Legislature(2005 - 2006)CAPITOL 120
04/06/2005 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB12 | |
| HB33 | |
| HB205 | |
| HB94 | |
| SB105 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 12 | TELECONFERENCED | |
| + | HB 33 | TELECONFERENCED | |
| *+ | HB 205 | TELECONFERENCED | |
| += | HB 94 | TELECONFERENCED | |
| + | SB 105 | TELECONFERENCED | |
| + | HB 183 | TELECONFERENCED | |
| + | SB 36 | TELECONFERENCED | |
| += | HB 150 | TELECONFERENCED | |
| + | HB 152 | TELECONFERENCED | |
SB 105 - OVERTIME WAGES FOR FLIGHT CREW 3:52:06 PM CHAIR McGUIRE announced that the final order of business would be CS FOR SENATE BILL NO. 105(L&C), "An Act relating to the retrospective application and applicability of the overtime compensation exemption for flight crew members; and providing for an effective date." REPRESENTATIVE MARY KAPSNER, Alaska State Legislature, relayed that her district is a good one to use to illustrate the importance of the aviation industry in rural Alaska because the communities are completely reliant on aviation for any kind of transportation, including transportation for medical reasons and the shipping of commodities, especially during "freeze-up and break-up." She mentioned that CSSB 105(L&C) is in response to [an Anchorage Superior Court] case currently being litigated - John Harms and Other Employees Similarly Situated v. Hageland Aviation Services, Inc., L. Michael Hageland and James Tweto. She voiced the concern that if "we take retribution against the airlines for not being in compliance with the federal laws on overtime," it will drive airlines out of business, will put a lot of people out of work, will increase the cost of air service in rural Alaska, and will diminish the level of [air] service that rural Alaskans get. REPRESENTATIVE KAPSNER, noting that there is a lack of insurance companies willing to provide insurance coverage in Alaska, said that if any one part of the aviation industry is hurt, then the whole aviation industry suffers. She relayed how the aviation industry operates in her district with regard to how many air carriers provide service and the types of services they provide, their typical staffing levels, what kind of hours their pilots are flying and why, and the different reasons why it can be hard for air carriers in rural Alaska to retain good pilots. She mentioned that sometimes air carriers allow a pilot to work just half a day so as to be able to catch the last flight back to his/her home, or allow a pilot to miss flying the first flight of the day so that he/she is able to spend the previous night with his/her family. 3:57:31 PM CHAIR McGUIRE opined that Representative Kapsner's perspective is important and her comments helpful. REPRESENTATIVE GRUENBERG said he'd like evidence that [the bill] could affect whether an air carrier will go out of business, whether employees are afraid for their jobs, and whether those named as plaintiffs in the class action lawsuit can opt out of it. REPRESENTATIVE KAPSNER said that a couple of the problems with the current opt-out system for class action lawsuits are that a lot of the pilots named as plaintiffs in the Hageland lawsuit don't know they've been named in that lawsuit and that some of them can't be found because the pilots are part of a transient labor force. In terms of the stability of the airline industry, she noted that her father was a commercial pilot who had a charter service back in the 1970s and that he often used to wonder how he was going to be able to continue in business even back then when the charter airline industry was much more lucrative that it is now. She remarked that there are very few air carriers in Bethel that have any longevity at all, and offered her belief that the changes in federal law regarding bypass mail have made it hard on cargo carriers because there is a preference for giving the mail to passenger carriers and this, in turn, offsets passenger fares. REPRESENTATIVE GARA mentioned that he is not thrilled about retroactively changing the law, predicted that the bill will probably succeed in moving through the process, and asked whether the Hageland case is close to being resolved without legislative interference, which could affect any future lawsuits against other air carriers. He also asked whether it would make sense to ban future lawsuits. REPRESENTATIVE KAPSNER offered her understanding that that has already been done, and that SB 105 is retroactive. She noted that she has never heard any pilots in Bethel complain about how they were treated as employees, including the person initiating the Hageland litigation. She opined that Hageland Aviation Services, Inc., ("Hageland Aviation Services") has not been unfair to its employees, "especially in terms of overtime." 4:02:52 PM REPRESENTATIVE MIKE KELLY, Alaska State Legislature, relayed that he is an airline transport pilot and at one point in time had flown in Bush Alaska for two years, and concurred with Representative Kapsner's testimony regarding the importance of the aviation industry in rural Alaska. He opined that fixing "this" two years ago was the right decision, that as a result, every pilot "knew what the rules were." He added his belief, however, that there is a gap that needs to fixed at this time, and characterized the issue as one of potentially subjecting air carrier companies that are currently out of business - due to the changes in the rules regarding bypass mail - to lawsuits [regarding overtime wages]. The legislation that was originally passed two years ago failed to cover a gap, he concluded, and encouraged the committee to close that gap. 4:06:58 PM SENATOR RALPH SEEKINS, Alaska State Legislature, sponsor, offered that SB 105 is attempting to clarify the intent of the 2003 legislation, the goal of which was to address the issue of how pilots in the state were paid overtime. He said that at the time the 2003 legislation was moving through the process, he did not realize that it contained the aforementioned loophole, and suggested that it was not the legislature's intent to allow such a loophole. He offered his understanding that the person who initiated the Hageland litigation had originally been seeking recourse for alleged age discrimination, and that the attorney the man had spoken with relayed his belief that the man might have "a wage and hour complaint." Senator Seekins opined that it is the legislature's job to fix the loophole that the attorney saw, and that doing so would not take away anything from the pilot. The goal of SB 105, he reiterated, is to fix the aforementioned loophole in the law regarding how pilots are paid, to ensure that no one gets a windfall because the legislature neglected to address this issue initially. In conclusion, he offered his belief that SB 105 doesn't raise any constitutional issues. 