Thanks to Mike O’Sullivan at Corp Law Blog for informing us about a California Court of Appeals case which held that it is illegal for California employers to award a traditional profits-based bonus to non-exempt employees (see Ralphs Grocery Co. v. Superior Court (Swanson) (Cal. App., Oct. 23, 2003) due to certain California laws which prohibit employers from taking into account certain expenses of the company in determining those profits. You can access his post on the case here.
By the way, the result in this case reminds me of what is going on in the cash balance plan arena. By holding that the bonus plan in this case is unlawful, employers will be discouraged from offering such plans in the first place since requiring them to offer ones which do not take into account legitimate expenses seems unreasonable. It is the same in the cash balance plan arena. With the recent pronouncement by a federal district court that such plans violate ERISA and with the ongoing chaos brewing in Congress over the issue with little resolution in sight, employers will decide that the economically rational thing to do is to “cease and desist” with these plans since they are not required to offer them in the first place. Employees may then be left with their 401(k) plans where employees must bear the burden of providing much of their own retirement. Thus, the irony of it all is that what is termed a “great victory” for employees will in the end hurt employees.
(By the way, I have added a new category over on the right entitled “California and 9th Circuit Legal Developments” to keep track of all of the “fun” stuff going on in California and the 9th Circuit.)