Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 29 By contrast, “the [Ralphs plan] did not create an expectation or entitlement in a specified wage, then take deductions or contributions from that wage to reimburse Ralphs for its business costs.”143 Each Ralphs store employee received a guaranteed dollar wage, which was paid regardless of a store’s profit or loss for a specified period. Under the Ralphs bonus plan, employees were entitled to a supplementary incentive compensation payment “only after the store had completed the relevant period of operation” and the resulting profit or loss figure was calculated.144 This final figure “was the amount offered or promised as compensation for labor performed by eligible employees, and it thus represented their supplemental ‘wages’ or ‘earnings.’”145 Therefore, the amount “offered or promised as compensation for labor performed” already accounted for the deductions about which the plaintiff complained.146 Accordingly, the Ralphs plan did not illegally shift business losses to employees. Rather, it provided supplemental compensation the company used to “encourage and reward certain employees’ cooperative and collective contributions to the profitable performance of their stores” by providing them a portion of their store profits that “Ralphs would otherwise be entitled to retain itself.”147 Ralphs represents a victory for employers because its holding permits a business to have a bonus plan that distributes sums based on the level of the company’s net profits. Although Ralphs addressed and reconciled a significant question of California wage law, employers should keep in mind that courts may treat differently bonus plans that depart from the standard net-profit-based bonus system at issue in Ralphs. C. Unlawful Commission Chargebacks 1. Nature of the Violation Commission plan structures also may lead to unlawful deduction claims where a commission “chargeback” results in a recovery of earned wages. Companies often pay commissioned salespeople a commission immediately upon the completion of a sale, subject to a future contingency. For example, a salesperson might sell a product on day one and immediately receive a commission that is subject to “chargeback” if the customer fails to pay within sixty days. Plaintiffs attack chargebacks primarily by citing Labor Code Section 221, which makes it unlawful for an employer to “collect or receive from an employee any part of wages theretofore paid” to the employee. In addition, where the chargeback occurs for reasons beyond the control of the sales employee (such as the customer’s failure to pay for the item), plaintiffs have invoked Section 8 of the Wage Orders and the Kerr’s Catering line of cases for the argument that a chargeback constitutes an “unlawful deduction” from an employee’s wage not attributable to the employee’s willful misconduct. 143 Ralphs II, 42 Cal. 4th at 223. 144 Id. at 230. 145 Id. 146 Ralphs II, 42 Cal. 4th at 229. 147 Id. at 228.
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