BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1396|
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THIRD READING
Bill No: AB 1396
Author: Assembly Labor and Employment Committee
Amended: 5/26/11 in Assembly
Vote: 21
SENATE LABOR & INDUST. RELATIONS COMMITTEE : 5-1, 6/22/11
AYES: Lieu, DeSaulnier, Leno, Padilla, Yee
NOES: Wyland
NO VOTE RECORDED: Runner
SENATE JUDICIARY COMMITTEE : 4-1, 7/5/11
AYES: Evans, Blakeslee, Corbett, Leno
NOES: Harman
ASSEMBLY FLOOR : 51-28, 5/31/11 - See last page for vote
SUBJECT : Employment contract requirements
SOURCE : Conference of California Bar Associations
DIGEST : This bill requires that all employers provide a
written contract to employees who are paid commission.
Specifically, (1) declares legislative intent of this bill,
in light of the Federal District Court (Northern District)
decision of Lett v. Paymentech , to restore the employee
protections that had been in effect by making Labor Code
Section 2751 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
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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force and effect until the contract is superseded or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, and (4) repeals
the provision of law which states that an employer shall be
liable to the employee in a civil action for treble damages
when an employer does not provide a written commission
contract, as specified.
ANALYSIS : Existing law and case law define a commission
as compensation paid to any person for services rendered in
the sale of such employer's property or services and based
proportionately upon the amount or value thereof. (Labor
Code ÝLC] Section 204.1; Keyes Motors v. DLSE (1987) 197
Cal.App.3d 557)
Existing law defines a contract of employment as a contract
by which one an employer engages an employee to do
something for the benefit of the employer or a third
person. (LC Section 2750)
Existing law requires a written contract of employment if
the following conditions are met:
1. The employer has no permanent and fixed place of
business in California;
2. The employer in entering into a contract of employment
with an employee for services to be rendered within
California; and
3. The contemplated method of payment of the employee
involves commissions, unless excluded.
Under these conditions, the contract must be in writing and
must set forth the method by which the commissions shall be
computed and paid.
The commissions excluded are:
1. Short term productivity bonuses such as are paid to
retail clerks; or
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2. Bonus and profit-sharing plans, unless there has been an
offer by the employer to pay a fixed percentage of sales
or profits as compensation for work to be performed.
(LC Section 2751)
Existing law holds any employer who fails to contract with
an employee as required to be liable to the employee in a
civil action for triple damages. (LC Section 2752)
This bill requires that all employers provide a written
contract to employees who are paid commission.
Specifically, this bill:
1. Declares legislative intent of this bill, in light of
the Lett v. Paymentech court decision, to restore the
employee protections that had been in effect by making
LC Section 2751 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, and
4. Deletes the provision of law which states that an
employer shall be liable to the employee in a civil
action for treble damages when an employer does not
provide a written commission contract, as specified.
Comments
Need for this bill . LC Sections 2751 and 2752 were enacted
in 1963 to prevent out-of-state employers from deceiving
employees compensated through commissions by requiring a
written employment contract. While neither statute has
been changed since that time, court cases have invalidated
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both code sections. In Lett v. Paymentech (N.D. Cal. 1999)
81 F.Supp.2d 992, the Court found that LC Section 2751
violates the federal constitution, specifically by
violating the equal protection clause and commerce clause,
thereby making the code section unenforceable.
This bill seeks to follow the lead of Georgia, Louisiana,
Maryland, and Tennessee in requiring that all employers put
commission-based employment contracts in writing. The
author believes that such measures are needed in order to
protect employees from fraud and abuse, as well as protect
employers from unnecessary litigation resulting from vague
oral contracts.
Bonus versus Commission . Using guidance from several court
cases, the Division of Labor Standards Enforcement (DLSE)
distinctly defines how a "bonus" is separate and distinct
from a "commission". Specifically, the DLSE defines a
"bonus" as "money promised to an employee in addition to
(sic) the monthly salary, hourly wage, commission or piece
rate usually due as compensation." This can include
salespeople hitting specific targets, or even a gratuity,
but must be in addition to regular wages.
Commissions, on the other hand, are defined both in code
and by the DLSE manual as "Compensation paid to any person
for services rendered in the sale of such employer's
property or services and based proportionately upon the
amount or value thereof." Therefore, commissions would be
the wages, rather than simply on top of the wages.
Prior to these court cases, LC Section 2751 contained a
similar definition of how a commission was different from a
bonus. This bill does not impact the existing definition
of "bonus" or "commission" as defined in the DLSE manual or
existing law.
Prior Legislation
SB 1370 (Ducheny), Session of 2009-10, was identical to
this bill, with the exception of the repeal of the treble
damages for employers who violate the employment law
provisions. SB 1370 was vetoed by Governor Schwarzenegger.
The veto message read:
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"This bill would require that beginning in 2012, all
employment contracts for services rendered within
California in which the method of payment involves
commissions, be in writing, and set forth the method by
which the commissions shall be computed and paid.
"This bill addresses a federal district court decision
which held Labor Code section 2751 to be
unconstitutional. However, there is no indication that
there is a widespread problem of wage disputes resulting
from the lack of written commission-based employment
contracts in California. Therefore, the manner in which
this bill remedies the existing law's constitutional
infirmity creates potentially unnecessary new burdens on
all businesses employing persons in California. If it
becomes apparent that there is an actual problem arising
from a lack of written commissioned-based contracts in
California, then it would be appropriate to revisit this
issue. At this time, however, there is no clear need for
this bill."
AB 836 (Frew), Chapter 1088, Statutes of 1963, requires
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/7/11 )
Conference of California Bar Associations (source)
California Employment Lawyers Association
California Labor Federation, AFL-CIO
OPPOSITION : (Verified 7/7/11)
California Employment Law Council
ARGUMENTS IN SUPPORT : 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
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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.
ARGUMENTS IN OPPOSITION : The California Employment Law
Council (CELC) is opposed to this bill. CELC notes that
the existing silence on commission-based contracts in code
appears to have worked successfully for nearly 50 years,
and is concerned that requiring additional reporting
requirements on employers could lead to increases in
litigation. Fundamentally, CELC believes that existing law
is sufficient.
ASSEMBLY FLOOR : 51-28, 5/31/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Cedillo,
Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes,
Furutani, Galgiani, Gatto, Gordon, Hall, Hayashi, Roger
Hernández, Hill, Hueso, Huffman, Lara, Bonnie Lowenthal,
Ma, Mendoza, Mitchell, Monning, Pan, Perea, V. Manuel
Pérez, Portantino, Skinner, Solorio, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Fletcher, Beth Gaines, Garrick, Grove, Hagman, Halderman,
Harkey, Huber, Jeffries, Jones, Knight, Logue, Mansoor,
Miller, Morrell, Nestande, Nielsen, Norby, Olsen, Silva,
Smyth, Valadao, Wagner
NO VOTE RECORDED: Gorell
PQ:kc 7/7/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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