Punching in and out for meals and breaks is a pain – both for the employees and the employer.  As a result, many employers use so-called auto deduction policies for meal periods and breaks, letting employees take their rest periods without punching in and out, but deducting a set time, usually 30 minutes for the taking of a meal.  Employees like it because it is less of a hassle, gives a little more flexibility in terms of timing, and likely results in a less stressful meal.  Employers like not having to deal with additional paperwork.  But, auto-deduct policies, particularly in the healthcare context, have become a frequent target of wage and hour suits.

A recent case from the Sixth Circuit, however, affirmed a dismissal of such claims against the employer and a refusal to certify a class of employees asserting such claims.   In White v. Baptist Memorial Health Care Corp., Case No. 11-5717 (N.D. Ohio Nov. 6, 2012), the plaintiff was an hourly emergency department employee.  The defendant hospital had an auto-deduct policy, but also had an “exception” system to report instances in which the employee could not take their meal periods due to workflow.  The plaintiff used that system for a period of time, but stopped doing so at some point, and then brought suit for unpaid overtime.

The district court initially conditionally certified part of the class sought by the plaintiff.  Later, however, the district court granted summary judgment for the employer, and also decertified the class upon doing so.  The plaintiff appealed.

The Sixth Circuit, in a 2:1 decision, affirmed.  Importantly for employers with auto-deduct policies, the court declared:  “An automatic meal deduction system is lawful under the FLSA.”  It was only when the employer had reason to believe that the employees were not taking their meal periods that an overtime obligation would arise.  The court found essentially that the hospital’s exception reporting system was defensible and rejected the plaintiff’s arguments that the employer had an obligation to check its computer records to see if employees were actually working more hours than they were reporting through the timekeeping system.  Because the plaintiff did not report her exceptions, she had no claim against the employer for unpaid overtime.

Having found that the employer was entitled to summary judgment, the court also found that the decision to decertify the class was proper.  Because the named plaintiff had no claim, she could not be “similarly situated” to any employee that might have had a claim.

The White case is important for three reasons.  Most importantly, the court upheld the legality of an autodeduct policy, particularly one where there was a set mechanism to report exceptions.  Second, the court found that without a viable claim by the lead plaintiff, there was no proper collective class.  Thirdly, however, there was a dissent, and the litigation itself lasted for four years, likely entailing significant cost along the way.  While the employer ultimately prevailed, one of the court of appeals judges (Judge Moore) would have ordered a trial of the case, and the cost of prevailing likely exceeded the value of the plaintiff’s individual claims many times over.

The Bottom Line:  The Sixth Circuit has upheld the use of auto-deduct policies, but such policies still bear considerable risk of expensive litigation.