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