Prachasaisoradej v. Ralphs Grocery Co.

S128576. Aug. [No. 2007.] PRACHASAISORADEJ,

EDDY KORKIAT Plаintiff and v. Appellant, COMPANY, INC., RALPHS GROCERY Defendant Respondent. Counsel Glick, Click,

Kumetz & Kumetz, Law Glick; Offices Fred Stephen Stephen Law Daniels, Fine, Offices of Ian Schonbuch, Ian Herzog, Herzog; Israel & Fine, Paul R. Scott A. Brooks S. Craig Momita for Plaintiff and Appellant.

Goldstein, Demchak, Bailer, Dardarian, Bergen & Laura L. Ho and Nina Caucus, Inc., Ravin for Asian Center, Law Asian Pacific American Legal Golden Gate Clinic, Women’s Employment La Raza Centro Rights Legal, Inc., The Aid Legal Law Center and Stanford Society-Employment Law Community Clinic as Amici Curiae on behalf of Plaintiff and Appellant. Evan D. Marshall for Consumer of California as Attorneys Amicus Curiae on behalf of Plaintiff and Appellant. Priest, Hill,

Thelen Reid & Thomas E. Robert Horvitz & R. Spagat; Levy, Barry Levy and Daniel J. Gonzalez for Defendant and Respondent. Clarke, A. Crutcher, and Lisa

Gibson, Elisabeth C. Watson Deborah J. Dunn & Council as Amici Law and California Employment Barr for Group Employers Defendant and Respondent. Curiae on behalf of E. Hart for Medelson, and James Diane Kimberlin Lilly, J. Kevin

Littler Defendant and on behalf of as Amicus Curiae Grocers Association California Respondent.

Opinion law. California wage BAXTER, significant We confront question J. chain, Inc. a supermarket Grocery Company, (Ralphs), Defendant Ralphs Plan) (ICP whereby or a written incentive compensation implemented receive, their over and above eligible of each store certain employees actual how the store’s sums based upon wages, regular with preset if for specified periods compared Plan-defined any, profits, were deter- For both and actual target purposes, profits targets. profitability Plaintiff from store revenues. mined store subtracting operating expenses claims these calculating profit-sharing the Plan’s formula for supplemental rules, statutes, and decisions prohibit California thus violated payments by withholding, certain of its costs shifting employees an from emрloyer obliging or otherwise from or wages earnings, them or deducting, recouping to them. to contribute that, for deductions expressly except Labor Code section provides not “collect or 224), an (see federal law employer state or § authorized Section theretofore paid.” an any part receive from employee . . . receiv[ing] any from or (a) “exacting] an subdivision prohibits contribution,” deduction from [employee] or “tak[ing] . . . , any part to cover the whole either directly indirectly, . . . earnings various law has interpreted Case the cost of compensation.” [workers’] thereunder, Code, issued prohibit- and regulations of the Labor provisions certain of the to cover stated deductions ing not caused costs, by losses as cash and merchandise business such employer’s act. A wage negligent or his willful grossly dishonesty, the employee’s forbids (Commission) expressly Welfare Commission order of the Industrial nonexempt of so-called against deductions and charges such tit. subd. (Cal. Regs., Code § mercantile industry. in the 11070).) (Regulation the Labor Code. statutory are to unlabeled references subsequent All law, its decision

Deeming case compelled by section and prior by by Regulation the Court of Ralphs Grocery Co. v. Superior Appeal Court (Ralphs Grocery) Cal.Rptr.3d 687] held that the profit-based ICP we consider here was invalid insofar as it considered store’s costs for workers’ when compensation the store computing on which profit Plan were payments calculated. More- over, concluded, Ralphs Grocery the Plan was invalid as to nonexempt employees insofar as it factored cash and shortages merchandise and damage loss into the so, calculation. By Ralphs Grocery reasoned, profit doing Plan effectively back a charged such costs to portion employees through deductions from their wages.

On the Ralphs Grocery, the instant Court of authority reversed a Appeal trial court judgment for entered after Ralphs, demurrer to plaintiff’s was sustained complaint without leave to amend. We must now decide whether these latter decisions are correct.

After a careful statutes, examination of the relevant regulation, judicial decisions, we reach a result largely holdings of Ralphs contrary Grocery and the instant Court of As we will Appeal. in those explain, nothing authorities suggests that an violates California laws wage-protection did, as providing, Ralphs supplementary compensation designed to reward employees, over and above their regular if and when wages, their collective efforts produced positive financial result for the store where worked. they

As described in plaintiff’s the ICP did complaint, not create an expectation of or entitlement to a then specified wage, take deductions or contributions from that wage outset, reimburse for its business costs. At the all received, Plan participants regardless the store’s their performance, guaran- teed normal rate of dollar pay—the they promised expected out their carrying individual Over jobs. and above this regular wage, in the Plan participants understood that their collective entitle- ment to incentive thereof, and the compensation payments, amounts arose under a only formula that compared store’s actual Plan-defined if profit, for a any, with specified period, target figures set previously company. Once the amount of an ICP was calculated under formula, this deductions, did not reduce it by taking unauthorized contributions, or charges. conclude,

The Plan because, was not we illegal, simply pursuant normal concepts profitability, ordinary business such as storewide expenses, costs, losses, storewide cash and merchandise in, were figured with such along other store as the electric bill and expenses sold, the cost of goods to determine the store’s which the profit, upon doing were By incentive calculated. payments so, fully did not shift costs to After those illegally employees. Ralphs issue, remained as the determined what Ralphs absorbing expenses simply wages. in addition to their normal to share with its profits eligible employees flawed, sum, we are Ralphs Grocery that the reasoning In persuaded distinguishable. the authorities on that decision relied are and which ICP, the illegal grounds described was not complaint, as in plaintiff’s We therefore reverse the instant Court of Appeal asserts. will plaintiff judgment.

FACTS AND PROCEDURAL BACKGROUND store, 2001, and filed manager original In in Ralphs plaintiff, produce other on behalf of himself and complaints against first amended Ralphs, that, in addition alleged situated The similarly employees. complaints to their the relevant were regular wages, paid supplementary employees where the basis the net of the store earnings calculated on worked, reduced—illegally and were figures that the they pertinent earnings or lost shortages, for for cash expenses damaged this store’s purpose—by merchandise, other tort claims and by workers’ compensation, nonemployees, control. business expenses beyond employees’ formula, asserted, violated rules set This wage-protection complaints Code Regulation forth in Labor sections through cases, and associated and was thus an unfair business рractice of the Code. section 17200 Business Professions prohibited by relief, interest, and restoration of lost sought wages, complaints injunctive fees. attorney grounds removed the case to federal court on plaintiff’s thereof, his governed by the incentive was including portion

compensation, claims (CBA), and the state-law agreement union’s collective bargaining Act 301 of Labor Relations Management were thus section preempted motion, court (LMRA) (29 185(a).) On the district plaintiff’s U.S.C. § case, because that no federal presented, remanded finding question the CBA. arose law independent irrespective the claims under state remand, filed a second amended complaint Following plaintiff Plan. This covered alleged and an class Ralphs employees himself before, that the incentive compensation payments alleged, complaint where net store earnings calculated on basis of respective worked, used for this figures and that the net earnings covered “workers’ other subtracting, among were derived by expenses, purpose merchan- shortages, losses” such as cash claims and/or other claims, tort “not and the costs of nonemployee or shortages shrinkage, dise of’ the indi- act(s) or gross negligence the willful or dishonest by caused diminished. thereby was vidual whose amended the second complaint this method of “Through compensation,” asserted, from the wages “wrongfully expenses [its] Ralphs deduct[s] ... to be which the law including [p]laintiff, expenses requires employees, words, are forced to the . . . In other employees] borne employer[]. [the Labor from their stores in violation of’ the burden of losses carry respective and Code and Business Professions through Code sections relief, The sought injunctive sectiоn 11070. Regulation complaint time waiting damages, classwide lost to wages according proof, penalties, and costs. fees disgorgement wrongful profits, on that the grounds demurred to second amended complaint Ralphs (2) the LMRA and did not violations of allege claims were preempted by issue, law in event. As to the latter asserted that incentive state Ralphs and above the regular wage, contingent over compensation, paid openly defined, on the achievement of goals, normally profitability profitability from, or deduction in against, does not constitute an improper charge violation of the Labor Code.2 demurrer,

The trial court sustained the the claims finding preempted federal law. it did not decide whether would they As consequence, otherwise be viable as a matter of state law. A of dismissal judgment entered accordingly. demurrer, judicial notice of opposition Ralphs’s plaintiff In to asked the trial court to take 1999, 2000, Program Ralphs’s Compensation “Semiannual Incentive and 2001 versions of appellant’s appendix in the Copies plans for Store Teams.” of these are thus included though formally judicial plan’s ruled on the motion for notice. The appeal, the trial court never in this extremely opening are technical terms. In its brief on the merits provisions stated in court, “Ralphs calculated a operation plans describes the of the at issue as follows: wages. target employee’s regular . . . percentage bonus for an that was a Interest, (‘Earnings Before target earnings profits also set or for the store Taxes, ‘EBITDA’). employee’s actual bonus was Depreciation and Amortization’ or First, plan. forth in the target adjusted up bonus or down under a detailed formula set Then, earnings. the extent actual compared target earnings against a store’s actual formula met, exceeded, earnings target earnings, plans applied fell below the the ratio bonus, thereby determining the target earnings target actual to increase decrease target Ralphs’ bonus. range actual The actual bonus could from 0% to 150% of the bonus. permitted payment of this bonus bargaining agreement [plaintiff’s] collective with union Though disputes legal negotiated wages.” plaintiff in addition the union manner, materially dispute he does not consequences operates of a this description operation. of its District,

