Next week’s Business Week has an article about the state of overtime laws in the U.S. From the first graf:

Do America’s decades-old overtime laws make sense anymore? Despite the litigation they are generating, there’s almost no political momentum to change them.

If the author means there’s no political momentum to repeal overtime laws, he’s probably correct, but wise old codgers like me remember in the deep dark past the great overtime regulation revolution of 2004. Those changes required a fair amount of political capital, too.

The crux of the argument is that overtime laws are not achieving their original policy aim:

Yet it’s generally accepted that overtime laws don’t achieve one of their main New Deal-era goals: increasing employment. The initial idea was that companies would choose to hire extra workers rather than pay existing ones time and a half. But that calculus doesn’t hold these days, given the enormous fixed costs of such things as benefits and training for each additional employee.

That may be true, but the original 70 year old policy aim, I submit, is irrelevant. In politics, anything you’ve given to some group that’s advantageous to them, they want to keep. Telling someone they don’t need their extra pay because it’s not creating more workers isn’t going to fly. That’s the politics of it.  Policy-wise, there has to be negative implications to that kind of change to wages.

This article started out suggesting that overtime litigation was the concern–is there no common ground between business and labor on that aspect? If not, I suspect the sides are much, much closer than they would be on eliminating overtime.

What’s the solution?

Boy, did the San Francisco Chronicle get this one wrong. Some of you may know that the person who writes the headline is usually not the person who wrote the article, but check this out: “State’s high court ruling favors retailers in workers’ comp case.”

Though part of the Workers’ Compensation Act did play a role in the decision, this was not a workers’ comp case from the outset, nor was that really the main issue. The spokespeople for the two sides are also off point:

The court expressly
repudiated the 2003 appellate decision in Thursday’s ruling, an action
that relieved Diane Kimberlin, lawyer for the California Grocers
Association.

The appellate ruling, and arguments by the plaintiff in the current
case, “endangered the use of profit-based bonus compensation systems,”
Kimberlin said.

Brooks disagreed, saying employers managed to preserve bonus systems
after the 2003 appellate ruling by calculating net revenue without
including workers’ compensation costs or other illegal factors.

Plans like the one at Ralphs, he said, “have been used to pressure
employees not to make workers’ compensation claims and to seek
treatment outside the workers’ compensation system.

I didn’t read the original complaint, but if the claim is that this system is discouraging the filing of workers’ compensation claims, the remedy lies in a different kind of claim. Here the issue related to permissible deductions, not coercion.

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.

More to follow…

UPDATE 1: 7-0. Not many people saw that coming, even if you got the result right. I was way off. I guess I’ll go back to predicting sports outcomes.

UPDATE 2: Essentially, the overtime premium analogy argument won the court over. It was a good argument. I had thought that the use of the term “pay” instead of “wage” was a hook, but I fully recognized that the definition in LC 200 left it open. I’m surprised by this result not because it’s “wrongly decided,” but because I had different estimations of the leanings of some of the justices. The decision was 7-0 and we’re not going to see a bill changing this anytime soon. This is the law now.

Everyone interested in the Great 226.7 Debate should read this post at the Wage Law blog. I particularly like the compilation of various predictions.

Just to expand on what I wrote below, I spend more time reseraching for this blog on legislative issues, talking to people in Sacramento, and developing stories on bills than I do on reading cases. Having done that, I’ve come to chuckle every time I hear a judge trying to divine profound meaning from a single word choice. There simply is not that much care put into one word, and, to be sure, each bill is the work of a number of legislators, staffers, and clerks. Absent an express statement of intent that is in some bills, I think many situations are open to more than one rational interpretation.

There are others out there that are far more qualified to guess, but I would like to think that my prediction was based on what I read about the oral arguments, and the political and legal pedigrees of the various justices.

Maybe I’ve grown a pair of employer shaded glasses over the years, but it’s not that I don’t see the plausability of the other side’s position. If you want to be really cynical about it, don’t strong pro-worker laws give people like me work?

About the oral arguments at law.com and Kimberley’s. (The latter is much better.)

What’s funny is that apparently no one has broached the subject that the Legislature is not nearly as careful and precise in drafting its bills as we pretend.  Ultimately, there is not going to be some Holmesesque flourish of legal brilliance that resolves the issue. 

Most likely, a divided Supreme Court rules that it is a penalty.