Prachasaisoradej v. Ralphs Grocery Co., 2007 WL 2388914 (Cal. S. Ct. Aug. 23, 2007)

Eddy Prachasaisoradej, a produce manager for Ralphs, challenged the calculation of bonuses he received under a written incentive compensation plan, which included deductions for expenses and losses due to cash and merchandise shortages and shrinkage, workers’ compensation, tort claims and other losses beyond his control. After unsuccessfully removing the case to federal court, Ralphs demurred to the complaint on the ground that all claims were preempted by Section 301 of the Labor Management Relations Act. Although the trial court sustained the demurrer without leave to amend, the Court of Appeal reversed, holding that Prachasaisoradej’s claims involved non-negotiable rights not subject to preemption. The Court further held that Prachasaisoradej had stated valid claims under California law, relying upon Ralphs Grocery Co. v. Superior Court, 112 Cal. App. 4th 1090 (2003). However, in a 4-to-3 decision, the California Supreme Court reversed the appellate court and held that the incentive compensation plan did not violate Labor Code §§ 221, 3751 or other provisions of California law that prohibit deductions from employee wages for business losses and expenses. The Court distinguished between illegal deductions from employees’ individual bonuses, commissions and other compensation and supplementary incentive compensation based on store profitability, such as existed in this case.