Plaintiff The Court of for the Second Appellate appealed. Appeal court, Two, to the trial the Court of held Division reversed. Contrary Appeal that did not on construction or claims depend application plaintiff’s CBA, law, under of state and were thus not but arose independent provisions Then, the left undecided the by the LMRA. issue by addressing preempted court, Grocery, supra, of applied trial Court Appeal 1090, to conclude that the amended allega- second complaint’s demurrer. The Court tions of state law violations were sufficient withstand remanded for with its of consistent Appeal proceedings opinion. review,

We for the issues to follow- granted petition limiting Ralphs’s an reduced Does bonus based on is ing: employee profit figure by the cost of workers’ insurance including store’s expenses, losses, (a) and cash and violate Business and Professions Code inventory 17200, 221, 3751, 410, or or (b) through section Labor Code sections (c) We to that 11070? turn Regulation question.

DISCUSSION above, As noted section 221 that an not provides employer “collect or receive from an theretofore employee any рart paid by for this all said to said “includes employer employee.” “Wages” purpose for labor whether the by every amounts performed description, time, task, fixed commis amount or ascertained standard of by piece, basis, (§ (a).)3 sion or other method of calculation.” subd. (a),

Section subdivision makes it a misdemeanor for an employer contribution, “exact from make or take any or receive or any employee any deduction from the either or earnings any directly indirectly, employee, cover the whole or of the cost of any part compensation.” [workers’] 11070—a Commission order “mercantile

Regulation wage covering administrative, execu those in industry” “exempt” employees workers except tive, (id., subd. or professional positions 1)—provides “[n]o shall make deduction from the or reimbursement any wage any require or loss of unless it shortage, breakage, cash equipment, or loss is caused a dishonest or ‍‌‌​​‌‌​‌‌​‌‌‌​‌​​‌​​‌‌​‌‌​​‌‌‌​​​​‌‌‌​​‌‌‌‌‌‌​​‌‍breakage, by can be shown that the shortage, law, by required deductions or authorized federal or state or preclude Section does not writing pension and welfare and contributions authorized premiums for medical insurance (§ 224.) bargaining by by agreement. or of a collective employee, terms (Id., act, 8.) subd.

willful or by gross negligence employee.” (a). (Reg. order defines as in section subdivision “wages” 2(O).)4 subd. laws, which,

Under these under urges, figure plaintiff profitability ICP, calcu- incentive was supplementary profit-based lated could not be reduced ex- employer’s loss, cash the costs of merchandise or or shortages, damage penses, third tort claims not attributable to the own eligible party employee’s willfulness, Otherwise, contends, dishonesty, gross negligence. plaintiff stated and to an cоntri- subject expected unanticipated bution, deduction, and/or reimbursement to the for withholding, employer control, which the law the em- expenses beyond requires to bear on its own. ployer

Plaintiff’s contention on statutes depends entirely meaning we have noted above. Whenever we construe a regulation such provision, words, we look first to its them their usual and assigning ordinary meanings, clear, them in context. If the reading words themselves are we assume mean they what and the they say, If the plain meaning governs. language construction, allows more than one reasonable we consider extrinsic aids construction, to including of a impact particular interpretation public Productions, v. Kenneth policy. (E.g., Murphy Cole Inc. (2007) 40 Cal.4th 1094, 880, v. 284]; 1103 Wells One20ne Learning 155 P.3d Cal.Rptr.3d [56 Foundation (2006) 39 Cal.4th 141 P.3d Cal.Rptr.3d [48 225].) hours, Because laws authorizing regulation wages, nature, conditions are working remedial courts construe these provi sions with an to liberally, eye the worker promoting they protections intended to provide. (E.g., v. Yosemite Water Co. 20 Cal.4th Ramirez 2].) P.2d Cal.Rptr.2d original and first amended complaints plaintiff produce manager. described as a store The second amended complaint job. specify does not state his Nor does it each member, classification plan applies applied. simply alleges plaintiff to which the or It that ais [djefend representative, and a of a comprised employees class of “all who have worked for California, to, including, operating managers, within the State of but not limited assistant ant[] managers, general managers, managers, managers, managers, market operations district and/or grocery managers, managers, managers, managers, managers, produce meat fish service deli bakery managers, managers, managers, liquor managers, floral deli and all other paid argued plaintiff who were a not is an pursuant bonus” to Plan. has administrative, executive, professional employee exempt or from the Commission order. We therefore have no the order are specific provisions occasion to determine whether inapplicable plaintiff. determine, Here we must under statutes and requisite regulation, withheld, took, received, exacted, whether ICP or or otherwise collected “deductions” or “contributions” from impermissible Ralphs employ- ees, in whole or from their or “earnings” “wages,” Ralphs, “reimburs[e]” or in for business the law to bear on its own. part, expenses required Ralphs above,

As noted for this is amount “wage” purpose “[any] [paid] [an labor,” (§ 200.) that amount is calculated. “Earnings” however employee’s] (American (2d are or of a Dict. salary Heritage college person.” “[t]he another”; 1985) 434.) ed. To “deduct” is to “take away p. [one amount] (Id. 373.) to “subtract.” “Deduction” is act of or p. deducting,” “[t]he “[a]n (Ibid.) amount . . . deducted.” A “contribution” is “something contributed;” while to “contribute” is ... in common with others give “[t]o (Id. 318.) to a common fund or for a common at p. purpose.” [or] definitions, Under these common or “earn employee’s “wages” has or or has are promised pay, ings” the amount employer offered to such an or paid pursuant promise, for that employ offer ee’s labor. The or takes “deduction” “contribution” from an subtracts, withholds, off, when it sets employee’s “wages” “earnings” return, offered, the to of the requires employee portion or as offered or so that promised, paid having promised, employee, labor, or or retains than the paid, offered, performed receivеs less actually promised compensation, and makes a forced “contribution” of the effectively difference.

Here, offered, each store was and as full Ralphs promised, paid, work, for his or her individual dollar agreed guaranteed and fortunes, which did not with the store’s financial and from which wage, vary deducted, withheld, off, no unauthorized amounts were set or otherwise addition, received or collected back In then by sought, employer.5 Plan, and reward certain through encourage employees’ cooperative and collective contributions to the of their stores profitable performance with these in addition to their sharing employees, regular wages, portion if their efforts had and which would profits, any, produced, otherwise be entitled to retain for itself. acknowledged the ICP did not reduce the plaintiff Appeal, payments As Court of union-negotiated expressly and the relevant CBA regular payable participants, to Plan regular wages.

provided payments that under the Plan would not be used to offset Plaintiff also regular, guaranteed wage by any participant that the received Plan fell below does not contend wage. applicable federal or state minimum payments— to these supplementary with respect expectations

Employees’ i.e., exclusively to pay—derived offered promised what Ralphs terms, an individual store employee’s these By of the Plan itself. terms the amount of payment, to a incentive compensation entitlement periodic overall (1) whether the store’s fundamentally such any payment, depended defined as the Plan profitability, had been profitable, for the period operations for set goals targets previously compаred how such any profit whether, and to what and most basic step in determining the store. The first to store extent, were due payments incentive compensation supplementary had a Plan-defined the store registered was to ascertain whether for the relevant period. profit formula, was calculated by the relevant figure

Under the Plan profit contains revenues. The record from store subtracting various store expenses infer considered—we no exhaustive catalog expenses ’ ” “ ‘ were not [ajmortization” among “[i]nterest, [t]axes, [depreciation, (see ante)—but, to usual accounting principles, them fn. pursuant such day-to-day operating expenses included items encompassed presumably sold, bills, rent its its utility paid as the store’s cost goods payroll, included the store’s expenses and the like. They similarly the store premises, losses, and third cash merchandise shortages, for workers’ compensation, or willful dishonesty, claims not traceable to the gross negligence, tort party to the Plan. subject misconduct of individual employees only terms, had the relevant it was the store completed Plan’s By after derived, then or loss figure and the resulting profit period operation, determine, to the preset a further comparison it was possible incentive entitled to a whether Plan targets, participants so, and this figure This final figure, and if how much. compensation payment, calculated, or as compensation once was the amount offered promised only, their and it thus represented for labor by eligible employees, performed or “wages” “earnings.” supplemental letter, all the Plan to the and paid

Plaintiff concedes followed thereunder, He does not claim Ralphs due as exactly providеd. amounts off, received, deducted, withheld, unauthorized or otherwise exacted any set as fi- incentive compensation amount from any employee’s supplementary under the Plan. nally paid computed

Plaintiff because, nonetheless insists Plan violated the law subtract- by costs, ing or damage loss expenses beyond control, individual employees’ from store’s revenues to determine the figure on which profit incentive compensation payments calculated, reduced, extent, the Plan or “wages” “earnings” asserts, otherwise due. Accordingly, plaintiff shifted to Ralphs effectively virtue employees, by of deductions from their expected wages, costs the law to bear on requires its own. We employer disagree.

