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 AB 465 Page 2 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 AB 465 Page 3 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 AB 465 Page 4 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