BILL ANALYSIS Ó
AB 1396
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Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 1396 (Committee on Labor and Employment) - As Introduced:
February 28, 2011
SUBJECT : Employment contract requirements.
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, 2013, 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the contract is superseded or employment is terminated by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.
FISCAL EFFECT : Unknown
COMMENTS : According to the sponsor of this bill, the
Conference of California Bar Associations, in their letter they
state, this measure is intended to restore to Californians
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employed by out-of-state companies on a commission basis the
protections provided by Labor Code section 2751, which requires
such commission agreements to be in writing. Labor Code section
2751 was declared unconstitutional by the Federal District
Court, Northern District, in Lett v. Paymentech, Inc. (N.D. Cal.
1999) 81 F.Supp.2d 992, which held that this section violates
the Commerce Clause and Equal Protection Clause of the U.S.
Constitution because of its discriminatory treatment of
out-of-state employers and their in-state counterparts.
Although the statue remains on the books it is unenforceable,
the protections it is to provide are not there making it a trap
for the unwary employee.
The sponsor asserts, this bill resolves the constitutionality
issue by removing the distinction between out-of-state and
in-state companies making all subject to the requirement that
all commission contracts be in writing. This is consistent with
the approach taken by several other states (e.g., Georgia,
Louisiana, Maryland and Tennessee) to address constitutional
issues with their own similar statutes. They also state, the
written contract requirement is not only consistent with best
business practices, but serves to protect both employees and
employers as well, by providing certainty as to agreements
entered into and thereby forestalling unnecessary litigation.
Finally, the sponsor states this bill includes amendments that
were made to the original version of SB 1370 (Ducheny) from last
year at the request of the opposition to add clarity and
certainty:
It clearly defines what constitutes a commission contract,
consistent with the California Supreme Court's holding in
Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785. It
specifies that an employer is not in violation of the statute
merely because a written commission agreement has expired, as
long as the parties continue to operate in accordance with the
agreement. And it gives California-based employers who do not
already put commission contracts in writing one full year (as
most already do), until January 1, 2013, to comply with this
bill's requirements.
ARGUMENTS IN SUPPORT :
The California Employment Lawyers Association supports this bill
stating that by clarifying that all commission contracts must be
in writing, the rights and earnings of all California employees
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are protected. Written contracts avoid disputes between
employers and employees regarding compensation, and prevent
costly and time-consuming court cases. In addition to removing
unconstitutional provisions in the statues, this bill will help
to assure that California employees and their employers avoid
compensation disputes.
ARGUMENTS IN OPPOSITION :
The opposition to this measure, the California Employment Law
Council, argues this legislation
imposes a requirement of a written contract on all commission
agreements in this state and there
is no justification for extending it to every business in
California. They also believe this bill will
result in needless litigation and they understand the concept of
certainty and predictability,
however, they state the variety of commission practices which
might be interpreted as
commission-based will not bring clarity to the law. The Civil
Justice Association of California
opposes this bill due to the treble damages provision should an
employer, who use commissions
as part of a compensation package, violate the law under this
bill.
The California Broadcasters Association have expressed concern,
although they have not submitted a formal letter of opposition,
that they will be shouldered with continually changing the
commission contracts since their members commission structure
changes due to promotions.
PRIOR LEGISLATION :
SB 1370 Ducheny of 2010 would have extended the conditions
necessitating a written contract of employment to all employers
in the State of California. This bill was vetoed by Governor
Schwarzenneger.
AB 836 (Frew), Statutes of 1963, Chapter 1088, required that
out-of-state employers provide a
written contract under the conditions discussed above, as well
as creates a penalty for failing to
provide such a written contract.
AB 1396
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REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation, AFL-CIO
California Employment Lawyers Association
Conference of California Bar Associations (sponsor)
Opposition
California Chamber of Commerce
California Employment Law Council
Civil Justice Association of California
Analysis Prepared by : Lorie Erickson / L. & E. / (916)
319-2091