BILL ANALYSIS C.S.S.B. 533 By: Leedom (Goolsby) 4-25-95 Committee Report (Substituted) BACKGROUND A principal who fails to comply with provision of a contract or who fails to pay a required commission under Subchapter G, Article 35, Business and Commerce Code, is liable to the sales representative in a civil action for three times the damages sustained by the sales representative plus reasonable attorney's fees and costs. Section 35.81 (2)(A) as it relates to the definition of a "principal" has been a problem in at least one case where a federal judge ruled that principals outside the state should no be treated differently from principals within and refused to award treble damages and subsequently held Sections 35.82, and 35.84, Business and Commerce Code, unconstitutional because they violated the Commerce Clause of the U.S. Constitution. Section 35.81 (2) (B) under the definition of principal, this section excludes a large number of manufacturer's and sale's representatives who sell products to end users of the products rather than to resellers. The definition is unnecessarily restrictive. Without a damage provision, most sales representatives cannot justify the time and expense of filing suit to collect delinquent commissions, or if they do, the suit is likely to be settled out of court at a substantial discount. With the possibility of treble damages, more principals will pay commissions due rather than face a substantial penalty. PURPOSE S.B. 533 redefines "principal" regarding an entity that produces, manufactures, imports, distributes goods for sale. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 35.81 (2), Business and Commerce Code, to redefine the term "principal" to mean a person who manufactures, produces, imports, or distributes a product for sale; uses a sales representative to solicit product orders; and compensates the sales representative in whole or in part by commission. Deletes the provision that the principal does not have a permanent or fixed place of business in this state and that the principal's customers purchase the product for resale. Makes conforming changes. SECTION 2. Re-enacts Sections 35.82, 35.83, and 35.84, Business and Commerce Code. Sec. 35.82. CONTRACT. A contract between a principal and a sales representative under which the sales representative is to solicit wholesale orders within this state must be in writing and set forth the method by which the sales representative's commission is to be computed and paid. Sec. 35.83. PAYMENT IN ABSENCE OF CONTRACT. If a compensation agreement between a sales representative and a principal that is not in writing is terminated, the principal shall pay all commissions due the sales representative within thirty working days after the date of the termination. Sec. 35.84. DAMAGES. A principal who fails to pay a commission is liable to the sales representative in a civil action for three times the damages sustained by the sales representative plus reasonable attorney's fees and costs. SECTION 3. Effective date: September 1, 1995. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The major points of difference between S.B. 533, as introduced and the committee substitute are as follows: SECTION 2. The substitute re-enacts Sections 35.82, 35.83, and 35.84 under the Business and Commerce Code. SUMMARY OF COMMITTEE ACTION S.B. 533 was considered by the Committee on Business and Industry in a public hearing on April 4, 1995. Testifying in support of S.B. 533 was Richard A. Frazier, representing himself. Without objection, S.B. 533 was left pending before the committee. S.B. 533 was considered by the committee on pending business on April 25, 1995. The committee considered a complete committee substitute to S.B. 533. The committee substitute was adopted without objection. S.B. 533 was reported favorably, as substituted, with the recommendation that it do pass and be printed and be sent to the Committee on Local and Consent Calendars, by a record vote of 7 (seven) ayes, 0 (zero) nays, 0 (zero) present-not-voting, 2 (two) absent.