For his like the premise, plaintiff, Courts of here and in Appeal Grocery, supra, invokes a of California case body law that has above, around some of the developed statutes and regulations quoted however, ones. closely analogous As we shall the cited explain, decisions are to this inapposite ICP. profit-based

The line of cases which relies with a plaintiff begins 45-year-old court, decision of this Kerr’s Service Catering v. Department Industrial Relations (1962) (Kerr’s 57 Cal.2d 319 P.2d Cal.Rptr. 20] There, Catering). each of the female lunch-truck employer’s drivers was receive, entitled to of her part compensation, 15 commission on percent However, her own $475 sales exceeding week. per commission promised was subject to reduction for cash attributable to the shortage driver for the month. The the cash employer computed shortage figure by comparing, the end of each day, driver’s cash receipts remaining inventory against amount, on the truck at the inventory The beginning day. if any, which the latter exceeded the former was the daily shortage.

The Division of Industrial Welfare notified the that this employer practice 5-57, which, violated Order No. Wage terms essentially identical to those of current Regulation prohibited for cash “deduction[s]” shortages, or loss of breakage, not caused equipment act, willful dishonesty, (Kerr’s culpable negligence. Catering, supra, 319, 322.) Cal.2d The relief, sued for injunctive and declaratory Order No. 5-57 exceeded urging Wage the Commission’s authority. trial court entered for the judgment and this court employer, reversed.

Our noted first opinion agreement that the Commission’s parties’ power 1182,6 derived from former section which authorized the Commission to “fix” (former “minimum wage” (a)), (id., subd. maximum hours § (id., (b)), subd. and (c)) “standard conditions of labor” subd. for women and 6 See now section 1173. 319, 323.) Because the drivers Cal.2d (Kerr’s Catering, supra,

minors. commission, of the sales wage earned more than the minimum independent whether, (c), the Commission under subdivision the issues presented affected wages labor” insofar as they conditions of could “standard regulate so, and, deduction of cash minimum whether the if wage, beyond subject was a condition from the drivers’ sales commissions shortages (c). under subdivision regulation (c) It concluded that subdivision of the first issue easily. court disposed ways of labor” in “standard conditions regulate

allowed the Commission affected, “fix,” and hours minimum statutory did not above the wages but Cal.2d (Kerr’s Catering, supra, maximum. statutory below 323-325.) issue, the court cited provisions the second

Addressing multiple loss, breakage, regulation Labor Code to Commission’s justify observed, First, the court deductions from shortage wages. employee in had been expressed for wages generally public policy special protection and full payment numerous and decisions that required promрt statutes due, limitations as the exclusive wages property, imposed employee’s itself, creditors, including satisfy unliquidated ability or accord and using garnishment, assignment, claims against (Kerr’s Catering, supra, otherwise due. satisfaction to appropriate 319, 325-327.) Cal.2d the sales that the deductions taken from

Kerr’s noted Catering particular control, the driver’s shortages beyond commissions there at issue extended to reasoned, Hence, these the court or the result of mere simple negligence. merchandise deductions made her an insurer of the effectively employer’s cover such losses. as an bond to served same purpose letter, not the of the Employee’s contravened “the if Accordingly, they spirit, conditions under (see 400-410), which states the exclusive Bond Law” §§ undertakings. such cash to furnish which employers require employees 319, 328.) (Kerr’s 57 Cal.2d Catering, supra, their superior position, The court suggested employers, exploiting inflated withholding to defraud could also use such deductions amounts, Such scale. reducing thus effectively and exorbitant concerns, court, to prevent which was adopted said the underlie section it the employer or “kickbacks” to make appear the use of secret deductions (Kerr’s it is less. when in fact wage, paying or promised paying required 319, 328.) 57 Cal.2d Catering, supra, deductions,”

“A further reason for legislative the court disapproval observed, “exists in the reliance of the his receiving expected minimum, rate, whether it be the wage, basis of a set a computed upon piece or a commission. To to subject or undeter- unanticipated mined deductions to (Kerr’s on the impose special hardship employee.” Catering, 329.) 57 Cal.2d supra, the court

Finally, rejected Order employer’s Wage complaint No. 5-57 unfairly burden of the cash on the placed shortages employer. The court that “some cash explained shortages, and loss of breakage equip- ment are inevitable in almost business It does not seem operation. unjust to require bear such losses as when expenses management it is presently unchallenged Order practice pursuant Wage [also bear, No. him to as a business require cost of tools and expense, 5-57] equipment, protective garments and uniforms furnished to the employee by Furthermore, .. . for these prohibiting deductions costs. the employer [][] does, may, either these usually costs on to the consumer in the form pass of higher or lower his ‍‌‌​​‌‌​‌‌​‌‌‌​‌​​‌​​‌‌​‌‌​​‌‌‌​​​​‌‌‌​​‌‌‌‌‌‌​​‌‍prices employees’ thus distrib- wages proportionately, uting (Kerr’s losses a wide among 57 Cal.2d group.” Catering, supra, added.) italics Quillian In v. Lion Oil Company 96 Cal.App.3d Cal.Rptr. (Quillian), the two of plaintiff managed defendant’s self-service gasoline 740] stations. Her mandatory included agreement for a employment provision bonus, manager’s incentive bonus in addition to her modest base The pay. losses, intended to efforts to encourage managerial increase sales and reduce was defined as a dollar amount based on the volume of sold at the gasoline stations, sales, a flat 1 of the stations’ plus percent nongasoline less the full dollar amount of cash merchandise at the shortages stations.7

In a suit for attributable to the unpaid wages shortages, trial court entered for the judgment Court of affirmed. plaintiff. Noting Appeal Labor Code’s (§ 221), of deductions from prohibition the court held that under Kerr’s Catering, reduction of the bonus promised by shortages to the stations under the applicable constituted an plaintiff’s supervision illegal charge and made her an against employee earnings, insurer of the merchandise, (Quillian, in violation of the employer’s bond law. supra, 163.) 96 Cal.App.3d words, amount of the stations’ cash and merchandise In other shortages, however full caused, subtracted dollar dollar to arrive at this whomever single employee’s Thus, revenues, percentage

final against bonus. stations’ sales she alone shouldered the entire shortages burden of their losses and to the extent of the payable. bonus otherwise

233 there were no deductions from the plaintiff’s argued The employer bonus, of the was of the in the form wage, because the actual amount wages, were volume and against after only shortages applied determined losses insisted, determined, was wage the paid Once so the employer sales figures. deemed this a mere circumvention. without deduction. The Court of Appeal observed, was scheduled the court the bonus a commission—a reality, In and merchan- To the extent cash based on sales volume revenue. amount court, amount, the the were this scheduled said charged dise shortages against was the same as in Kerr’s carried the burden Catering—the result the of “unantici- losses and suffered “special hardship” employer’s (Quillian, supra, or “undetermined” deductions from set 96 wage. pated” 156, 163.) Cal.App.3d Kerr’s the burden of Catering, the court stressed that

Again citing placing not because the unjust, cash and merchandise on shortages employer “ could on to customers ‘or lower employees’ cost employer pass [its] ” a wide thus losses wages distributing among group.’ proportionately, 156, 162, (Quillian, Catering, supra, 96 Kerr’s supra, quoting Cal.App.3d 319, 329.) Cal.2d v. Neiman Marcus Inc. Hudgins Group, (1995)

In Cal.App.4th (Hudgins), sales associates for a store chain Cal.Rptr.2d department 46] (Id. 1113.) on “net sales.” paid cоmmissions their individual Associates p. advances, draws, commissions, received to charge-backs against subject commissions, determined, future draws if fell short of against actual finally the amounts Until net sales were advanced. associate’s previously sales, on (1) defined as his or her less and alterations those gross gift wrap returns”—i.e., items and “identified returned goods during pay period could be In after obtaining which identified as sold by employee. the new associates’ signed acknowledgements employer began policy, back, earned on his or her against each associate’s commissions charging sales, a rata deemed to have own net share of advance commissions been pro returns”—i.e., which, on “unidentified returned merchandise as to for paid reason, the could not be determined. whatever selling employee Plaintiff, this for himself and a sales associate sued subjected policy, relief, that the deduction for others to obtain lost and other claiming granted summary unidentified returns violated section 221. trial court reversed. The Court judgment employer. Appeal Quillian, the Court of Kerr’s Catering Deeming governed by case that the commissions valid held deduction from earned employees’ Appeal returns violated sales to reimburse the for the cost unidentified 410, and orders such as section sections 400 through pertinent court, 11070. These Regulation said have been provisions, “long held to deductions from an prohibit for cash employee’s wages shortages, breakage, loss of and other equipment, business losses that may result (Hudgins, supra, employee’s simple negligence. [Citations.]” 1109, 1118.)

