage and hour issues, not the actual financial penalties related to a violation.
Discuss legal risk and indemnification with the timekeeping software vendor.
Meet with your external counsel and Accountant to discuss any present wage and hour exposure your company may currently have, even if your company is not for sale.

There’s room over here if you want to hug the tree with me.

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