California Court Permits Class Action against Employer that Considers Workers' Compensation Expenses and Cash and Inventory Shortages in Calculating Bonuses
Like many employers, Ralphs Grocery Company considers the profitability of the business as a factor in calculating employee bonuses. In a recent decision, a
This decision was based on
The plaintiff, David Swanson, a former store manager, sued Ralphs for violating these provisions. Without attaching a copy of the bonus plan to his complaint, he alleged that the bonus calculations were based, in part, on these impermissible factors. Ralphs moved to dismiss the lawsuit, arguing that, because the bonus is paid in addition to regular wages, the employee did not suffer the reduction in earnings that the laws prohibiting wage deductions were intended to prevent. It further argued, as a matter of economics, that profit-based compensation plans benefit both employers and employees.
The court ruled that Swanson's allegations were sufficient to overcome the employer's motion to dismiss. The court rejected all of Ralphs' arguments, and concluded that bonus calculations that consider workers' compensation costs or, in the case of non-exempt employees, cash shortages, breakage, or equipment losses not attributable to the employee's dishonesty, willfulness, or gross negligence, are unlawful in
The message is clear for
In December 2004, the California Supreme Court agreed to review this issue. Although the uncertainty persists, there is at least some cause for optimism that the Court will recognize the absurdity of subjecting employers to class-wide liability for trying to share profits with employees.