The court that insofar as the explained which inability identify associate had sold the returned merchandise was the result of that record- keeping negligence, conscientious were their own employees giving up earned commissions to cover losses occasioned the by misconduct of others. court, said the Conversely, if the cause of the unidentified return was customer abuse, neglect, dishonesty, conscientious were sacri- their own earned ficing commissions to the for compensate losses employer occasioned its return generous policy. concluded, Either the court way, the “employees ‘insurers of [were made] ” (Hudgins,

the supra, 1109, employer’s business losses’ Cal.App.4th 1123) and were subjected to deductions from their unpredictable wages for (id. losses due to factors their beyond 1123-1124). control at As in pp. Quillian, admonished, the court further could not defend the lawfulness of its that “the policy grounds deduction is in its just step [one] (Hudgins, supra, calculation of commission income. 1124.) p. [Citation.]” Ralphs Grocery, supra, Cal.App.4th issue presented precise we address in this case—whether a cause of action arose wages improp- here, withheld under erly ICR As Ralphs’s plaintiff sought represent here, class of both and exempt As nonexempt Ralphs employees. com- storewide plaint alleged by charging of workers’ expenses compensation, cash and shortages, merchandise losses storewide against revenues to obtain the store net on which earnings figures incentive supplementary calculated, were payments violated sections plan 400 through and Regulation 11070. The trial court overruled demurrer. mandate, sought and the Court of Ralphs denied relief. Appeal Ralphs Grocery court at the observed outset that had Ralphs persua demonstrated the sively beneficial effects of incentive profit-based compensa Moreover, tion for both plans employers after employees. reviewing Quillian, Kerr’s Catering, Hudgins, court acknowledged had Ralphs that, economics, shown a matter “as calculation incentive bonus based on into account not profitability by taking only revenues but also store in accordance with expenses standard accounting differs principles markedly (Ralphs (or from reducing recapturing) wages through deductions.” prohibited Grocery, supra, 1090, 1101.)

Nonetheless, to conclude that felt Grocery compelled the court was, in illegal. By including the ICP certain respects, on which the store’s net calculating earnings costs in the formula for based, the Court of incentive compensation payments held, to cover deduction from taking Appeal concluded, Moreover, costs, in direct of section the court such violation 3751. account cash shortages, insofar as the net calculation took into earnings and loss of not caused breakage, equipment compensated employee’s act, or violated dishonesty, negligence, Regulation willful gross court, formula, forced This said applicable nonexempt employees. workers to the law exclusively such assume business costs places upon and to face the of uncertain and employer, “special hardship” unanticipated deductions. hand, held, On the other of Grocery no law consideration prevented cash, merchandise, and losses in calculating equipment incentive of not compensation payments managerial, employees exempt, covered 11070. Neither in letter nor in said the Court of by Regulation spirit, did such a formula resemble the of Appeal, wages already “recapture” paid, section оr the of an cash bond by exaction prohibited employee governed by through (Ralphs Grocery, supra, sections 400 410. 1090, 1105.) Cal.App.4th noted,

Kerr’s the court had that losses of these kinds Catering, suggested of it for thus was “expenses management,” implying appropriate managerial to bear some of the costs associated with their employees and a fair and oversight of business Such is supervision operations. system sense, observed, with common have court because comports managers of control business that affect both revenues and operations expenses. least,” court, “At the very said the “it would a extension of significant require Court’s dicta Supreme Catering] regarding underlying Kerr’s spirit [in of the Labor Code workers’ to conclude an protecting provisions incentive that determines an bonus compensation plan exempt employee’s items, a full and range revenue cash is expense including shortages, 1090, 1106.)8 unlawful.” (Ralphs Grocery, supra, Quillian, Though Ralphs Grocery supra, Cal.App.3d expressly disagree did not with rights managerial point. are at odds on the employees, as to the the two decisions there as a managerial employee, involved a and no Commission order was cited Quillian Instead, rights. held that the deduction of cash and merchandise losses source of her Quillian through and that it manager’s pay from a incentive contravened sections 400 insinuated might also violate section 221. observation, conclude, We entirely agree with this latter but it leads us to Grocery, ICP not in contrary Ralphs illegal To Ralphs’s respect. resemble, Ralphs Grocery, Plan does not in letter or paraphrase spirit, deduction, setoff, or prohibited for the recapture expected wages purpose cоsts, with saddling employees as was at issue in prohibited employer reasons, Quillian, Kerr’s and Catering, For similar the Plan does Hudgins. not in violation of section direct produce, or indirect prohibited deduction or contribution from to cover the costs of employee wages Plaintiff and his amici curiae are incorrect when compensation. they ICP is argue relabeled version of the simply wage-deduction Quillian, schemes addressed in Kerr’s and Catering, Hudgins.9 cases, In each of those whether employee’s compensation, regular set, essence, commission, i.e., as a supplementary, sales a specified share of the revenues attributable to that promised employee’s personal sales or efforts. The managerial set commission was then reduced directly losses, the full dollar value of merchandise and cash as determined employer, regardless of fault. The thus its employer defrayed them, dollar, merchandise cash losses dollar for by charging its against bonds, Without for liability wages. following rules cash the employer losses, assessed individual the entire value of such unliquidated and did so amounts from earned and by withholding commissions promised means, until those fell commissions to zero. this reduced By individual increase its own retained This is the employees’ profits. statutes, and cases have practice regulations, prohibited.

Here, unlike in Quillian, Kerr’s no Catering, was Hudgins, offered or a bonus or commission that was promised specified based upon, measurable his or her individual or immediately by, sales managerial efforts, Instead, but was then to deductions to cover costs. subject employer ICP, under the all eligible incentive employees’ supplementary outset, was and collectively at the on store a factor equally premised, profits, considers the necessarily as well as its income. employer’s expenses 9 Two amicus curiae plaintiff—one by Attorneys briefs were submitted on behalf of Consumer California, Inc., Caucus, and one on the collective behalf of Asian Law Asian Pacific Center, Clinic, Legal American Employment Rights Golden Gate Women’s La Raza Centro Inc., Center, Legal, Legal The Society—Employment Community Aid Law and Stanford Law Caucus, Inc., collectively Clinic. The latter amici curiae are referred to in the text as Asian Law Ralphs by et al. Amicus curiae briefs were submitted on behalf of California Grocers (2) Employers Group Association and and California Law Council. nature, that, the Plan’s very the beginning understood from

Employees depended for a particular period incentive compensation supplementary exceeded its for the relevant period the extent to which the store’s revenues calculated as percent- as defined in the Plan. Amounts expenses, operating or “earnings” were the only “wages” of the store’s Plan-defined profit age took no under the Plan. to eligible offered or promised employees contributions, indirect, from the wages direct or unauthorized deductions or due, in the amount ultimately offered or If there was uncertainty so promised. arose, the basic Plan was taken charge-backs it not from employer after determined, from the basis on which Plan compensation but inherently awarded.

Thus, suffered neither a prohibited recapture employees offered, deduc- nor an uncertain or unanticipated already promised, paid, attained no interest or entitle- tion from And because wages. they expected than that calculated finally ment in other any supрlementary compensation indirect, “contribution,” Plan, under the made no forced direct they for costs the law their own resources to reimburse Ralphs requires to bear alone. or offered under the incentive compensation promised nature, and reward employee Plan was collective in intended promote necessarily teamwork that a net for the store as a whole. This produced profit sales, but its overall reducing entailed not store’s overall only increasing costs, of cash those from workers’ and losses including arising compensation, an effort in which all and merchandise. The Plan that this was contemplated and reward could and be involved. To eligible encourage should them, their wages, their the Plan offered over and above regular participation, in the successful result. stake proportionate incentive We cannot conclude that such a supplementary (see Grocery, Ralphs beneficial to both and system, employer employees 1090, 1101), the policies 112 contravenes supra, wage-protection Cal.App.4th Considering of the Labor Code and 11070. Regulation “marked[]” at systems difference between and compensation economic Ralphs’s plan Quillian, Grocery, supra, Hudgins (Ralphs issue in Kerr’s and Catering, and here would reason 1101), defy a that those decisions govern holding p. common sense.

