Governor Vetoes Bill to Require Written Agreements for Commission Rate Pay

California Governor Arnold Schwarzenegger has vetoed SB 1370, which was enacted in response to a 1999 federal court ruling (Lett v. Paymentech, Inc. (ND Cal 1999) 81 F.Supp.2d 992) that invalidated Labor Code § 2751. Section 2751 required employers with no permanent and fixed place of business in California, who entered into a contract of employment involving commissions as a method of payment for services rendered within California, to put the contract in writing and to set forth the method by which the commissions are required to be computed and paid. An out-of-state employer who did not comply with those requirements was liable to the employee in a civil action for triple damages. Employers with a permanent presence in California had no similar requirement.

To resolve the constitutionality problems as decided in Lett v. Paymentech, Inc., SB 1370 would have applied this requirement to all employers entering into a contract of employment involving commissions as a method of payment with an employee for labor performed in California, whether or not they maintained a place of business within the state.

The Governor's veto message reads:

To the Members of the California State Senate:

I am returning Senate Bill 1370 without my signature.

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.

For this reason, I am returning this bill without my signature.

We've had quite a few cases involving disputes over how commissions should be calculated. We expect that will continue.

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