The following is not meant to be legal advice.
On August 23, 2007, in Prachasaisoradej v. Ralphs Grocery Company, Inc., the California Supreme Court held that an incentive compensation plan that allowed employees to share in profits, as calculated by subtracting operating expenses from revenues, did not violate the Labor Code. The California Supreme Court distinguished the case from prior decisions by stating that the plans were different in terms of how the bonus amounts were calculated. A company had the ability to have a bonus plan that distributed sums based on the company’s net profits.
Prachasaisoradej v. Ralphs Grocery Company, Inc. was about a produce manager in a Ralphs Grocery store, who participated in a bonus program based on a store’s net earnings less expenses for cash shortages, among other business expenses. He filed a suit against Ralphs Grocery in a class action. The suit alleged that the bonus calculation violated wage protection rules in the Labor Code.

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