California Assembly Bill AB 1396
Happy New Year!
For those of you who deal with California based commissioned staff, 2013 brings in a new challenge – AB 1396.
This new California law, effective January 1, 2013, requires that employers paying California based employees on commission basis must enter into written commission contracts with those employees. Key requirements of the law:
– Employer must have a written contract with the employee stating how the commission will be calculated and paid.
– Employer must provide the employee a copy of the contract and obtain a signed acknowledgement from the employee.
Q 1. What is AB 1396
Former Labor Code section 2751 required out-of-state employers to have written contracts with their California employees who are paid on a commission basis, including details regarding method of computing and paying the commissions. The law was held to violate the Commerce Clause of the United States Constitution in Lett v. Paymentech, Inc., 81 F. Supp. 2d 992 (N.D. Cal. 1999), because it treated California based companies more favorably than employers who had no fixed place of business in California.
AB 1396 corrects this defect in the law by imposing the same onerous requirements on California employers. By January 1, 2013, both California and non-California-based employers must have written contracts with employees in California who are paid in whole or in part on a commission basis.
Q 2. Our company’s HQ is not in California, but we have a few sales personnel based there. Does AB 1396 impact us?
If you have employees based in California, then AB 1396 requires you to have written contracts with those employees. It does not cover employees who are based out of California. To determine if an employee is considered as based in California, one can refer to the EDD Guidelines
Q 3. Where can I see the actual text of AB 1396
Well, the actual text in the bill is not very descriptive, but since you asked here it is. – AB 1396
Q 4. What are the timelines to comply with AB 1396?
The text in the law states that it goes in effect on Jan 1st, 2013. In terms of operations and execution, it is safe to say that your company should obtain the signed copies of commission contracts from your California employees, prior to paying them any commission in 2013. You may also want to refer to your legal team.
Q 5. What about digitally signed contracts?
While legal opinions may vary, there is no language in the law that stats that employer must collect hand signed contract from employee. So if you have a digital signature system like DocuSign, it should meet the requirement.
Q 6. We use an SPM package such as Callidus or Varicent. What should we do?
Most SPM systems have the functionality to prepare, distribute and track Plan Documents. You may just need someone to configure the tool and roll out this functionality.
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