BILL ANALYSIS Ó AB 1396 Page 1 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terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party.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 AB 1396 Page 2 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 AB 1396 Page 3 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 Page 4 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