This is a fairly significant wage & hour opinion.
The kernel of this opinion is captured in this sentence:
[A]n employer [does not] violate California wage-protection laws by providing, as Ralphs did, supplementary compensation designed to reward employees, over and above their regular wages, if and when their collective efforts produced a positive financial result for the store where they worked.
(Slip. Op. 3.) (Emphasis added.)
So, what does this mean? Essentially, because the bonus plan references a formula contingent on an external event, and the expectations with respect to that pay was determined by that plan. (Slip. Op. 10.) Significant to the majority was that
no employee was offered or promised a specified bonus or commission that was based upon, and immediately measurable by, his or her individual sales or managerial efforts, but was then subject to deductions to cover employer costs. Instead, under the ICP, all eligible employees’ supplementary incentive compensation was equally and collectively premised, at the outset, on store profits, a factor that necessarily considers the employer’s expenses as well as its income.
(Slip. Op. at 21.) I'm not being tongue in cheek when I say I think this is a distinction without a difference. Either way you slice it, the employee gets less and the store gets more--or at least loses less. It's easier to understand if the difference is based on expectations, whether or not it stems from individual or collective losses, whether or not the income and expenses are considered, which the Court seems to want to head towards at 22-24.
For better or worse, that's what we've got. Though there is dicta that goes further, this opinion appears only to allow the kind of plan set out, with some kind of attenuation between the employee's own acts and the calculation of the bonus. As such, it does not overrule Kerr's Catering and its progeny.
The dissent's deliberately wide citation to Labor Code 3751 would seem to create a claim for failing to keep wages at the same percentage of a company's gross revenues, because it would "indirectly" be passing "part" of their workers' compensation costs on to the employees. (Slip. Dis. 1.) The statute does not intend to create accounting micromanagement.
In some sense, the employee always carries the burden of losses, to paraphrase the dissent (Slip. Dis. 7). The deduction statute references deductions like taxes, etc. that come out of the prior wage.
Will the Legislature act on this? I'll see.
UPDATE: Here's Sheppard Mullin's take:
Because compensation under the Plan was paid in addition to employees' regular wages, which were certain and not subject to unlawful deductions, the Court concluded that the Plan appeared to be a lawful incentive program, rather than a plan designed to unlawfully pass along the costs of Ralphs' business to its employees.
Though they point out that the opinion limits that a little:
Under Ralphs' Plan, by contrast, the basic measure of compensation is the overall profitability of the enterprise, not an employee's personal fforts. "All eligible employees' supplementary incentive compensation was equally and collectively premised, at the outset, on store profits, a factor that necessarily considers the employer's expenses as well as its income." Accordingly, Ralphs did not retain or recapture anything that was promised to employees, because eligible employees were never promised anything under the Plan other than their share of their store's profit, which by its nature takes into account the listed expenses.
I think that's the essence of this opinion--and it's a little more narrow than saying you can do what you want with bonus plans. I won't pretend that I understand how that difference does any good for anyone, but there it is nonetheless.