238

First, shift insofar as the law from to using wages precludes employer to or to make the insurers of such business losses employees, employees losses, ICP, did not here. absorbed all store do so Under Ralphs Ralphs costs, and As the Plan took them as full its own charges against profits. determined then if there remained to any specified, Ralphs simply profit split with its employees.10

Nor did Plаn become workers’ insurers participants prohibited Ralphs’s losses, or of its cash and merchandise shortages compensation expenses, have might because the level of a store’s in these simply expenses categories offered or ultimately effect of or raising lowering wages earnings does,” and to Plan An promised participants. “may, usually defray employer ... or business either these costs on to consumer expenses by “pass[ing] his thus [by] lowering] wages distributing employees’ proportionately, 319, 329; (Kerr’s Catering, losses a wide 57 Cal.2d supra, among group.” Quillian, 156, 162; supra, Hudgins, supra, 96 Cal.App.3d see but cf. the earned deductions from commissions [prohibiting individual to reimburse for commissions wrongly employees paid others].) to Ralphs defrayed compensation, The dissent insists that some of the costs of workers’ and indirectly defrayed through passed employees, these costs to insofar as the Plan formula used Ralphs expended compensation the amounts had for workers’ claims to reduce another arose, profit-sapping expense—its payroll. offsetting says, This effect the dissent because as formula, rose, compensation expenses Ralphs’s profits, as calculated under the Plan amount, obligations Ralphs’ compensation pursuant fell the same and s incentive to the Plan means, asserts, profit-sharing multiplier. By thus also fell to the extent of the this the dissent Ralphs legal responsibility compensation avoided the full worker’s its bear brunt of through their Plan expenses, placed portion employees and a of that burden on a reduction of calculated, due, compensation. disregards What the dissent under the Plan were aside, only already fully absorbing deducting all paid Ralphs and from what had set and after expenses, profit. as its The fact that workers’ costs affected the amount of own thereby extracted profit Ralphs employees had available to share with its does not mean contribution, indirect, defray them deduction or direct or worker’s costs. Quillian Citing Hudgins, urges against could not evade the rules plaintiff deducting withholding wages by using losses from a formula under which the business pertinent wage only prohibited expenses determined after the were factored in. The dissent Quillian argument. Hudgins But the asserted in must be considered in principle echoes this cases, commissions employees promised the context of the facts there at issue. In those generated by own specific set formula on the basis of sales volume or revenues their against were then assessed individual efforts. Cash merchandise losses wages. performed calculations were to achieve that expected reduce these The order which fundamentally prohibited start from the different result was irrelevant. ICP’s such premise profitability that the basic measure of the due is overall create, nature, By or even incentive enterprise. promise, its inherent such does not Quillian Hudgins and determined. and compensation profitability unless and until occurs is the the to against subjecting “special

Plaintiff cites policy (Kerr’s fluctuations. or undetermined” wage hardship” “unanticipated 319, 329; Quillian, Catering, supra, supra, 57 Cal.2d Cal.App.3d course, 163.) Of the to involved no regular wages paid Ralphs employees amounts, in dollar and such Those concrete hardships. wages, promised a or for a On the other regardless store’s loss paid profit specified period. hand, a incentive based on the financial supplementary compensation plan uncertain, of the business is nature and insofar as by fluctuating performance success, under the sums thus available for distribution enterprise’s will But this alone cannot cause plan, vary uncertainty period period. to violate the of the Labor Code and plan wage-protection policies 11070. To hold otherwise would make kind of achievement- Regulation every based indi incentive whether based on compensation system, vidual or overall business illegal. performance, statutes and rules do not demand that wage-protection employee be certain or stable from compensation absolutely pay period pay period, regardless Nor do forbid a employees’ contrary understanding. they which, in system even services have been the final though already performed, amount of cannot be wages determined until after specified contingencies have come to pass. that,

On the contrary, numerous California cases have held where the so understand and final at parties agree, least a compensation, portion thereof, be on events that occur after the contingent has employee service, and even where he or she has received performed already advance circumstances, off, sums. In such set future employer may against excess amounts Such a not payments, any does previously paid. system violate section 221’s on the prohibition employer’s recapture & v. Levi Strauss Co. already earned or paid. (E.g., Neisendorf 520-523 221 not violated Cal.Rptr.3d by 216] [§ which, incentive on based plan though profits particular rendered year, who worked that for bonus if not still year ineligible Verio, Koehl v. Inc. distributed]; on later date when bonuses were employed be premise grounds cannot read for the thаt a of this kind on “profit” fails relevant measured, understanding, by subtracting in accordance with common expenses from revenues. Contrary suggestion, to the nothing say require uphold, dissent’s we would us to under here, whereby of the laws at issue a employer promised scheme “$15 $3 employee compensation per per hour less hour for each workers’ opn., post, (Dis. 5.) employee.” claim filed p. promised fn. What is in case Quillian, Catering, Hudgins $15 per Kerr’s wage. is a hour indicate that the from, wage, promised deduction prohibited cannot then take a even if it announces Here, contrast, net, wage, gross advance that it will do so. supplemental no ever calculated, instance, promised except wage based in the first store’s Plan-defined it, not, any. recognize if profit, simply manipulate To this fact is as the dissent would have ” (Ibid.) point ‘earnings.’ “the at which to label a payment 240

(2006) [employer Cal.Rptr.3d 749] 1329-1337 Cal.App.4th [48 commissions, which are not sales back sums advanced on charge satisfied]; have been all conditions thereto deemed earned until precedent Communications, (2005) LLC Times Angeles Steinhebel v. Los could charge 704-712 [newspaper Cal.Rptr.3d 351] [24 telemarketers where commission advances to subscription back commission Prudential retained for 28 days]; deemed earned if was only subscription Cal.Rptr. Co. v. 189-193 Fromberg Cal.App.2d 475] Ins. commissions, when then back excess charging of advances on [system paying 221]; Hudgins, supra, did not violate see final commission was determined § could be required, that sales associate 34 Cal.App.4th [implying commissions that were on his or her own sales to return through chargebacks, returns].) reason of customer by later rescinded a system for fraud and deceit in

Kerr’s noted Catering potential losses, are determinеd as unilaterally employer, whereby unliquidated from But this wages. to an individual deductions through charged limits, All concern, too much. when stretched reasonable beyond proves honesty to some degree forms of employee compensation depend fluctuat calculations. this is true Certainly accuracy employer’s commission-, such as or task-based compensa form of ing earnings, piece-, tion, that on the recordkeeping. relies primarily employer’s

However, of incentive pay alone does not mean those forms this concern ICP at issue here. it cannot bar the Similarly, are forbidden. profit-based Indeed, claiming deceit seems where the greater employer, potential an individual them shortages, charges against losses specific distributes, a share its than where it among group employees, pay se, is illegal, simply We are not that Ralphs’s plan per profits. persuaded not here—that of the theoretical presented because possibility—concededly it. cheat might applying eliminate all theories would profit-based observes plaintiff’s Caucus, Inc., They et al. disagree. and amici curiae Asian Law ICP’s. Plaintiff could, does, ICP deleting and now offer a legal insist Ralphs costs, losses not cash and merchandise formula workers’ compensation profit fault, to be considers and other expenses plaintiff attributable to employee However, control, as Ralphs third tort claims. such as party beyond employee not entirely basic would it difficult to see how plaintiff’s premise is suggests, for calculating net as a basis earnings legal eliminate profits incentive compensation. focus on and arguments particular

It true that complaint plaintiff’s (citing costs as workers’ compеnsation such categories ‍‌‌​​‌‌​‌‌​‌‌‌​‌​​‌​​‌‌​‌‌​​‌‌‌​​​​‌‌‌​​‌‌‌‌‌‌​​‌‍employer expenses, Kerr’s 3751) (citing section and cash merchandise losses shortages Quillian, Catering, Hudgins, 11070). But sections 221 Regulation through against any statutes, a in combination with other establish public policy deductions, setoffs, or an from employee wages or recoupments employer (See authorized statute. those deductions earnings, except specifically 563, 574 v. Gemini Phillips Moving Specialists 29].) Cal.Rptr.2d if, insists, net or

Thus used to calculate plaintiff expenses earnings a ICP “deduc- of constitute profits purposes supplementary profit-based not, tions” from for this wages, may employer presumably purpose, bill, rent, subtract from its revenues such as the cost of utility expenses sold, merchandise or other costs the absorbed before any actually employer net its determining profit. event,

In the of a ICP that concept supplementary profit-based others, deduct some actual but not to derive the only expenses, figure upon which are calculated is not No reason payments legal persuasive. appears when an chooses or in to why, agrees to addition pay employees, their a regular of its it must wages, portion artificially profits, inflate earnings figure by that reduced those omitting expenses actually profits.

Nor do and his amici curiae demonstrate how such a plaintiff requirement would serve the of public policy safeguarding wages. As plaintiff’s counsel conceded at oral argument, could for the elimina- Ralphs compensate tion of certain from the Plan formula expenses by lowering simply of the percentage resulting that was to “profit” figure payable employees. Kerr’s Catering, supra, (See 319, 329.)12 57 Cal.2d We see in the nothing costs, simple As a example, Ralphs initially compensation assume that subtracts workers’ losses, shortages, operating expenses, cash and merchandise in addition to other from store profit figure, resulting $10 revenues to derive the store then percent profit, shares 10 or $100 per profit, employees. being of with its After advised that inclusion of workers’ costs, compensation shortages, illegal, cash profit merchandise losses in the calculation is formula, expenses artificially inflating “profit” eliminates those from the the final thus figure by percent. thereby increasing To avoid amount payable employees dollar to ICP, Ralphs under the simply employees’ percentage “profit” could then reduce the stake in the percent percent. from 10 to 9.09 Indeed, circumstances, if Ralphs employees’ percentage to lower the stake under such failed issue twice. Consider pay portion following it would a at expenses example: of After absorbing paying expenses compensation, shortages, or such store as workers’ cash merchan- loss, claims, $10,000, damage party registers dise or and third tort total amount of $100,000 then, do, profit period, promised percent store for the as it has shares 10 $10,000, profit, of that with Plan participants. expenses If the described above omitted registered the “profit” purposes, “profit” calculation for Plan would increase from $100,000 $110,000, payable participants, promised percentage and the share to Plan if the same, $10,000 $11,000. effect, Ralphs stake remained the would thus increase from In laws, such mean- they policies promote, requires wage-protection ingless figure juggling.13 California,