4:11:15 PM REPRESENTATIVE KOTT noted that the minutes of the March 17, 2003, House Labor and Commerce Standing Committee minutes reflect that Senator Donny Olson, sponsor of the 2003 legislation, said: Because of their unique working conditions, flight crews have been considered professionals exempt from the standard 8-hour workday, 40-hour workweek, and the associated overtime pay. ... Along with the maximum flight hours set by the Federal Aviation Administration (FAA), these exemptions at both the state and federal level have allowed the industry to structure flexible schedules for flight crew personnel. REPRESENTATIVE KOTT also noted that at that same meeting Representative Anderson, chair of the House Labor and Commerce Standing Committee, said: ... [T]he sponsor statement notes that the court's interpretations of the exemption from overtime are contradictory. This bill tightens that exemption so it cannot be successfully challenged in court. REPRESENTATIVE KOTT remarked, thus, that the House Labor and Commerce Standing Committee didn't recognize the aforementioned loophole either. He offered his interpretation of the aforementioned to mean that at the time, Representative Anderson was certain that no court decisions would be forthcoming. 4:12:57 PM REPRESENTATIVE GARA asked whether the original bill was intended to be retroactive or to change the rules for the future. SENATOR SEEKINS offered his belief that the 2003 legislation was intended to do both, that it would "make sure that there was no liability for past acts that were outside of the bargain made between the parties, at the same time that it was to clarify the rule from this date forward" so that [air carriers] would not get sued before the statute of limitations expired. 4:15:06 PM THOMAS M. DANIEL, Attorney at Law, Perkins Coie, LLP, after relaying that his law firm has been representing Hageland Aviation Services in the aforementioned lawsuit, said he would be testifying in favor of SB 105. CHAIR McGUIRE mentioned that members' packets include Mr. Daniel's written testimony. MR. DANIEL relayed that he has been involved in the Hageland litigation since its beginning, adding: Under the federal law, pilots have been exempt from overtime since 1949. In 1980, the Alaska attorney general's office issued an opinion [memorandum] indicating that pilots of interstate carriers in Alaska were also exempt from overtime, and the [Department of Labor & Workforce Development (DLWD)] has followed that policy since sometime in the '80s. So the rules of the game have been, for over 20 years, that most airlines in Alaska thought that they were exempt from both the federal wage and hour Act and the Alaska Wage and Hour Act, and it was not until the late '90s that a few lawsuits began to be brought, challenging that assertion and arguing that in fact ... local airlines ... in Alaska could be [subject] to the [Alaska] Wage and Hour Act. And there are currently three lawsuits pending against airlines on behalf of pilots. And it was really in response to that litigation that started in the late '90s that the legislature passed the bill that ... explicitly exempted airlines. And then this bill [SB 105] simply makes that law retroactive. The other point I would like to make is that I've become familiar with Hageland Aviation [Services] as a result of this litigation. It's a small air carrier, it's a true "rags to riches" story: Mike Hageland came here from Minnesota back in the '70s, bought an airplane, started flying one airplane in Western Alaska, and gradually grew into ... one of the major rural carriers. So this is a guy who has served rural Alaska for many, many years, and this lawsuit threatens the viability of Hageland Aviation [Services]. It literally could put him out of business because it has been brought as a class action [lawsuit]; there's a claim for doubling of the damages under the [Alaska] Wage and Hour Act, [and] there's a claim for full [attorney fees] in addition to overtime. So when you add up what now appears to be, potentially, 20 claimants, it literally could bankrupt the airlines. ... MR. DANIEL went on to say: Senator Seekins ... is correct in stating that the pilot who ... initiated this lawsuit, the main plaintiff, ... was disgruntled because he thought he was forced to retire because of his age. He went to the Human Rights Commission, filed that complaint, ... [and] was investigated. The Human Rights Commission ruled against him on his age claim. But he hasn't pursued the age claim; what he pursued, through his counsel, was an overtime claim, and he didn't just pursue it on behalf of himself, but on behalf of a whole class of pilots. So that's why we're here. Now, it has been suggested ... that this legislation is unconstitutional. And the short answer to that is that both the U.S. Congress and this legislature passed legislation in practically every session that makes laws retroactive, that makes them applicable to pending litigation and, in some cases, makes them applicable to litigation that is even on appeal. And the plaintiffs will argue that an un-litigated claim is a property interest, which can't be taken without due process of law. And that is a principle that's been recognized in both state and federal court. But the due process of law is what they're getting right here, in this legislative body. The law essentially is, as long as the legislature has a legitimate purpose in passing retroactive legislation, it's constitutional. The attorney general's office was asked, in 2003, about another retroactive piece of legislation that amended the Alaska Wage and Hour Act, ... and the attorney general's office issued an opinion that that law was constitutional. So I think the law is constitutional; ultimately, that will probably have to be determined by the courts, but if you look at past history, it indicates to me that this law would be fully constitutional. 4:22:41 PM REPRESENTATIVE KOTT asked Mr. Daniel whether he believes that pilots of air carriers consider themselves to be "professionals." MR. DANIEL said yes. REPRESENTATIVE KOTT offered his understanding that the Department of Labor & Workforce Development (DLWD) has said that when that is the case, then no specific additional exemption is required, that "professionals" are covered under the existing exemptions. He asked how, then, after the air carriers have received such information from the DLWD and have been acting under the assumption that that information is accurate, that a class action suit could be filed against them. MR. DANIEL offered his understanding that the attorney general's opinion and the DLWD's policy was that pilots were just exempt, period, since they were employees of interstate air carriers. There is also an exemption in the [Alaska] Wage and Hour Act for professionals, for which a pilot might qualify, but the problem with qualifying under that exemption, he remarked, is that as a professional, one must be paid in a certain manner, and, as Representative Kapsner testified, a pilot working in the Bush isn't always paid in that particular manner. Pilots in the Bush, he added, are currently being paid under a system that has evolved over time, and this system generally consists of paying a pilot at a daily rate and is also what has raised the issue of whether air carriers have been in violation of the [Alaska] Wage and Hour Act. REPRESENTATIVE KOTT asked whether the definition of "professional" is a state definition or a federal definition. MR. DANIEL said he is referring to the state definition, but noted that it incorporates, by reference, the federal regulations regarding the type of salary that a professional must be paid. REPRESENTATIVE KOTT asked whether similar litigation is pending in other states. MR. DANIEL said he is not aware of any. 4:26:05 PM REPRESENTATIVE GRUENBERG asked whether the question [being raised in the Hageland litigation] is one of federal preemption. MR. DANIEL said that is just one of several questions being raised in the litigation. REPRESENTATIVE GRUENBERG asked why the Hageland lawsuit isn't being addressed in federal court. MR. DANIEL surmised that it is because pilots of interstate [air] carriers are clearly exempt from overtime law, and so it would have been a "short" lawsuit had it been brought in federal court. 