BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1396
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          ASSEMBLY THIRD READING
          AB 1396 (Labor and Employment Committee)
          As Introduced  February 28, 2011
          Majority vote 

           LABOR & EMPLOYMENT      5-1                                     
           
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          |Ayes:|Swanson, Alejo, Allen,    |     |                          |
          |     |Furutani, Yamada          |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Morrell                   |     |                          |
          |     |                          |     |                          |
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           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            the contract is superseded or employment is terminated by 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 








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            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 
          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 United 
          States Constitution because of its discriminatory treatment of 
          out-of-state employers and their in-state counterparts.  
          Although the statute 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) of 2010 
          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 








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          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 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 Schwarzenegger.

          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. 









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           Analysis Prepared by  :    Lorie Erickson / L. & E. / (916) 
          319-2091                                                    FN: 
          0000532