BILL ANALYSIS
SB 1370
Page 1
SENATE THIRD READING
SB 1370 (Ducheny)
As Amended August 12, 2010
Majority vote
SENATE VOTE : 22-7
LABOR & EMPLOYMENT 4-0
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|Ayes:|Swanson, Furutani, |
| |Monning, Yamada |
| | |
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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, 2012, 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the contract is superseded or employment is terminated by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.
SB 1370
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FISCAL EFFECT : None
COMMENTS : According to the author, this bill eliminates an
unconstitutional inconsistency in the California Labor Code in
which employers residing and conducting business in the state
are not required to put employee commission contracts in
writing. The author notes that the United States District court
ruled in Lett v. Paymentech, Inc. (1999) that existing code and
practice violates the Commerce Clause and the Equal Protection
Clause of the United Sates Constitution. All employers
conducting business in the state must conform to the same
commission contract requirements. The author states that while
the court decision addresses the unconstitutional practice and
current practice follows the court decision, California's Labor
Code does not currently reflect the court decision. The author
asserts that this bill updates Labor Code to reflect
constitutional practice by requiring all employers, regardless
of their place of residence to have commission contracts in
writing.
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 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.
In oppositions, the California Employment Law Council (CELC)
argues that this bill would impose a statute of frauds
requirement of a written contract on all commission agreements
in California. CELC states that it understands that the need
for the bill arose when a federal trial court declared existing
Labor Code Section 2751unconstitutional, because it imposed a
written contract requirement on out-of-state companies, but not
on employers with a physical presence in California. They
contend that while it is possible to imagine why such a
requirement might be contained in Labor Code Section 2751 with
respect to employers with no permanent and fixed place of
business in California, for nearly 40 years, California
employers and employees have operated without such a requirement
SB 1370
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and there is no compelling need to extend the requirement to
every employer in California. CELC also states that violations
are subject to the Private Attorney General Act (PAGA), for
violations of the Labor Code.
CELC states that it understands that written commission
agreements represent good practice. However, that is not a
reason to impose a new requirement of law on employers where
there has not been a problem. Fundamentally, they do not
believe that present law in this area requires any legislative
correction.
Analysis Prepared by : Shannon McKinley / L. & E. / (916)
319-2091
FN: 0005841