4:27:17 PM MR. DANIEL, in response to questions, said the first case [that made mention of an] overtime claim that he is aware of is the case of Era Aviation, Inc., v. Lindfors, which was filed in 1997 and decided by the Alaska Supreme Court in 2000; that the statute of limitations for claims regarding overtime wages is two years; and that the Hageland litigation was filed in 2002 and relates back to [wages owed] beginning in June of 2000. 4:28:50 PM REPRESENTATIVE GARA opined that that undercuts the argument that no one knew that overtime was supposed to be paid, since starting in 1997 there were claims that "this" law has been misinterpreted by the DLWD. He went on to say: Nobody in your case is seeking damages for any claims from prior to 1997. So, [beginning in] 1997, people are on notice that there's a dispute about what the [DLWD] has said. And it's not until 2000 that these claims will apply. Does that not sort of undercut this sort of fairness "God, we were caught blindsided" question? By 2000, shouldn't Hageland [Aviation Services] have thought, "Well, gosh, this a disputed issue; we'll just use our best judgment as to whether or not we should pay overtime"? MR. DANIEL offered his belief that the Era Aviation lawsuit started the move to amend the law so as to clarify explicitly that pilots were exempt, and that "this" led to the 2003 legislation. REPRESENTATIVE GARA said his concern with retroactively changing the law is that sometimes an industry is so influential as to be able to influence an agency, the legislature, and the attorney general's office into interpreting/changing the law in the industry's favor. He said that according to his experience, attorney general's opinions and agency opinions often reflect the views of the administration, and are not necessarily objective views of the law; he offered an example involving opinions and laws regarding pesticides to illustrate his point. He asked why - knowing that an attorney general's or an agency's opinion as to what a statute means is just advisory until it's been tested in court, and knowing publicly that as far back as 1997 that "this" was an issue of dispute - should it be assumed that the client was caught unawares in 2000 regarding whether overtime should have been paid. MR. DANIEL opined that although people such as he and Representative Gara, for example, know that an attorney general's opinion or an agency's opinion is just advisory, it is reasonable to expect that the average businessman would rely on such an opinion as accurate. REPRESENTATIVE GARA asked Mr. Daniel whether, by 2000, Hageland Aviation Services had consulted an attorney regarding applicable overtime wages. MR. DANIEL said the record in the case reflects that his client had not consulted an attorney prior to the lawsuit being filed. 4:35:34 PM REPRESENTATIVE KOTT offered his recollection that testimony provided during the hearings on the 2003 legislation indicated that the legislative liaison for the Alaska Air Carriers Association (AACA) had consulted with the DLWD numerous times on this issue and was told repeatedly that pilots were considered professionals and, as such, were covered under the existing statutory exemptions. He asked whether, if such communications had been ongoing for a number of years, there would be some assurance for the air carriers that they were not liable under "this." He suggested that it would also be fair to assume that employees who felt they were not being paid correctly would have contacted the DLWD on that issue. He offered his belief that there are two avenues of thought: one, that the air carriers felt comfortable with the DLWD opinion that said they "were covered under the exemption"; and the other, that dissatisfied employees would have gone to the DLWD and complained. MR. DANIEL said that not a single pilot working for Hageland Aviation Services, not even the original plaintiff, has gone to the DLWD and complained about not being paid overtime. He added that of the 82 pilots that potentially have claims in the Hageland lawsuit, the majority of them have affirmatively taken steps to remove themselves from the lawsuit, and surmised that this is an indication that they don't support the lawsuit and feel that they were paid fairly. REPRESENTATIVE GRUENBERG asked whether such just shows instead that the pilots were ignorant of their rights and are particularly vulnerable. MR. DANIEL said he did not think so because the pilots that have opted out understand that they could potentially get a lot of money from Hageland Aviation Services but have still chosen not to participate in the lawsuit. REPRESENTATIVE GRUENBERG asked whether that might not just reflect that those who have opted out of the lawsuit are still employed by Hageland Aviation Services and are afraid for their jobs, and that those who have not opted out are no longer employed. 4:40:40 PM MR. DANIEL said that is true in part; there is only one pilot currently employed that has not opted out. REPRESENTATIVE GRUENBERG asked how many pilots who are no longer employed have opted out of the lawsuit. MR. DANIEL said he didn't know that number off the top of his head, but added that 60 of those that were named as plaintiffs have opted out. In response to the allegation that pilots have been intimidated or have been threatened with losing their jobs, he explained that that issue has already been addressed by the court, and offered his understanding that none of the pilots [remaining in the lawsuit] have claimed that such has occurred. 4:42:35 PM REPRESENTATIVE GRUENBERG said he is concerned, on a policy basis, about people being coerced or intimidated in any venue. MR. DANIEL offered his understanding that the law protects [those who come forth to testify] against retaliation, and reiterated that he has not heard any testimony indicating that anyone is being threatened or intimidated. REPRESENTATIVE GRUENBERG asked how many of those named as plaintiffs in the Hageland lawsuit cannot be found, and so presumably might not know that they are a part of the lawsuit. MR. DANIEL offered his understanding from discussions he's had with the plaintiffs' attorney that four plaintiffs have not yet responded to communications. 4:45:03 PM MR. DANIEL submitted a letter - dated April 5, 2005 - to members regarding the constitutional issue. REPRESENTATIVE GARA asked what the wage claims currently amount to. MR. DANIEL said he couldn't provide that information, but offered that the [original] plaintiff is claiming a total of $140,000. He indicated that if one assumes that the remaining plaintiffs in the lawsuit claim a similar amount, then it would be about 20 times that amount. REPRESENTATIVE GARA asked whether Hageland Aviation Services knew about either the proposed [2003] legislation or any of the lawsuits that had been filed before 2000. MR. DANIEL indicated that he didn't know whether his client was aware of any of the lawsuits, but offered his understanding that his client was aware of the 2003 legislation. 