Ralphs Grocery Co. v. Superior Court

Deducting cash and inventory shortages from the sales commissions otherwise earned by the driver of a sandwich truck is unlawful. (Kerr’s Catering Service v. Department of Industrial Relations (1962) 57 Cal.2d 319 [ 19 Cal.Rptr. 492 , 369 P.2d 20 ] (Kerr’s); see Cal. Code Regs., tit. 8, §§ 11040, subd. 8, 11070, subd. 8.) Does the same legal principle prohibit a large corporate retailer from implementing an incentive compensation plan for managerial store-level employees in which the amount of the incentive bonus is based on the achievement of store sales and profitability goals? The trial court held it did. We agree, but only in part.

To the extent the bonus calculation includes expense items the Legislature or the Industrial Welfare Commission has declared may not be charged to an employee (deductions for any part of the cost of workers’ compensation claims or cash shortages for nonexempt employees), such a bonus plan is unlawful. However, other expense items, even those beyond the individual manager’s direct control, may lawfully be considered in profit-based bonus programs, which can serve as an effective economic incentive to managerial level employees to maximize…