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terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party.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