4:47:34 PM BRUCE McGLASSON, Owner/President, Grant Aviation, Inc. ("Grant Aviation"), relayed that his company is in direct competition with Hageland Aviation Services in Western Alaska and employs about 40 pilots and about 140 employees total. He said his company pays its pilots the same way that Hageland Aviation Services does: it's a daily rate based on a pilot's availability to work, regardless of whether he/she actually works and regardless of how long during the day he/she actually works. Grant Aviation went to that system because of the belief that it's a safer way to pay pilots, since it removes the financial incentive for pilots to fly in unsafe conditions; Grant Aviation still uses this method to pay pilots despite the Hageland litigation, both because it is a safer way to pay pilots and because of the company's faith in the legislature to change the law such that [the exemption] is retroactive. MR. McGLASSON offered his belief that both Grant Aviation and Hageland Aviation Services have treated their pilots fairly by negotiating with their pilots individually prior to their employment and agreeing on how their pilots would be paid, and have since honored those agreements. Opining that the aforementioned litigation will put Hageland Aviation Services out of business, he said that Grant Aviation does not believe that such would be right, and remarked that if his company were to face similar litigation, it would bankrupt him as well; not counting punitive damages, he calculated, he could owe as much $800,000. He relayed that over the years, on multiple occasions, Grant Aviation has been told by the DLWD that the method Grant Aviation was using to pay its pilots is fair, right, and in compliance with federal law. In response to questions, he reiterated his explanation of how Grant Aviation pays its pilots, and listed some of the reasons why a pilot who is available to work might not get to work, such as weather conditions, mechanical issues, and passenger numbers. 4:54:02 PM MICHAEL HAGELAND, Owner, Hageland Aviation Services, Inc., stated that he started flying in Western Alaska in 1972 for other carriers, and then started his own business in 1981. Prior to 1981, he said, he witnessed all the different manners in which pilots got paid, though most carriers paid pilots by the flight hour. He posited that this caused some pilots to take chances, and possibly led to accidents as well. So when he started to hire pilots, he decided to pay his pilots monthly so that the pilots didn't feel under pressure to fly when the weather was bad. Around 1999, the work schedule was changed because "pilots were making plenty of money but they didn't have time to spend it," therefore the schedule was changed such that a pilot would work 20 straight days and then have 10 days off. MR. HAGELAND continued: That was still a legal way under the law to pay then, and of course, we didn't know any different anyway. But some of [the pilots] complained that in some months, because [there are] 31 days in the month, they had to work 21 days, so they wanted to get paid for the extra time they worked. So we said, "Okay, we'll pay you the extra days." ... So that's how the daily rate broke down. About ... 2001, the airlines were hiring pretty heavily ... and it was hard to keep ... quality pilots. And [so] to keep quality pilots, we just had to make better working conditions; so we changed it to a 15 and 15: they worked 15 days on and 15 days off, sometimes 16 ... and we still kept them on the same monthly pay. They also got paid for weather days whenever they were on duty. ... MR. HAGELAND commented: This lawsuit came as a surprise to me because I've always considered myself to be a fair person, and I've always paid my bills on time, and I've always paid the pilots well. It was a real surprise. I was operating under the assumption that pilots were exempt. ... The pilot that brought this suit, when we interviewed him down in Florida where he lives now, ... he also said he was paid fairly, and he didn't have any complaints about the way he was paid. And he didn't know he was suing me personally, he didn't know he was suing ... Ron Tweto's widow and ... children either, but that's the lawsuit - it's against us personally also. And I'm sorry I didn't bring our financials or I could show you that ... [we'll go bankrupt]. ... We employ 180 people plus 72 village agents that are contract people. It won't ruin the state or anything but it'll sure make a hole in those persons' lives. 4:59:21 PM REPRESENTATIVE GRUENBERG characterized this information as key for him in his consideration of this issue. He stated that he has no desire to get into Mr. Hageland's financial records, but he said, "That's a most important statement that you've made." REPRESENTATIVE GRUENBERG made a motion that the witness be sworn in and repeat his statement under oath. The committee took an at-ease from 4:59 p.m. to 5:03 p.m. 5:03:24 PM CHAIR McGUIRE noted that under AS 24.20.060, the legislature has the power to administer oaths, issue subpoenas, and compel the attendance of witnesses. She asked that Mr. Hageland continue with his testimony, and if a written oath is brought to the committee from Legislative Legal and Research Services, the committee will address the matter then. REPRESENTATIVE KOTT predicted that if all the plaintiffs came forward, Mr. Hageland might have to pay out around $2.8 million, and asked Mr. Hageland what this payment would do to his business. MR. HAGELAND said he'd have to file for bankruptcy, and pointed out that he has sworn to this in an affidavit in court during prior testimony. REPRESENTATIVE GRUENBERG asked that that affidavit be submitted to the committee, and noted that no written oath would then be needed. CHAIR McGUIRE remarked that this would be the cleanest way to approach the situation. 5:07:17 PM REPRESENTATIVE GARA said: I want to sort of assess the claims that have been made to me about what notice [Mr. Hageland] was on. There's been some testimony here that starting around 1997, people started to file lawsuits claiming that this statute had been wrongly interpreted and people were entitled to overtime. And then somewhere around that time there was an effort to change the law in the legislature. Can you tell me, by 2000 ... were you aware of any of ... the efforts to change the law or [of] the legal disputes - that people had been legally challenging this rule? MR. HAGELAND replied that he doesn't remember anything about a 1997 lawsuit. He said, "If I had, I would [have assumed] that it was probably something they were paying by the hour and not the way we were paying." He explained that his company paid pilots by the month until 2000, when it was switched to a daily pay rate to accommodate the pilots that were working a little extra. He said that the 2003 legislation was the first effort to change the law that he knew of. 5:11:59 PM RICHARD CLARK, Pilot, Hageland Aviation Services, Inc., testified that he has been flying for Hageland Aviation Services for nine and a half years. He said, "They've always been fair, they've always been generous and honest." He remarked that pilots from different companies talk with each other and he has never heard any negative statements about [Hageland