Plaintiff, curiae Consumer Attorneys amicus joined by that, a store’s workers’ insofar as ICP subtracts length contends to determine the on which profit costs from its revenues compensation based, are the Plan violates incentive amounts compensation law store by encouraging policy their But one reducing might not to valid claims for fear injury pay. report costs in the inclusion of workers’ argue profit equally promotes system by calculation of the workers’ goals to maintain a safe and by discouraging encouraging employees workplace, 1090, 1102.) (Ralphs Grocery, supra, claim abuse. 112 Cal.App.4th event, this debate is Ralphs Grocery In as the court recognized, policy 1090, Grocery, 112 not for the courts to resolve. (Ralphs supra, Cal.App.4th statutes, find in the 1102.) nothing regulation, We conclude that we only to from its over offering employees, cases cited by plaintiff prohibit Ralphs incentive and above their base guaranteed wages, supplementary compensa that remain after store legitimate expenses, tion on the basis of store profits have been subtracted from the costs of workers’ including compensation, store revenues.14 $10,000 charge against profit, a its actual then paid expenses

would have or absorbed the of as $1,000 again compensation participants. of these as to Plan paid expenses 13 meaningless, figure juggling that of this sort is not because such protests The dissent legitimate “perverse employees suppress would at for to formula least remove incentive[]” profit figure upon compensa which Plan compensation workers’ claims in order to boost Whether, extent, (Dis. 252.) incentive to opn., post, p. at and to what an tion is calculated. beyond “perverse” scope is both debatable and issues compensation reduce costs is discussion, (See post.) here that whatever incentives the Plan point before us. text The taking employees, their it did not do so deductions or contributions from produced, property, or their in violation of law. legitimate incentive formula was not a Ralphs’s In an effort to show that Caucus, Inc., al., argue formula would not Ralphs’s Asian Law et profit-sharing plan, Act, profit-sharing plan,” as a “bona fide thus qualify, under the Fair Labor Standards calculating an overtime rate. “regular pay” purposes employee’s for excludable from note, (29 207(e)(3).) defining a fide regulations curiae federal “bona U.S.C. As amici § others, among contribu purpose plans, for exclude in which profit-sharing plan” this profits other than such as employees to a fund for distribution to “are based factors tions (2006).) work, (29 savings As efficiency, sales or in cost.” C.F.R. 549.2 production, § hours of observe, purposes for of determin curiae further California follows the federal standard amici Code, regular subject pay overtime ing, under the Labor what constitutes an 893, (See Hospital Superior Huntington Memorial v. Court rate. 373].) unqualified plan was an Cal.Rptr.3d Amici curiae assert 902-903 [32 payments for a incentive under these standards insofar efficiency increased that store’s particular productivity rose when their store’s costs, occurred. Even if opposite but fell when the result operating revenues and reduced its under Ralphs’s plan qualify, out under did not paid amici curiae are correct that amounts rules, regular pay—-anissue we need not do not employees’ overtime for exclusion that, costs, Plaintiff at least with argues respect has resolved the Legislature issue action subsequent observes, decided, Grocery. As Ralphs Grocery soon after plaintiff two (c) bills introduced in the Senate to add a subdivision to section 3751. amendment would have that use of workers’ proposed specified compen- sation costs the calculation of of an bonus profits purposes does not program constitute deduction from in viola- employees’ earnings (Sen. tion of the (2003-2004 section. Bill No. 6 Sess.) 4th Ex. as introduced 19, (Senate Nov. 6); Bill No. (2003-2004 Sen. Bill No. 1141 Reg. 21, Sess.) as introduced (Senate Jan. Bill 1141).) No. case, notes,

In each committee made clear that plaintiff analyses was to overturn Ralphs Grocery insofar as that decision held purpose (See, Relat., otherwise. Sen. Com. on Lab. & e.g., Indus. analysis of Sen. Bill 6, 1, 2003, No. Dec. 23, 1-2 at pp. <http://info.sen.ca.gov> Aug. [as 2007]; Relat., Sen. Com. 1141, on Lab. & Indus. of Sen. analysis Bill No. 26, 2004, 23, 1-2 at Apr. pp. <http://info.sen.ca.gov> 2007].) of Aug. [as However, both bills died in (See committee. Sen. Bill No. Bill Complete at History <http://info.sen.ca.gov> 2007]; of Aug. Sen. Bill No. [as Bill Complete History <http://info.sen.ca.gov> Aug. 2007].) [as Plaintiff these urges demonstrate that developments the Legislature 3751, Ralphs Grocery’s construction of section acquiesced and that it efforts to rejected supersede decision. We have disagree. We often said that mere inaction legislative is a “weak reed” which to rest upon conclusion about the Legislature’s Harris v. intent. Capital Growth (E.g., Investors XIV (1991) 1142, 614, 52 Cal.3d 1156 805 P.2d Cal.Rptr. [278 873].)

We have sometimes found legislative in the acquiescence construction of a where, statute over a long of uniform period judicial or administrative treatment, has Legislature addressed the law in question multiple occasions, has not yet disturbed the settled v. (See, People interpretation. e.g., Salas 967, (2006) 624, 37 40]; Cal.4th Sara M. v. 979 127 P.3d Cal.Rptr.3d [38 Superior Court 998, (2005) 89, 36 Cal.4th 1014-1015 Cal.Rptr.3d [32 In re Dannenberg (2005) 34 Cal.4th 550]; 1061, 116 P.3d 1091 Cal.Rptr.3d [23 417, 783]; Olmstead v. Arthur 104 P.3d J. & Co. Gallagher (2004) Cal.4th 804, 298, hand, 354].) 86 P.3d Cal.Rptr.3d On the other we have [11 failure, declined to here, base such a conclusion on a bill’s mere as to clear committee in the legislative chamber where it was introduced. (Moradi-Shalal v. Fireman’s Fund Ins. 287, Comрanies (1988) Cal.3d 116, noted, 58].) 758 P.2d As we Cal.Rptr. have “failure of the bill to [250 precluded offering simply nothing decide—that issue has Ralphs to do with whether from such a under California law. the intent of the determinative of [chamber] floor is reach the [not] [chamber] (Ibid.) fail.” should legislation as a whole that the proposed introduced, only single 1141 were Bills Nos. 6 and At the time Senate section 3751 should apply case had considered how recent Court of Appeal infer, decline to solely We incentive compensation plans. profit-sharing Senate, the Legislature in the without a floor vote the fact these bills died reasons could Many explain of this decision. a whole the holding accepted further, including press the bills failure to consider Legislature’s considerations, in the short business, at least tendency, other political Los v. run, (County Angeles own errors. to correct their to trust courts 391, 403-404 Cal.Rptr. Bd. 30 Cal.3d Comp. Appeals Workers’ two 214, hastily mere inaction on 681].) presented The Legislature’s 637 P.2d course, the in the normal from examining, foreclose this court bills cannot Plaintiff’s claim and the issues it addressed. decision Grocery rejected. must be legislative acquiescence ICP,

Therefore, we hold that profit-based Ralphs’s for their collective their normal pay to reward beyond designed policies did not violate the protection to store profits, contribution or Regulation 400 through Labor Code sections such as workers’ compensation Plan included store expenses insofar as the tort claims costs, and third party shortages, breakage, cash and merchandise Business and claim of under liability The derivative in the calculation.15 profit we will reverse also fails. Accordingly, 17200 thus Professions Code section of dismissal which reversed judgment of the Court of Appеal, the decision com demurrer to plaintiff’s after trial court sustained entered Grocery, supra, amend. We will also disapprove without leave to plaint it conclusions. contrary to the extent reaches 112 Cal.App.4th 15 However, the most directly point. jurisdictions decisions from other We have found no York, here. New support to our conclusion case tends closely applicable non-California California, employee for labor or “earnings all of an “wages” to include similarly defines time, rendered,” commission or other earnings piece, “on a including calculated services “wages” Law, 190(1).) regulations protect such (N.Y. The and related Lab. statutes § basis.” law, “deductions,” they specifically authorized and specifically than those all other from shortages for, “breakage,” and “cash things, among “spoilage,” other deductions prohibit 137-2.5(a), Law, 193; tit. Regs., §§ Codes R. & Comp. N.Y. (E.g., § N.Y. Lab. losses.” Capital v. Northeast 190-5.1(a).) In Truelove 142-2.10(a), 142-3.11(a), 141-2.10(a), 138-3.6(a), 770], Appeals Court of the New York (2000) 738 N.E.2d N.Y.S.2d N.Y.2d remuneration, offered, regular as a “[discre in addition to the held that a bonus employer’s entrepreneur of the employees all success tionary . . . share in a reward to to constitute rendition of services employee’s personal sufficiently linked to ship,” is not (Id. 772.) p. Ralphs, regulations. of these statutes “wages” protection within the not course, under the Plan are argue that amounts distributed does not here “wages.”

DISPOSITION The of the Court of judgment Grocery is reversed. Co. v. Appeal Court, Superior to the extent it supra, disapproved reaches conclusions to the contrary views in this expressed opinion. J., Chin, J., J., C.

George, concurred. Corrigan, WERDEGAR, J., Dissenting. This iscase of statutory interpretation. Labor Code section 37511 prohibits employers directly indireсtly to, all or of their passing any part workers’ costs back their compensation deductions from their employees through employees’ compensation. Ralphs Grocery Inc.’s that. Company, compensation just does Whatever this plan court’s views concerning reasonableness and of such desirability plans, decision, notions judicial are irrelevant if the policy Legislature’s policy statute, embodied in the text of the a different result. It does so here. compels I Accordingly, dissent. respectfully

I demurrer, As this case is before us on we must as true all accept ’ well-pleaded allegations in Korkiat plaintiff Eddy s second Prachasaisoradej amended complaint (complaint). is a

Prachasaisoradej Inc. Ralphs Grocery Company, (Ralphs), employee. He sued under the unfair law for competition adopting employee that, compensation plan made according complaint, compensation on, alia, costs, partially contingent (1) inter workers’ compensation cash and merchandise contended shortages. Prachasaisoradej violates section plan (barring employer pass-throughs costs), as well as other various Labor Code provisions and a Labor Commissioner order wage governing employer pass-throughs cash and merchandise shortages. are not particulars its dispute. Ralphs computes based in on a fixed and in on a bonus part part

tied to store with Each store has a performance compared projections. financial and the target, bonuses for each store are based on how employee that store does to its Under compared target. formula for measuring

1 All unspecified statutory further ‍‌‌​​‌‌​‌‌​‌‌‌​‌​​‌​​‌‌​‌‌​​‌‌‌​​​​‌‌‌​​‌‌‌‌‌‌​​‌‍references are to the Labor Code.

246 claim, when an files workers’ compensation

store performance, employee claimant the store where the against for that claim are charged the expenses claim an of a workers’ filing compensation works. Consequently, and the bonuses figure resulting reduces the store’s performance losses, and merchandise is true of cash shortages that store receive. The same and reduce figure a store’s charged against performance which are likewise whether this arrangement only question its employees’ compensation. is lawful.

II deduction For of Prachasaisoradej’s purposes 3751, claim, (a) central. Section subdivision provides part: one statute is contribution, or any or receive from any “No shall exact either take deduction from the any earnings any employee, make or of the cost of to cover the whole or directly indirectly, part [workers’] (Italics added.) . . . .” within “earnings” not contest that its bonus constitutes does Thus, the under section 3751 is only of section 3751. meaning question deduction from its involves a whether Ralphs’s plan “direct[] indirect!]” the whole or of the cost of any part “to cover earnings [workers’] employees’ added.) wages 3751 (Italics regulates employee As section compensation.” conditions, ensuring it must be construed in favor broadly and working of the remedial light it was intended to guarantee: workers’ protections “[I]n wages, authorizing regulation nature of the enactments legislative for the and benefit employees, hours and conditions working protection eye are to be construed with liberally promoting statutory provisions letter within narrow limits of the . . . are not construed ‘They such protection. law, the general are to be liberal effect to given promote but rather ”2 v. (Industrial Superior .. ..’ Com. to be object sought accomplished Welfare 690, 331, 579]; P.2d see also (1980) Cal.Rptr. Court 27 Cal.3d 702 [166 Productions, 1094, (2007) Inc. 40 Cal.4th 1103-1104 v. Kenneth Cole Murphy 880, 284]; v.Industrial Com. Henning 155 P.3d Cal.Rptr.3d [56 Welfare 442]; Kerr’s Catering 762 P.2d Cal.3d Cal.Rptr. 1269 [252 (1962) 57 Cal.2d Industrial Relations Service v. Department of and our courts (Kerr’s “Legislature P.2d Catering) Cal.Rptr. [the 20] in order protect accorded to considerations” have special scheme, of earner”]; 3202 “welfare of the wage § [workers’ workers].) in favor of liberally should be interpreted which 3751 is part, § it, citing after apply it does not majority acknowledges principle, this While the once, meaning statutory text’s again to discern the full attempts never language of section 3751 implications. or address its math

Rudimentary exacts, and economics demonstrate that at Ralphs’s plan least, an indirect deduction from for employee compensation part workers’ costs. Ralphs’s compensation Bonuses are calculated on the basis of formula for special That plan-defined formula includes “profit.” Thus, workers’ costs as a compensation deduction. if workers’ compensation costs go up, down, used in performance figure the calculation goes as does the bonus out. paid each Consequently, bonus is tied to the employee’s figure store; workers’ employer’s compensation costs as those costs rise, the suffers a employee reduction in corresponding compensation.

Granted, dollar, the deduction is not dollar for but the linkage to the compensation employer’s workers’ costs is direct and compensation Moreover, section inescapable. 375l’s is not limited to prohibition only dollar-for-dollar deductions. It even to applies deductions “indirect[]” cover “any of the cost of (ibid.) рart” compensation, its Through bonus plan, Ralphs allays portion its workers’ costs. If compensation $1, those costs rise its bonus plan reduces employee some compensation by corresponding amount. Whether it saves 5 cents or thereby 50 cents on the immaterial, dollar is distinction; as the statute makes no either is illegal. does not have to structure as a bonus plan any of the part compensa- tion it does, offers package but if employees, it it not make compensa- tion contingent workers’ compensation costs.

Ralphs’s plan directly implicates rationale behind the statute. The of the premise scheme, workers’ compensation of which section 3751 is a is that in part, exchange tort-based relinquishing remedies for industrial injury, workers receive the assurance of no-fault from their compensation employers; conversely, in employers, for a shield from exchange tort liability, must bear the cost of injuries suffered workers their employ. (Shoemaker v. Myers (1990) 52 Cal.3d 801 P.2d Cal.Rptr. 1054].) By including workers’ costs in its formula to measure store performance, ensures that any rise in workers’ compensation costs will be costs, partially allayed by reduced as a payroll portion industrial accident burden is shifted to Ralphs’s employees. Legislature made a decision nearly 100 years ago alone require to bear the employers financial costs of industrial safety. We should enforce that decision.

The complaint identifies a second in which way undermines Ralphs’s plan the Legislature’s workers’ scheme. The structure of Ralphs’s under which the plan, costs of each workers’ claim are charged to that store’s performance figure, creates disincentive for injured employ- claims, ees to file evеn valid as well as an incentive for fellow pressure injured workers not to file claims. We may construe reasonably section 3751 as intended to protect against just such While the consequences. 248 the costs in that “inclusion of workers’ argues compensation instead

majority the of the workers’ calculation [might] promote]] goals profit to a safe maintain by encouraging employees workplace, system ante, 242),3 the is beside opn., claim abuse” this discouraging (maj. p. at is the courts the “this debate not for acknowledges, as majority policy point; done (ibid.)—because the has so. Legislature already to resolve” context, Co. v. Ralphs Grocery 3751 in this The lone case to section analyze (2003) (Ralphs Court 112 1090 Cal.App.4th Cal.Rptr.3d Superior [5 687] of “the arrived the same conclusion: runs afoul Grocery), Ralphs’s plan at at Grocery, of section 3751. meaning” (Ralphs and clear language plain the 1102.) constitutes within ‘earnings’ bonus “Ralphs’s plainly employee p. statute; and the deduction for workers’ alleged meaning least, is, means of at the an indirect very costs in the bonus calculation (Ibid., omitted.) for such fn. costs.” holding employees responsible costs in 3751 of workers’ compensation Section prohibits passthrough We are to construe that statute. liberally the broadest terms. possible obligated Where, here, of the terms of both falls afoul literal as a compensation plan its undermines goals underlying the statute directly legislative has stated it violates the statute. Accordingly, Prachasaisoradej adoption, claim.4

Ill result, its to “reason and common In reaching contrary majority appeals ante, 237): base an at cannot sense” (maj. opn., p. Why an net in the limited bonus on its The answer because plan profits? emplоyee case, it this determined Legislature involved in has sense “profits” over this on form by focusing cannot. The avoids conclusion majority 3 might. pay their own workers’ Perhaps might simply requiring employees it So awards. 4 deduction of and merchandise Arguably, principles similar extend cash (See Regs., [prohibiting tit. shortages in the calculation formula. Cal. Code § bonus Catering, malfeasance]; supra, Kerr’s at 57 Cal.2d shortages deductions for absent wages]; making shortages it from [sustaining regulation unlawful to subtract pp. 322-323 Grocery, supra, [holding pp. at unlawful calculation 1104-1105 Lion v. Oil Quillian according shortages]; included to formula that deduction bonus (Quillian) [same].) Notwithstanding Company Cal.App.3d Cal.Rptr. 156 740] deductions might suggest employers are free to take anything majority’s opinion in the ante, 236), (see maj. opn., absent earnings explicit prohibition p. employees’ from from taking employees’ deductions plainly prohibits employers Labor Code ’ However, 224.) (§§221, analysis Prachasaisoradej s section specifically unless authorized. concluded, that, correctly Appeal the Court of claim is sufficient to demonstrate as ’ Accordingly, on I do not dwell Prachasaisoradej s should have survived demurrer. complaint remaining his claims.

function; define the moment at which formal label purporting “wages” attaches, “earnings” then asks whether majority workers’ compensation and other costs are subtracted largely arbitrary point, before after rather than rule of focusing, liberality whether actual requires, effect economic is of a the Legislature condemned. type definitions, on a series of the it is Relying dictionary majority asserts only the figure final that results from that bonus calculation “offered or promised as for labor compensation eligible em- performеd by ” and it thus their represented supplemental ‘wages’ ‘earnings.’ ployees, ante, 229.) at (Maj. this end immune opn., p. Accordingly, only figure is from deductions; workers’ other calculations that it any precede are not to the simply subject restrictions of section any 3751 or similar provision.

