BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1370
                                                                  Page  1

          SENATE THIRD READING
          SB 1370 (Ducheny)
          As Amended  August 12, 2010
          Majority vote

           SENATE VOTE  :   22-7
            
           LABOR & EMPLOYMENT      4-0                                     
           
           -------------------------------- 
          |Ayes:|Swanson, Furutani,        |
          |     |Monning, Yamada           |
          |     |                          |
           -------------------------------- 
           SUMMARY  :   Requires that all employers provide a written  
          contract to employees who are paid commission.  Specifically,  
           this bill  :

          1)Declares legislative intent of the bill, in light of the  
            specified court decision, to restore the employee protections  
            that had been in effect by making Labor Code Sections 2751 and  
            2752 apply equally to employers with a fixed place of business  
            in the state and to employers who do not have a fixed place of  
            business in the state

          2)Requires all employers, by January 1, 2012, to provide a  
            written contract, with specified details, to employees who are  
            paid commission. 

          3)Adds when a contract expires and where the parties continue to  
            work under the terms of the expired contract, the contract  
            terms are presumed to remain in full force and effect until  
            the contract is superseded or employment is terminated by  
            either party.

           EXISTING LAW  :

          1)Requires employers with no permanent and fixed place of  
            business in California to provide written contracts to  
            employees, when the method of payment involves commission,  
            which specifies the way in which the commissions will be  
            calculated and paid. 

          2)Subjects employers who fail to comply with the written  
            contract requirement to civil action for triple damages. 








                                                                  SB 1370
                                                                  Page  2


           FISCAL EFFECT  :   None

           COMMENTS  :  According to the author, this bill eliminates an  
          unconstitutional inconsistency in the California Labor Code in  
          which employers residing and conducting business in the state  
          are not required to put employee commission contracts in  
          writing.  The author notes that the United States District court  
          ruled in Lett v. Paymentech, Inc. (1999) that existing code and  
          practice violates the Commerce Clause and the Equal Protection  
          Clause of the United Sates Constitution.  All employers  
          conducting business in the state must conform to the same  
          commission contract requirements.  The author states that while  
          the court decision addresses the unconstitutional practice and  
          current practice follows the court decision, California's Labor  
          Code does not currently reflect the court decision.  The author  
          asserts that this bill updates Labor Code to reflect  
          constitutional practice by requiring all employers, regardless  
          of their place of residence to have commission contracts in  
          writing. 

          Proponents argue that requiring written contracts in the  
          specific instance of commission-based compensation employment  
          provides clarity and protection to both the employer and the  
          employee.  By prohibiting oral contracts and requiring that a  
          commission-based work contract be clearly written, the  
          proponents believe that this bill lessens the probability of  
          unnecessary litigation, as well as ensures that the existing  
          law, which is completely unenforceable, does not provide a "trap  
          for the unwary" and cast the illusion of protection, rather than  
          actually provide it.

          In oppositions, the California Employment Law Council (CELC)  
          argues that this bill would impose a statute of frauds  
          requirement of a written contract on all commission agreements  
          in California.  CELC states that it understands that the need  
          for the bill arose when a federal trial court declared existing  
          Labor Code Section 2751unconstitutional, because it imposed a  
          written contract requirement on out-of-state companies, but not  
          on employers with a physical presence in California.  They  
          contend that while it is possible to imagine why such a  
          requirement might be contained in Labor Code Section 2751 with  
          respect to employers with no permanent and fixed place of  
          business in California, for nearly 40 years, California  
          employers and employees have operated without such a requirement  








                                                                  SB 1370
                                                                  Page  3

          and there is no compelling need to extend the requirement to  
          every employer in California.  CELC also states that violations  
          are subject to the Private Attorney General Act (PAGA), for  
          violations of the Labor Code. 

          CELC states that it understands that written commission  
          agreements represent good practice.  However, that is not a  
          reason to impose a new requirement of law on employers where  
          there has not been a problem.  Fundamentally, they do not  
          believe that present law in this area requires any legislative  
          correction.
           

          Analysis Prepared by  :    Shannon McKinley / L. & E. / (916)  
          319-2091 
           
           
                                                               FN: 0005841