At first glance, auto-deducting employees' unpaid meal breaks from their pay may appear to be a good idea. Administratively, it's simpler than requiring employees to clock out and clock back in, and in the busy world of HR, "set-it-and-forget-it" solutions are appealing.

But this particular shortcut is potentially a costly trap, one that many employers have fallen into recently. TE Connectivity Networks and Tyco Electronics agreed to pay nearly $5 million to California employees who had half-hour meal periods automatically deducted from their paychecks for seven years. Sprint settled similar allegations for $4 million.

Are auto-deduct policies illegal?

Auto-deducting policies aren't necessarily illegal, according to Freeborn & Peters Partner Erin E. McAdams. "While auto-deducting meal breaks is not a per se violation of the Fair Labor Standards Act, employers could face exposure to 'off the clock' wage and hour lawsuits if employees are actually working during meal breaks and not being paid," McAdams told HR Dive in an email. "Auto-deducting meal breaks can also expose employers to claims that they are skirting the overtime wage requirements of state and federal law."

Auto-deduct policies are "fraught with issues and have been the subject of many class actions in California and elsewhere," said Kathryn T. McGuigan, partner-elect at Morgan, Lewis & Bockius. An employer's use of an automatic deduction policy can increase the likelihood of a class action lawsuit in certain circumstances, McGuigan told HR Dive in an email. Under those circumstances, courts look to how individual supervisors manage employees' meals. 

Auto-deduct works better in some workplaces than others 

Auto-deduct policies are particularly problematic in certain industries, including healthcare and construction, where breaks are routinely interrupted, said attorney Molly Batsch, an officer at Greensfelder, Hemker & Gale.

"The rule from a wage and hour standpoint is that you have to have a lunch break for the benefit of the employee," Batsch told HR Dive in an interview. "If it becomes predominantly for the benefit of the employer, then it has to be compensated. Typically, we advise if there are any interruptions in the lunch break, the employee needs to be paid for the entire break."

McGuigan echoed her point. "Workplaces where employees may continue to work through a break while other employees do not are not conducive to auto-deduct policies," McGuigan said. Workplaces are more suited for auto-deduct policies when employees share one schedule and work stops for everyone at the same time. Manufacturing plants — where workers step away from a line to eat lunch or rest at the same time — and call centers — where entire shifts break for meals at once — make good examples, McGuigan said.

How to make auto-deductions work

Even in workplaces that do lend themselves to auto-deduct policies, employers must ensure the policies are managed correctly, or risk costly penalties later on.

Establish a paper trail

What works sometimes with auto-deduct policies, said Batsch, is to "implement very good training for both managers and employees" so that everyone knows what to do if an employee winds up working during a lunch break. Create a paper trail, she advised, so the employee notifies the manager, and the manager adjusts time worked.

"If managers don't consistently reinforce the policy, people will start to tell managers, 'I worked a few minutes here and there' but then they don't mention it again — until they are discriminated against or fired, and then they bring it up in the context of a lawsuit," Batsch said.

Batsch said her firm advises clients with employees who are frequently interrupted during their breaks (including those in healthcare, construction and manufacturing) to get rid of auto-deduct altogether and have employees clock in and out for breaks. A policy as such can create its own problems — employees may forget to clock in and out when they're supposed to, for example — but it nonetheless avoids widespread issues that incur damages, she said.

Include an override mechanism

Employers may want to consider providing a mechanism by which employees can override the auto-deduction if they do indeed work during a meal break. Alternatively, they could create a policy that obligates workers to notify their managers in writing that they were working, McAdams suggested.

"Train employees on how to input the override, and keep records of that training," McAdams said. "There should also be a complaint hotline or channel if the employee sees she was not indeed paid for time she worked during a meal break. At the very least, managers must be able to override the auto-deduction on behalf of employees."

McAdams also recommended including a written policy in the employee handbook explaining the auto-deduct policy and the override provision. The employee acknowledgement of the policy, she said, "could reference the fact that the employee understands she must change her time if she does indeed work during a meal break; that she could be subject to discipline if she works during a meal break and does not change her time; and that even if she works during a meal break she will be paid for that time."

Create a 'culture of compliance'

It's also important to create what McAdams called a "culture of compliance," in which managers and employees are trained thoroughly and separately. "Managers should be trained to frequently remind and encourage employees to accurately record all time worked and have their time records fixed if they worked during a meal period," McAdams said.

Additionally, she said, managers should remind workers that they are not permitted to voluntarily work during breaks. Managers can familiarize employees with the policy that subjects them to discipline if they do work during a meal break, but reassure them they will be paid for the time worked regardless.

Keep track of actual hours worked

Because employers are required to maintain records of meal breaks under certain laws, some courts have found auto-deduct policies may not satisfy such requirements because they do not require employees to affirmatively clock in and out for the meal, McGuigan said.

For this reason, regardless of the specific timekeeping system chosen, employers must accurately track employees' hours. "The Department of Labor has specified that auto-deducting meal breaks does not violate the Fair Labor Standards Act so long as the employer accurately records actual hours worked, including any work performed during the lunch period," McAdams said. "Employers get into trouble when breaks are auto-deducted but the employee actually worked during the time she was not being paid."

Don't discourage breaks

Even as managers remind workers not to work during breaks, employers need to make sure they do not discourage employees from taking breaks or reporting missed breaks. "Employers should regularly schedule employees for meal breaks [and] train supervisors to report when employees are working through meal breaks," McGuigan said. "Most importantly, employers must provide for employees to report short, late or no meal breaks, and pay the employees accordingly."