BILL ANALYSIS
AB 465
Page 1
Date of Hearing: March 28, 2007
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre R. Swanson, Chair
AB 465 (Houston) - As Proposed to be Amended: March 28, 2007
SUBJECT : Personal services contracts.
SUMMARY : Establishes a specified professional sports exemption
to the provision of existing law that generally limits personal
service contracts to seven years. Specifically, this bill
provides that a contract, otherwise valid, to render personal
services may be enforced against a player on a Major League
Baseball, National Football League, or National Basketball
Association team in the state for the term of the contract.
EXISTING LAW :
1 Prohibits an employer from enforcing a contract with an
employee for personal services beyond seven years. (Labor
Code 2855(a)).
2)Provides that if the employee voluntarily continues to serve
under the contract beyond seven years, the contract "may be
referred to as affording a presumptive measure of the
compensation." (Labor Code 2855(a)).
3)Contains special provisions related to the recording industry
not applicable here. (Labor Code 2855(b)).
FISCAL EFFECT : Unknown
COMMENTS : This bill attempts to create an exemption to Labor
Code Section 2855, which currently limits personal service
contracts to seven years. The statute originally was enacted in
response to long-term contractual terms faced by employees in
the entertainment industry (although the general prohibition in
Section 2855 is not limited to that one industry). In recent
years, most debate involving Section 2855 has involved the
recording industry and special provisions of the existing law
related to that particular industry.
This bill would provide that a contract, otherwise valid, to
render personal services may be enforced against a player on
specified professional sports teams in the state for the term of
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the contract (even if beyond seven years).
Brief Background on the "Seven-Year Rule"
In 1937, the Legislature enacted Labor Code Section 2855,
thereby fixing seven years as the maximum time for which an
employee could be bound to an employer.
In 1944, the statute was reviewed and upheld in a case
challenging the contracting practices of the film industry. De
Havilan v. Warner Bros. Pictures, 67 Cal. App. 2d 225 (1944).
The court concluded that the statute restricted all employment
contracts to seven calendar years, not seven years of cumulative
actual service and that the statute was a valid exercise of
legislative power to promote the welfare of employees.
In 2001, a federal district court considered the practice of
extending personal service contracts beyond seven years through
a series of options or renegotiations (termed "tacking"). De La
Hoya v. Top Rank, Inc., 2001 US Dist LEXIS 25816 (C.D. Cal.
2001). At issue in that case were several boxing contracts that
stretched beyond the seven-year cap. The trial court ruled that
the renegotiations were not separate contracts but constituted a
"continued, uninterrupted contractual relationship" and that "an
employee may not be compelled to serve one employer for more
than seven years where a subsequent personal service agreement
is reached while an original agreement remains in effect and the
combined terms of both contracts exceeds seven years." The case
was appealed but later dropped when the parties settled their
differences and renegotiated the contracts.
Past Activity Concerning Labor Code Section 2855 and the
Recording Industry
In 1987, the Recording Industry Association of America (RIAA)
sponsored legislation which added subdivision (b) to Labor Code
Section 2855. Among other things, subdivision (b) authorizes an
employee in the recording industry to invoke the seven-year
contract limitation only after giving written notice to the
employer. Subdivision (b) also provides that a label may sue to
recover damages for breach of contract if an artist "fails to
deliver all of the required service."
This particular portion of Labor Code Section 2855 generated
some significant controversy in recent years as recording
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artists argued that contracts in the recording industry (which
are generally tied to the number of albums produced), combined
with the damages remedy contained in subdivision (b) operate to
hold recording artists to contracts well beyond the seven-year
period. Groups such as the Recording Artists Coalition argued
that the practice of tying an artist to contracts for the number
of albums delivered, with no consideration of the seven-year
statute, was unfair and anti-competitive. In general, the RIAA
responded that subdivision (b) was necessary because recording
companies needed a remedy to prevent artists from sitting out
their contracts and to enable the companies to recoup their
significant investments in the artists.
Several years ago, there were a few high-profile cases involving
artists such as Courtney Love and Don Henley. In addition,
there were several legislative proposals, ranging from proposed
elimination of subdivision (b) to proposals to establish a
specific damages framework payable by a recording artist to a
recording label for the breach of a personal service contract at
its automatic seven-year expiration. However, none of these
legislative proposals made it through the legislative process
and Labor Code Section 2855(b) remains the same as when it was
enacted in 1987.
ARGUMENTS IN SUPPORT :
According to the author, the current seven-year rule is a
"protective holdover from the Hollywood studio" era of the early
twentieth century. The law was designed to protect artists from
usurious contracts which made them little more than indentured
servants of the large studios who signed them.
During this past offseason, two California baseball teams (the
Oakland Athletics and the Los Angeles Angels of Anaheim) were
interested in signing Alfonso Soriano, who was a free agent at
the time. According to the author, the Angels were the more
interested of the two teams, but were unable to match an
eight-year $136 million offer from the Chicago Cubs because
state law prohibits contracts longer than seven years. The
author argues that in this salary-cap era, this law puts
California teams at a significant disadvantage when it comes to
free agency, forcing them to pay out more money over less time
in order attract high-profile players to their teams.
The author contends that this bill would exempt employees who
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pay on professional sports teams in California from this
prohibition, thereby leveling the playing field for these teams
in this era of free agency.
ARGUMENTS IN OPPOSITION :
Opponents argue that the current Labor Code provision is a
critical protection for professional athletes, actors, musicians
and others. Prior to the passage of the law, entertainers and
athletes were often forced to sign extremely long and
economically oppressive contracts when they were first breaking
into the profession, from which they could not escape when they
later had more market clout. Opponents argue that this bill
would open the door for the reemergence of such exploitive
contracts once again.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
American Federation of Television and Radio Artists (AFTRA)
California Labor Federation, AFL-CIO
California Teamsters Public Affairs Council
Jockeys' Guild
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091