Aviation Services] from the pilots he works with. He commented that most of the pilots from other companies want to work at Hageland Aviation Services because they know it's a good company. He said that he was first made aware of the lawsuit through a letter that said he was in it unless he opted out, which he did right away and without reservation. He said: "I believe that those pilots that are still working for the company that did opt out didn't do it because of coercion or fear for their job. I believe they did it because they like the company. They don't want the company to go bankrupt." He remarked that the general consensus amongst the pilots he has spoken with is that current employees are worried that the lawsuit will have a negative effect on the company. REPRESENTATIVE KOTT asked for information about Mr. Clark's piloting experience. MR. CLARK answered that he has been flying since he was 17 years old and has logged in about 14,000 hours. He said that he has flown every plane that Hageland Aviation Services has, and is now flying the company's largest plane. He noted that he took a break for about 20 years, but he missed the business. He said, "In the aviation business, people care about their job and it's a professional atmosphere." 5:16:51 PM REPRESENTATIVE KOTT asked Mr. Clark if he would consider himself a professional. MR. CLARK replied affirmatively. CHAIR McGUIRE asked Mr. Clark to discuss the wage and hour issue, and to compare current payment methods to those used 20 years ago. MR. CLARK commented that he's seen companies that pay by the flight hour as opposed to a salary. He said that you can always tell when someone is getting paid by the flight hour because, "they fly a lot further out before they turn to come in." He offered his belief that pilots are mainly concerned with not breaking a regulation and he offered examples of this. 5:19:52 PM IGNATIUS BEANS, JR., Safety Check Pilot, Hageland Aviation Services, Inc., testified in support of SB 105. He stated that he has been employed by Hageland Aviation Services for almost seven years, that he was born and raised in Mountain Village, Alaska, that has known Mr. Hageland for a long time, that he is retired from the Alaska National Guard where he served 23 years. He said that it was always his intention upon retiring from the Alaska National Guard to fly in Western Alaska, and remarked that Hageland Aviation Services has always been very fair with him. He said: "I took the job knowing what I was going to make, knowing what my set times were. He was pretty up front with me. If I had a pay problem, I called [Mr. Hageland and he took care of it]." He stated that he was distressed to learn of the lawsuit, and he immediately opted out. He characterized the lawsuit as bogus, and said that he has not seen any pilots being pressured to opt out or to stay in the lawsuit. REPRESENTATIVE KOTT asked Mr. Beans how long he has been flying. MR. BEANS answered that he got his pilot license in 1978, flew with the National Guard from then until his retirement in 1995, and joined Hageland Aviation Services in 1998. REPRESENTATIVE KOTT asked Mr. Beans if he considered himself a professional. MR. BEANS replied affirmatively. 5:25:17 PM PETER C NOSEK, Attorney at Law, testified that he is representing about 18-20 pilots that have established overtime claims against Hageland Aviation Services. He pointed out that the Alaska Department of Labor and Workforce Development (DLWD) has never taken the position that air carriers are exempt from Alaska law. He said: Since 1980 the [DLWD] position has been that ... intrastate air carriers such as [Hageland Aviation Services] are subject to the law and they must comply with the law. So this isn't a federal preemption issue; this is, "Did Hageland Aviation comply with the law?" And in fact there is a 1984 attorney general's letter which further explains its 1980 letter. And in 1984, the attorney general said in no uncertain terms, if you fly intrastate, you are not preempted by the federal Railway Labor Act unless you have a collective bargaining agreement. And that also has been submitted to you. So there should be no confusion that the [DLWD] has never considered air carriers exempt from Alaska law; they've always had to comply with Alaska law, and that is [to] treat their employees as professionals. And if you want the privilege of paying a professional a salary, you have to follow what the law says. [Hageland Aviation Services] did not do that, and there's no question that [it] did not do that, and the superior court has already established that they violated the law. MR. NOSEK continued: The issue I would like to address is this [issue of] fairness. This has been portrayed as purely a technicality of the law, and that's not quite correct. What Hageland did in violating the law was, if a pilot showed up, missed the first part of his day of work, he got docked a half day's pay. That's against the law. If you show up for an hour, you get your full salary. ... [Hageland Aviation Services] also failed to provide any additional pay if they worked over eight hours in a day. So Hageland Aviation tried to have the best of both worlds: dock them if they miss part of the day, don't pay them extra when they work late. MR. NOSEK stated that the pilots want flight hours so that they can fly for a larger carrier, and so the pilots don't have a lot of choice, "They take what they can get and get in the hours in hopes of going to a bigger carrier." He stated: The bill now before this committee is not really about the air carrier industry. The law was changed two years ago to protect the industry; you can only file a lawsuit for two years. So the industry has received the protection it desires. What's at issue here is whether we're going to retroactively exonerate Hageland Aviation for its violations of the law. And what this committee needs to understand is that that law was changed in 2003. Hageland's lawsuit was filed in 2002, long before there was any change in the law. These pilots ... went to the [DLWD] and asked, "Are we subject to the Wage and Hour Act?" The [DLWD] said, "Yes." And that was in 2002, and that letter has been submitted to the committee. So in good faith, based upon guidance from the [DLWD] under the law as it was written, this lawsuit was filed over a year before there was any change in the law. MR. NOSEK continued: The issue then was very simple: Did Hageland break the law or not? And that has already been established. And that raises the constitutionality issue, and that is: These pilots have a right to overtime under the law that governed their employment. In fact, that law is part of their employment contract. As a matter of law, their employment contract includes their overtime rights, and that is part of the Alaska statute. So these pilots performed the labor, they're entitled to it under the law, and they sought to enforce their rights under the law. And the court has granted them summary judgment. That creates a vested property right to that overtime, and to reach back five years in time and say, "We will change what the law was five years ago," takes away that vested property right, and I believe it is simply unconstitutional under either the federal or the Alaska constitution. And so if this bill were to fail ultimately because of the unconstitutional