BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: August 21, 2012 20011-2012 Regular
Session
Consultant: Alma Perez Fiscal:No
Urgency: No
Bill No: AB 2675
Author: Swanson
As Amended: August 15, 2012
SUBJECT
Employment contract requirements
KEY ISSUE
Should the Legislature require that employers provide a new
written employment contract (to employees paid on commission)
every time there is a short-term bonus or temporary incentive
program offered to employees?
PURPOSE
To specify that short-term bonuses and temporary incentive
payments, as specified, are not included under the definition of
"commission," therefore not requiring the employer to provide a
new written contract every time the employer provides such an
incentive.
ANALYSIS
Existing law defines 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 §204.1)
Existing law defines a contract of employment as a contract by
which an employer engages an employee to do something for the
benefit of the employer or a third person. (Labor Code §2750)
Existing law requires that whenever an employer enters into a
contract of employment with an employee for services to be
rendered within the state and the contemplated method of payment
involves commissions, the contract must be in writing and set
forth the method by which the commissions are to be computed and
paid. (Labor Code §2751)
Existing law also requires that employers give a signed copy of
the contract to every employee.
This Bill would clarify that for purposes of Labor Code §2751,
"commission" does not include any of the following:
1) Short-term productivity bonuses, current law already
specifies that productivity bonuses are not included, this
bill simply adds the words 'short-term'; and
2) Temporary, variable incentive payments that increase,
but do not decrease, payment under the written contract.
COMMENTS
1. Need for this bill?
Last year, AB 1396 (Assembly Committee on Labor and
Employment) amended Labor Code §2751 to require commission pay
plans to be in writing and specifying the method by which the
commissions are to be computed and paid. AB 1396 also
required that a signed copy of the agreement be given to the
employee and that the employer receive a signed receipt from
the employee. The requirements of AB 1396 go into effect on
January 1, 2013.
Concerns have been raised by the California New Car Dealers
Association regarding certain short-term incentives offered to
car dealers. According to the author, on any given day, a
car dealership may offer a special incentive - such as "$500
to the first person to sell that yellow car we have had on the
lot for three months." The concern lies in the existing
Hearing Date: August 21, 2012 AB 2675
Consultant: Alma Perez Page 2
Senate Committee on Labor and Industrial Relations
requirement in law that employees paid on commission be given
a written contract of their terms of employment. According to
the author, the Association expressed concern that it would be
burdensome for them to have to issue a new written commission
plan each and every time such a special incentive is offered.
This bill would simply specify that short-term bonuses and
temporary incentives (which increase but do not decrease
payments) are not included under the definition of
"commission," therefore not requiring the employer to provide
a new written contract every time the employer provides a
short-term bonus or incentive payment to their employees.
2. Proponent Arguments :
According to the California New Dealers Association, the vast
majority of dealer employees - including vehicle salespeople,
parts department staff, service technicians and managers -
receive at least partial compensation from commissions, many
of which are often adjusted based upon the purchasing trends
of consumers. These temporary sales incentives may be short
in duration and may, for example, only apply only to a limited
number of vehicles offered for sale during the upcoming
weekend.
Proponents argue that this bill would provide clarity by
specifying that temporary, variable incentive payments that
increase, but do not decrease, payment under the written
contract are not "commissions" for purposes of this new
writing requirement only. They argue that this would make it
clear that such temporary incentives were never intended to
trigger a completely new and updated written commission
agreement to be provided to every employee. The author states
that this is consistent with other provisions of Labor Code
§2751 that already exclude certain short-term productivity
bonuses and bonus and profit-sharing plans.
3. Opponent Arguments :
None received.
4. Prior Legislation :
Hearing Date: August 21, 2012 AB 2675
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
AB 1396 (Assembly Committee on Labor and Employment) of 2011:
Chaptered
AB 1396 established the current requirement in law that
commission pay employment contracts be in writing, that a
signed copy of the agreement be given to the employee and that
the employer receive a signed receipt from the employee.
SB 1370 (Ducheny) of 2010: Vetoed by Governor Schwarzenegger
SB 1370 was identical to AB 1396, with the exception of the
repeal of the treble damages for employers who violate the
employment law provisions.
SUPPORT
California New Car Dealers Association
OPPOSITION
None received
Hearing Date: August 21, 2012 AB 2675
Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations