Governor Signs Bill Imposing New Requirements On In-State And Out-of-State Employers Who Pay Commissions

Two score and eight years ago, the California legislature enacted AB 836 (Frew), Stats. 1963, ch. 1088. That legislation requires employers who pay their employees for services in California through commissions to provide those employees with a written contract setting forth the manner in which commissions are computed and paid. Labor Code § 2751. Violators face treble damages. Labor Code § 2752. The most interesting feature of these statutes, however, is the fact that they apply only to employers with “no permanent and fixed place of business” in California.

Constitutional Problems

Thirty six years after the AB 836 was enacted, a Nevada corporation with its principal place of business in Texas decided to challenge the constitutionality of the legislation. In Lett v. Paymentech, Inc., 81 F. Supp.2d 992 (N.D. Cal. 1999), U.S. District Court Judge Jenkins found that both Labor Code sections violated the Commerce Clause and the Equal Protection Clause of the U.S. Constitution. Despite this holding, the two statutes remained in the code books for another decade.

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