nature of it, it takes away the protection for all air carriers by overreaching to try and take away that summary judgment right that's already been established; it jeopardizes the entire bill that is before the committee. MR. NOSEK concluded: Now a lot has been raised about the amount of money that is at issue in this lawsuit. ... No one started this lawsuit simply about money. Before this lawsuit was filed an offer was made to Hageland Aviation: $40,000 and the lawsuit would be released, waived, and never filed. ... And Hageland Aviation refused to even speak with us. 5:31:08 PM REPRESENTATIVE DAHLSTROM sought clarification regarding the $40,000 offer. MR. NOSEK explained that the offer was made [by himself] to the president of Hageland Aviation Services and their counsel. He said that as a result of their refusal to accept the offer, the lawsuit was filed. REPRESENTATIVE DAHLSTROM asked how many people Mr. Nosek was representing when he made that initial offer. MR. NOSEK clarified that at the time he was representing only one pilot. He stated that there are currently about 18 pilots and only one pilot who has not physically been contacted, while 60 pilots have chosen to opt out of the lawsuit. He said that a significant number of the pilots have told him that they are opting out because they are afraid of retribution and afraid for their jobs. He gave the example of one person who, in his deposition, said that he supported the lawsuit; that same day the person was called in to see his current employer, another air carrier, after which he called Mr. Nosek's office to back out of the lawsuit. MR. NOSEK continued: The issue has been raised about whether or not these individuals are professionals. A professional is a creation of the Alaska statute, and there are several requirements: if you want the privilege of paying a salary you have to treat them as professionals and the court has already determined that Hageland Aviation simply did not comply with those laws. And so what the issue before the committee is, "Is there a justification for reaching back in time and exonerating those violations of law?" 5:34:08 PM REPRESENTATIVE GARA noted that he doesn't like the legislature to choose sides in pending lawsuits, and he noted that he has never voted to retroactively alter the outcome of a lawsuit. However, he said that the only thing that concerned him a bit was the statement that the lawsuit could put Hageland Aviation Services out of business. He asked Mr. Nosek to comment on this. He also asked if Mr. Nosek had an estimate of the outstanding legal claims against the company. MR. NOSEK acknowledged that an affidavit was submitted that said that a liability of $250,000 would bankrupt Hageland Aviation Services. However, he pointed out, the company does not own the aircraft it flies. He commented, "It's a shell corporation that owns virtually nothing." He explained that everything is owned by two other separate companies which are both owned by the same two individuals who own Hageland Aviation Services. He said: To say that Hageland Aviation would go bankrupt is to say that an empty shell corporation would go bankrupt, and that is precisely why the individual owners who also own all those airplanes in different companies have also been sued. The Wage and Hour Act specifically allows individuals to be sued as employers precisely for that reason - so that you can't hide assets and simply allow a shell corporation to go bankrupt. MR. NOSEK noted that he has seen the financials for those companies. He said that since Mr. Hageland has already paid $500,000 in attorney fees, he doesn't see the $250,000 lawsuit bankrupting Hageland Aviation Services. He pointed out that there are 20 individuals in the class action lawsuit, and perhaps 15 of those will file a claim. Because some of the individuals were employed by Hageland Aviation for only the first few months of the claim, those claims could be as small as $2,000 or $5,000. He estimated that the larger claims could be around $50,000. The court has already ruled that because Hageland did not, in good faith, attempt to comply with the law, the pilots are entitled to liquidated damages, he noted, which would equal double damages. MR. NOSEK pointed out that when the lawsuit began in 2002, it was agreed that the documents showing hours worked by the employees would be saved. However, he said, Hageland Aviation destroyed all of those documents, and therefore there is no longer any way to determine what the pilots are owed. He surmised: "But it certainly will not be $140,000 per 18 pilots. I do not believe it would ever grow that large." CHAIR McGUIRE asked how much the [law firm] would be paid as a result of the settlement. MR. NOSEK replied that that would be determined by the court. He explained: "In a class action, the amount of attorney fees is up to the discretion of the judge. So the judge could identify a method for determining a reasonable attorney fee, or he could simply follow the Wage and Hour Act and look at the number of hours that it took to pursue the action." CHAIR McGUIRE asked Mr. Nosek if he intends to make a filing as to which payment method he prefers. 5:40:38 PM MR. NOSEK answered that he has not thought about that issue yet. He said, "I imagine it would just be asking for our hourly rate, but we wouldn't ask for a contingency fee or some enhanced." REPRESENTATIVE DAHLSTROM asked what Mr. Nosek's hourly rate is. MR. NOSEK responded that his hourly rate is $200. REPRESENTATIVE DAHLSTROM asked if Mr. Nosek is the only attorney working on this case. MR. NOSEK replied that he is the primary attorney on the case, and that there is another attorney who occasionally works on the case. In response to further questions from Representative Dahlstrom, he said that the other attorney is more senior than himself and would therefore have a higher hourly rate. 5:41:30 PM REPRESENTATIVE GARA asked if there are any pending offers to settle on the case. MR. NOSEK replied that there are none. He reiterated that the first offer was rejected with the message that Hageland Aviation Services would rather go bankrupt than settle with the pilots. CHAIR McGUIRE asked Mr. Nosek whether, if this legislation continues to move through the process, he is swayed by any of the arguments made regarding the danger that pilots might face from taking risks when receiving an hourly pay rate. MR. NOSEK replied that he is not compelled by those arguments. He said: "The argument boils down to this: that they cannot safely pay a pilot and comply with the law. ... And that argument just doesn't hold merit; there are a number of different ways that pilots could be paid to operate in a safe fashion and comply with the law." He pointed out that the claims against the company are not claims against the industry as a whole, but against Hageland Aviation in particular. He said: You can pay a salary to a pilot. ... He gets his salary no matter how much he works; he doesn't have to fly in nasty weather. But if you are paying a salary, you can't dock them if they show up late. That's what Hageland did. There are a number of ways you can pay pilots, address those safety concerns, and comply with the law. So there really is not an issue of trying to comply with the law and be safe at the same time. And as far as the concern that this would drag the