California courts have seen this of sort before and legerdemain properly Quillian, rejected here, it. In supra, as the Cal.App.3d employer offered its base employee a and a The bonus. bonus was calculated sales, sales, based on gas other and cash or The inventory shortages. employer repeatedly in the emphasized parties’ that the final agreement only result of this calculation was a due bonus the employee, thus no shortages from the deducted It employee’s bonus. to the court argued that its bonus was a valid of plan way incentives creating employee increase sales and decrease shortages. Quillian court saw this through scheme. It that recognized simply the final of the

labeling result calculation as the bonus due the employee did not immunize the calculation itself from scrutiny; calculation itself involved a direct subtraction of shortages from the to the payment employee; semantics, and notwithstanding “the result is the same. The [employee] (Quillian, carries the burden of losses supra, 96 [business].” at 163.) The Cal.App.3d p. employer by law from this prohibited using means to create an incentive for its workers to reduce shortages.

So too here. attached the label bonus to the end only product its calculation. The that majority characterization. In it accepts doing, so Quillian-, ignores that result here is the as in same calculation leading to the moment when the label up “bonus” attaches on thе illegally places Hudgins v. (See burden costs. Neiman Marcus Inc. Group, a .

Cal.Rptr.2d (Hudgins) “cannot avoid that its . . [employer finding 46] is in its just that deduction asserting step is unlawful simply by policy Quillian, Here, income”].) this method as calculation of commission clear rule Legislature contravenes the statutory computing compensation has such adopted against burden-shifting.5 not concern-

That the upset employee expectations compensation plan determinative; is not argues, employee expecta- as the ing majority payment, Speculation are of the interests relevant statutes. tions but one protected not will not from invalidation are disturbed insulate employee expectations vein, the section 3751. In a similar majority that otherwise violates plan with the as one involving compensation,” frames this case “supplementary at the grace these are made employer implication payments wishes deduction long so any way hencecan be calculated ante, (Maj. not below minimum wage. opn., does drive compensation of a is 5.) fn. But that the bonus way 228 & pp. irrelevant; cannot, the device of through an separating compensa- employer insulate statutes into its from the payments operative tion multiple parts, 57 at supra, Kerr’s Catering, (See Cal.2d unlawful deductions. governing made of taken from on payments top 322 unlawful deductions [invalidating p. [same]; 1104 Grocery, supra, 112 at regular wages]; Ralphs Cal.App.4th p. Quillian, [same].) at 158-159 supra, pp. 96 Cal.App.3d have recog- the various cases that distinguish long

The seeks majority of on to take certain deductions types nized broad limits employers’ ability doing and the costs of business thereby from employee compensation pass 319; Catering, Kerr’s 57 supra, Cаl.2d directly (E.g., back to employees. 1090; Quillian, supra, 96 Ralphs Grocery, supra, Cal.App.3d 112 Cal.App.4th 156; 1109.) The offers essentially 34 Hudgins, supra, majority Cal.App.4th those the at issue here differs from system three reasons why compensation First, from an amount it involves no deduction found unlawful. previously offered; is or the amount or offered only already promised promised bonus, is no if that calculation. This distinction results any, 5 striking. Suppose employer is an majority’s approach of the formalistic consequence The $3 per $15 per its hour less hour compensation” promise[s] “offer[s] any made employee. The deduction is before compensation each claim filed workers’ only the amount constitutes promised employee; is to the final offered amount offered or entirely majority’s with the wages; calculating thus consonant this method of is not, however, Legislature’s intent to leave It with application of section 3751. is consonant employees. their employers, costs with not actually promised $3 $15 hypothetical, $15 that in minus majority asserts this ante, 11.) doing may (Maj. opn., p. at fn. In no deductions be taken. amount from which so, “earnings” is point payment at which to a only that its of the label it reinforces selection convenience, legal principle capable not clear arbitrary a matter of based predictable application.

distinction, but rests on the selection of the final calculation of the arbitrary bonus as the at which deductions attaches. As point legal against protection above, Quillian noted in as here the final bonus amount was only promised offered; the court that legal against nevertheless recognized protections unlawful deductions to the used in equally calculating formula applied offered bonus.

Second, falls. For each it additional dollar workers’ spends compensation, for performance figure the store where a claim compensation $1, made and the bonuses and it at that drops must store payroll pay likewise these drop, thereby defraying reduced through expenses employee Quillian, As in Kerr’s Catering, and Hudgins, Ralphs compensation. covers expenses Legislature has determined should it bear its by reducing Quillian, of employee compensation. As in Kerr’s calculation Catering, and Hudgins, that practice is illegal.6

The salts majority its with the of language opinion “profits,” repeatedly referring to scheme a compensation as This offers two plan. profit-based First, rhetorical it advantages. affords the a of as plan presumption validity, who a could rightly object sharing to its with its workers? company profits More to the who could if absence no point, in the bonuses complain profits Second, are it dismiss paid? allows to asserted majority any statutorily 6 Moreover, distinguishable any respect, even if these in cases material none inter preted any reading section and language none offers basis for the broad of section 3751 narrowly more than plain language its warrants. as “artificial involving modifications to formula compelled core, ante, At its (See 241-242.) at maj. opn., pp. profits. inflation]” belief that a calculation of bonus compensa- rests on the position majority’s more and a workers’ deduction is just tion includes authentic, and a unjust that factor is and calculation removes any of reality. distortion truth, inherent claim has of virtue any

In bonus formula no in mix Ralphs may earnings or correctness. In calculating compensation, chooses, it its to in those items desires adding employees costs however it for items sales) assessing out or those (e.g., subtracting charges increase do in constructing its to decrease.7 What cannot Ralphs it desires employees role has decided should no Legislature play its formula is include factors Workers’ compensation in the calculation of employment compensation. law require artificially a factor. Nor would with the such complying not uses calculate bonuses is figure inflate its profits. rather, even it is a But “plan-defined profit.” a true necessarily profit figure; inflation,” context, were, would with “artificial nothing wrong if it in this be uses in incentive- se. The figures Ralphs, employer, computing per only, that purpose need not inflate their are used they based compensation to investors or filed with Securities statements issued earnings public Commission. Exchange Inc., notes, Caucus, can employers As curiae Asian Law correctly amicus to a sales and revenue. They simply still incentive tied adopt plans company’s costs. If enforcement cannot also tie the to workers’ a base higher “earnings” figure, its terms results in according section 3751 may adjust thereby potentially increasing employee compensation, employers e.g., percent a lower offering negotiating percentage multiplier, current This modification rather than 15 figure percent figure. modified ante, 242-242), figure is not “meaningless juggling” (maj. opn., pp. are under scheme burdened one compensation majority complains; claims and have to file workers’ compensation with disincentive other, claims; under not to valid incentive to their submit pressure peers incentives these perverse disappear. arbitrarily, building from appears it choosing its formula it complaint, From figure may loosely based EBITDA рerformance extent be on ground up. To the its store interest, taxes, amortization), EBITDA is non-GAAP (earnings depreciation, before accounting may be calculated almost economic measure and (generally accepted principles) any way Ralphs pleases.

IV I do not with the disagree that an majority offer incentives employer may efforts to increase revenue and to reduce some based on their employees costs. The Legislature has made a that workers’ judgment costs not be wholly partially recaptured their docking to cost response increases. Such a financial arrangement turns the head, scheme on its forcing employees subsidize their own insurance against industrial injury, burden this state has chosen to place exclusively We are not at employers. disturb the liberty Legislature’s in this judgment I regard. dissent. respectfully

Kennard, 1, Moreno, J., concurred. notes unlike cases does not majority this previous deduction, involve a a only dollar-for-dollar but deduction. This is a partial distinction, but a one without difference. terms Section its expressly deductions “to cover whole or of workers’ prohibits any part” compensa- whole, tion What costs. not it not do in may do in employer part. (See Ralphs Grocery, supra, 1104.) Cal.App.4th p. Third, majority contends unlike in cases there is no past genuine costs; pass-through employer ‍‌‌​​‌‌​‌‌​‌‌‌​‌​​‌​​‌‌​‌‌​​‌‌‌​​​​‌‌‌​​‌‌‌‌‌‌​​‌‍absorbs all costs itself. Although superfi- cially this assertion betrays understanding lack of the eco- appealing, nomic effects That structure. bears compensation plan’s initially sense, the costs of workers’ is true. In this this case is no different from Kerr’s Catering, Quillian, supra, supra, 57 Cal.2d Hudgins, supra, Cal.App.3d which the likewise bore various costs. But initially by including workers’ as a deduction in the calculation of subsequent bonuses, rise, costs. If its recaptures portion these they payroll

Case Details

Case Name: Prachasaisoradej v. Ralphs Grocery Co.

Court Name: California Supreme Court

Date Published: Aug 23, 2007

Citation: 64 Cal. Rptr. 3d 407

Docket Number: S128576

Court Abbreviation: Cal.