California Supreme Court Issues Two Decisions Helpful to Employers

On Aug. 23, 2007, the California Supreme Court issued decisions resolving two highly-contested issues for employers: the permissible structure of profit-sharing plans, and the burden of proof in disability discrimination cases.

Employers Can Account for Expenses in Profit-Sharing Plans

In Prachasaisoradej v. Ralphs Grocery Co., Inc, Case No. S128576, Ralphs Grocery had implemented an incentive compensation plan (ICP) that provided for employees in stores that attained specific net profit goals to receive a bonus in addition to their regular wages. Business expenses such as worker’s compensation costs, breakage, and cash and merchandise losses, were deducted in calculating the net profit. The plaintiff alleged that this calculation constituted an unlawful “charge back” to employees, and thus was an impermissible wage deduction under the Labor Code. The Court of Appeal had agreed.

The Supreme Court reversed. Over a vehement dissent by Justice Kathryn M. Werdegar, the majority found that “the ICP did not create an expectation or entitlement in a specified wage, then take deductions or contributions from that wage.” The employees received their promised regular wages, and the ICP simply entitled employees to additional monies if certain conditions were met. The Court observed that as the deductions were ordinary business expenses that would not normally be included in net profits, requiring them to be added into net profits for purposes of the ICP would “artificially inflate” the employer’s earnings figures. The Court noted that the employer bore all of the costs relating to the purported deductions, so the costs themselves were not passed on to the employees.

Burden of Proof on Disabled Employees to Show They Can Do the Job

In Green v. State of California, Case No. S137770, the Court addressed whether it is a plaintiff’s burden to prove he or she is a “qualified individual with a disability” under the California Fair Employment and Housing Act (FEHA), or whether it is the employer’s burden to prove that the disabled employee is not qualified to perform the essential functions of the position. The Court of Appeal had ruled that it was the employer’s burden.

The Supreme Court, again over a dissent by Justice Werdegar, reversed. The Court reasoned that the relevant provisions in FEHA parallel the federal Americans with Disabilities Act, which places the burden on the plaintiff. The Court also pointed to the fact that it is generally a plaintiff’s burden to prove the elements of his or her claims, and that there was no evidence that the Legislature intended to deviate from the general rule here.