industry down: the law was changed two years ago, and there are no claims for overtime from the date of that law forward. I think that the constitutionality of taking away a vested right that has been recognized by a summary judgment could be easily accomplished and save the bill. ... The bill reads that it is retroactive to January of 2000 and applies to those claims that are not determined by final court judgment prior to the effective date. By simply removing one word, the word "final," that avoids the constitutionality problem of the summary judgment that a court has already issued against Hageland Aviation ... and yet does not expose any other air carrier in the state to any risk whatsoever. And so it would be a balancing between recognizing an intent to protect the industry, and recognizing the valid and established overtime claims that have been established in court thus far. ... Simply deleting the word "final" ... would accomplish both of those tasks. CHAIR McGUIRE noted that the legislature has passed retroactive legislation in the past. As policy makers, they are forced to look at the broader impacts of legislation. She offered her belief that the costs of class action lawsuits are further reaching than one would anticipate. She surmised that even if Hageland Aviation did stay in business, they would have to raise their passenger rates and thus impact people who have no other way to travel to the small communities. 5:48:35 PM MR. NOSEK, in response to a question, noted that the Railway Labor Act exemption used to be part of Alaska law, and 1972 the legislature made a policy decision that it did not want the Railway Labor Act exemption to apply under Alaska law and so it was repealed. He said: "So this very exemption that is now being sought to be made retroactive used to be a part of Alaska law ... and the legislature chose to remove it. So it was an affirmative decision to remove that federal preemption from Alaska law." He opined that this [continual changing of the law] is a harmful public policy because it undercuts confidence in the law and creates confusion. REPRESENTATIVE GARA commented: "Isn't their argument not whether ... the Alaska Wage and Hour Act applies but whether, ... under the Alaska Wage and Hour Act, Hageland [Aviation] was paying its employees correctly? ... Isn't it their position that ... under Alaska law, ... you don't have to pay overtime?" MR. NOSEK said he's heard it stated both ways. He elaborated: The position from the [DLWD] and the attorney general is that Alaska law does apply to an intrastate air carrier unless they carry mail and have a collective bargaining agreement and so forth. It does apply to intrastate air carriers. The question then is, are you complying with the law and treating them as exempt professionals as is laid out in the law. If you properly fulfill the elements of a professional employee, then you don't have to pay overtime. 5:53:45 PM MIKE BERGT, General Manager, Alaska Central Express, Inc. (ACE), after explaining his company's background, noted that ACE has been sued. The suit was filed in July 2004, and the claim was that ACE failed to pay overtime to a pilot who had been with the company since 1998. He said that there have been two lawsuits filed since the passage of the state exemption in 2003. He noted that ACE pays its pilots an hourly wage. He stated his understanding that it is not the physical flying of the aircraft that determines whether an aircraft is intrastate or interstate; it's the traffic that it carries. He offered an example of a passenger who is traveling ultimately between two states, but only taking the particular air carrier within one state, that air carrier is still considered to be an interstate carrier. Therefore carriers that fly mail originating from all parts of the world would be considered an interstate carrier. He assured the committee that ACE has never taken advantage of its pilots, and noted that the pilot who filed the lawsuit had never filed a grievance with the company. MR. BERGT stated, "I'm here to encourage this committee to support SB 105." He opined that the suit that was brought against ACE was the result of the lawsuit brought against Hageland Aviation. He said that there are some attorneys in the state that have learned of the potential windfall in the Hageland case, and he commented that the pilot who filed a lawsuit against ACE had originally been approached by an attorney who told him he had a potential claim against ACE. He noted that this attorney has been disqualified by the state district court because the attorney worked for the law firm that acts as general counsel to ACE. He said: I think attorneys see an opportunity to take advantage of the window that was created when the legislative body passed the state overtime exemption in 2003, and are taking advantage of the situation in which air carriers, large and small, were acting in good faith with the policy set forth by the [DLWD] 20 years ago. MR. BERGT pointed out that larger air carriers have had the same difficulty and confusion regarding overtime-pay laws. He said, "This bill is not about taking away any rights of pilots or employees; it is reaffirming what has been the general practice of air carriers who've acted in good faith and in accordance with state policy for the last 20 years." 6:00:19 PM GRANT THOMPSON, President, Cape Smyth Air Service, urged that SB 105 be passed. He relayed the makeup of his company, assuring the committee that his company would never try to circumvent the law. He commented that he thought his company was paying the pilots fairly and never thought that the current method was in violation of the law. He noted that most carriers pay pilots in the same way. He added that companies try to take care of their pilots because if pilots feel that they are not treated fairly, they will go to work elsewhere. CHAIR McGUIRE asked whether the lawsuit against Cape Smyth Air Service was against just the company or against Mr. Thompson personally as well. MR. THOMPSON replied that the May 2004 lawsuit was against both the company and himself, although he is an employee of the company; the company is owned by the estate of Thomas P. Brower, who was Mr. Thompson's father-in-law. 6:04:02 PM TOM NICOLOS, Cape Smythe Air Service, testified in support of SB 105. He pointed out that in a September 3, 1986, letter to the executive director of the Alaska Air Carriers Association, [the DLWD] stated that it had adopted the position of the United State Department of Labor that commuter aircraft and air taxi pilots are exempt only if involved in interstate transportation of passengers and/or substantial hauling of the mail; if their activities are solely intrastate or without the mail hauling function, none of the exemptions would apply. He noted that every carrier currently being sued in Alaska carries substantial amounts of mail. MR. NICOLOS continued: Through your own counsel in a memorandum to [Chair McGuire] dated January [2005], they said a person's due process rights are not violated if that person becomes deprived of the right to sue under a statute which had formerly given them claim, but that statute was changed or removed prior to a final court judgment. So I would encourage you both to leave the word "final" in this bill, and understand that the [DLWD], in a letter in September of 1996, did give the carriers the understanding that they were exempt from the Alaska state statutes as long as they were hauling mail. 6:06:21 PM MARK JOHNSON, Pilot, Hageland Aviation Service, Inc., relayed that he's been in Alaska since 1980 and has worked for a number of air carriers in Western Alaska. He commented that he has been paid both hourly and by salary, and he opined that is it far safer to pay pilots a salary. He noted that he has witnessed pilots who are paid by the hour fly in very bad conditions just so that they can get in their flight hours and get paid. He said he would vouch for Mr. Hageland's integrity, and that this was the best job he'd ever had. Regarding the issue of retroactivity, he said it seems to him that in the interest of justice, either all pilots should get overtime or none of them should. 6:12:18 PM MICHAEL CHARLIE, Pilot, relayed that he has been flying for Hageland Aviation Services, Inc., in the Bethel area for 6 years, and that he anticipates flying for the company for another 25 years because he is comfortable with the company and its method of payment. He surmised that all of the [other] pilots that have opted out of the Hageland litigation feel the same way. He recounted how he first became familiar with the company, which of his relatives also work for the company, and what his typical workday involves, and said that Hageland Aviation Services supports local hiring and is much needed in the community. In conclusion, he said he supports SB 105. 6:14:27 PM KAREN CASANOVAS, Executive Director, Alaska Air Carriers Association (AACA), after relaying that the AACA represents more than 67 air carriers operating in Alaska and over 75 supporting aviation businesses, said that the AACA supports SB 105 and believes that without passage of the bill, economic burdens at several tiers will impact the air carriers in the AACA. The AACA's certificated carriers ensure a high level of safety when they operate, she assured the committee, as well as fairness to all of their employees, and have operated in full compliance with the DLWD's 1986 position. Additionally, the AACA feels that [a failure to adopt SB 105] will dramatically alter the contractual relationships and expectations between government entities, such as the United States Postal Service, and other service providers that continue to serve communities around Alaska. An informal poll conducted a few years ago by the AACA regarding how pilots were paid revealed that flight crews in various Alaska-based companies preferred "the exempt status." In conclusion, she reiterated that the AACA supports passage of SB 105. 6:16:53 PM REPRESENTATIVE KOTT said there seems to be some controversy or misunderstanding over the DLWD's position regarding whether pilots are exempt from "the overtime law." GREY MITCHELL, Director, Central Office, Division of Labor Standards & Safety, Department of Labor & Workforce Development (DLWD), offered that the confusion probably stems from the fact that there are two different questions being asked. One question is whether pilots in general are exempt due to federal preemption, and that is federal preemption based on two different concepts: one is found in the Railway Labor Act, and the other is found in the commerce clause of the U.S. Constitution and limits states, in certain circumstances, from establishing laws that tend to impinge on interstate commerce. The other question is whether "these pilots" are exempt because they qualify as professionals. MR. MITCHELL offered his belief that the Department of Law's 1980 memorandum only applies to the two preemption questions, but does not address the question of whether "these employees" fit within the recently enacted provision that essentially covers all air carriers that are subject to the Railway Labor Act, and noted that the only air carriers subject to the Railway Labor Act are those that are interstate air carriers or those that have a contract to carry the U.S. mail. It is hard to imagine that all air carriers in Alaska don't qualify for the exemption under the Railway Labor Act, that there would be an air carrier in Alaska that isn't engaged in interstate commerce, he remarked, and suggested that the question being addressed by the Hageland litigation is whether the pilots named in the litigation qualify for an exemption as professional employees. He pointed out that in order to qualify as a professional employee, one must be paid on a salary- or fee-basis; thus being paid by an hourly method or a daily method could, in most cases - unless one is paid a daily rate of at least $300 - preclude a person from being considered a professional employee. REPRESENTATIVE KOTT used a hypothetical example wherein one of his employees claims that he isn't complying with the [Alaska] Wage and Hour Act, and asked what the DLWD's procedure would be in such a situation. MR. MITCHELL said that DLWD would first contact the employer and notify him/her that a claim had been filed and ask for a response; then, depending on what the employer's response is, the DLWD might perhaps file a claim in court. He offered that unless the employee is a child and is performing dangerous work, the DLWD would not resolve such a situation via an injunction. MR. MITCHELL, in response to questions, reiterated his belief that the DOL's 1980 memorandum does not address the question of whether a particular pilot qualifies for the professional employee exemption. REPRESENTATIVE GARA asked whether the 1980 memorandum gave air carriers the idea that they didn't have to pay pilots overtime. MR. MITCHELL said it would have as long as certain conditions were being met. As a result of the 1980 memorandum and additional clarification provided via a 1984 DOL opinion/memorandum, the DLWD created a "decision tree" that works through a set of questions. The first question is whether the carrier is an interstate carrier; if it is, then the [Alaska] Wage and Hour Act doesn't apply due to the commerce clause. If the air carrier is not an interstate air carrier, then the question becomes whether the air carrier transports the U.S. mail; if it does, then [Alaska] Wage and Hour Act does not apply as long as the employee is subject to the Railway Labor Act, which generally includes any worker engaged in either interstate commerce or in the transport of U.S. mail. If an intrastate air carrier doesn't carry the U.S. mail, then the question becomes whether the worker is a member of a flight crew covered by a collective bargaining agreement; if the employee isn't, then the [Alaska] Wage and Hour Act applies, but if the employee is covered by a collective bargaining agreement, "then we're back to this Railway Labor Act preemption issue," he concluded, "and there wouldn't be coverage." 6:27:44 PM MR. MITCHELL, in response to questions, reiterated that once the federal preemption issues are addressed, then the issue of whether an employee qualifies for the professional employee exemption must still be addressed. REPRESENTATIVE GRUENBERG asked for clarification regarding employees that are covered by a collective bargaining agreement. MR. MITCHELL reiterated that the [Alaska] Wage and Hour Act would apply to employees who are not covered by a collective bargaining agreement. [CSSB 105(L&C) was held over.]
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