Legislature(1993 - 1994)
03/23/1994 01:15 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
March 23, 1994
1:15 p.m.
MEMBERS PRESENT
Rep. Brian Porter, Chairman
Rep. Jeannette James, Vice-Chair
Rep. Pete Kott
Rep. Gail Phillips (arrived at 1:30 p.m.)
Rep. Joe Green
Rep. Cliff Davidson (arrived at 1:30 p.m.)
Rep. Jim Nordlund
MEMBERS ABSENT
None
COMMITTEE CALENDAR
HB 376: "An Act relating to services for and protection of
vulnerable adults; and providing for an effective
date."
MOVED OUT OF COMMITTEE
HB 420: "An Act relating to limited liability companies;
amending Alaska Rules of Civil Procedure 20 and
24; and providing for an effective date."
HEARD AND HELD
HB 392: "An Act relating to the confidentiality of
permanent fund dividend application information;
relating to the permanent fund dividend program;
and providing for an effective date."
MOVED OUT OF COMMITTEE
HB 459: "An Act relating to liquidated damages and
attorney fees for minimum wage and overtime
compensation claims."
MOVED OUT OF COMMITTEE
HB 367: "An Act relating to the control of outdoor
advertising."
NOT HEARD
SB 186: "An Act relating to state agency publications."
NOT HEARD
WITNESS REGISTER
DANIELLA LOPER, Committee Counsel
House Judiciary Committee
Alaska State Legislature
Capitol Building, Room 118
Juneau, Alaska 99811
Telephone: 465-6841
POSITION STATEMENT: Testified regarding HB 376
REP. GENE THERRIAULT
Alaska State Legislature
Capitol Building, Room 421-C
Juneau, AK 99801-1182
Telephone: 465-4797
POSITION STATEMENT: Sponsor of HB 420
CHARLES SCHUETZE, Attorney
Davis & Gordon
405 W. 36th Avenue
Anchorage, AK 99503
Telephone: 561-4420
POSITION STATEMENT: Testified via teleconference from
Anchorage in support of HB 420.
BRIAN DURRELL, Attorney
Bogle & Gates; Certified Public Accountant
1031 W. 4th Street, Suite 600
Anchorage, AK 99501
Telephone: 257-7828
POSITION STATEMENT: Testified via teleconference from
Anchorage in support of HB 420.
BOB MANLEY, Attorney
Hughes Thorsness Gantz Powell & Brundin
324 G St. Cook
Anchorage, AK 99501
Telephone: 263-8251
POSITION STATEMENT: Testified via teleconference from
Anchorage in support of HB 420.
CRAIG INGHAM
Alaska Bankers Association
P.O. Box 73880
Fairbanks, AK 99707
Telephone: 452-1751
POSITION STATEMENT: Testified via teleconference from
Fairbanks in opposition to HB 420.
WILLIS KIRKPATRICK, Director
Division of Banking, Securities and Corporations
Department of Commerce and Economic Development
9th Floor, State Office Building
P.O. Box 110807
Juneau, AK 99811-0807
Phone:465-2521
POSITION STATEMENT: Testified in support of HB 420.
RICHARD VITALE, Staff
Rep. Sean Parnell, Sponsor of HB 392
Capitol Building, Room 513
Juneau, AK 99801
Telephone: 465-2995
POSITION STATEMENT: Testified in support of HB 392.
TOM WILLIAMS, Director
Permanent Fund Dividend Division
Department of Revenue
11th Floor, State Office Building
P.O. Box 110460
Juneau, AK 99811-0460
Telephone: 465-2323
POSITION STATEMENT: Testified in support of HB 392.
REP. ELDON MULDER
Alaska State Legislature
State Capitol, Room 116
Juneau, AK 99801-1182
Telephone: 465-2647
POSITION STATEMENT: Sponsor of HB 459
HOWARD JOYCE, Staff
Rep. Eldon Mulder
State Capitol, Room 116
Juneau, AK 99801-1182
Telephone: 465-2647
POSITION STATEMENT: Testified in support of HB 459.
PARRY GROVER, Attorney
550 W. 7th Avenue, Suite 1450
Anchorage, AK 99501
Telephone: 257-5300
POSITION STATEMENT: Testified via teleconference from
Anchorage in support of HB 459.
BRUCE WEYHRAUCH, Attorney
Faulkner, Banfield, Doogan & Holmes
302 Gold Street
Juneau, AK 99801
Telephone: 586-2210
POSITION STATEMENT: Testified in opposition to HB 459.
C.J. ZANE, Lobbyist
Holland America Line-Westours, Inc.
880 H Street, #201
Anchorage, AK 99501
Telephone: 274-9019
POSITION STATEMENT: Testified in support of HB 459.
KEN LEGACKI, Attorney
425 G. Street, Suite 260
Anchorage, AK 99501
Telephone: 258-2422
POSITION STATEMENT: Testified via teleconference from
Anchorage in opposition to HB 459.
RANDY CARR, Chief
Wage & Hour
Department of Labor
P.O. Box 107021
Anchorage, AK 99510-7021
Telephone: 269-4913
POSITION STATEMENT: Testified regarding HB 459.
PREVIOUS ACTION
BILL: HB 376
SHORT TITLE: ASSIST & PROTECT VULNERABLE ADULTS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
01/14/94 2066 (H) READ THE FIRST TIME/REFERRAL(S)
01/14/94 2066 (H) HES, JUDICIARY, FINANCE
01/14/94 2067 (H) -4 FNS (3-DHSS, ADM) 1/14/94
01/14/94 2067 (H) -ZERO FISCAL NOTE (ADM) 1/14/94
01/14/94 2067 (H) GOVERNOR'S TRANSMITTAL LETTER
02/09/94 (H) HES AT 03:00 PM CAPITOL 106
02/09/94 (H) MINUTE(HEB)
02/09/94 (H) MINUTE(HES)
02/11/94 2341 (H) HES RPT 4DP 3NR 1AM
02/11/94 2341 (H) DP: BUNDE, TOOHEY, B.DAVIS,
NICHOLIA
02/11/94 2341 (H) NR: KOTT, G.DAVIS, OLBERG
02/11/94 2341 (H) AM: VEZEY
02/11/94 2342 (H) -ZERO FISCAL NOTE (DPS) 2/11/94
02/11/94 2342 (H) -4 PREVIOUS FNS (ADM, 3-DHSS)
1/14/94
02/11/94 2342 (H) -PREVIOUS ZERO FISCAL NOTE(ADM)
1/14/94
03/11/94 (H) JUD AT 01:00 PM CAPITOL 120
03/11/94 (H) MINUTE(JUD)
03/14/94 (H) MINUTE(JUD)
03/16/94 (H) MINUTE(JUD)
03/23/94 (H) JUD AT 01:00 PM CAPITOL 120
BILL: HB 420
SHORT TITLE: LIMITED LIABILITY COMPANIES
SPONSOR(S): REPRESENTATIVE(S) THERRIAULT,Mulder
JRN-DATE JRN-PG ACTION
01/31/94 2206 (H) READ THE FIRST TIME/REFERRAL(S)
01/31/94 2206 (H) L&C, JUDICIARY, STATE AFFAIRS
02/24/94 2522 (H) SPONSOR SUBSTITUTE
INTRODUCED-REFERRALS
02/24/94 2522 (H) L&C, JUDICIARY, STATE AFFAIRS
03/08/94 (H) L&C AT 03:00 PM CAPITOL 17
03/09/94 2676 (H) L&C RPT 1DP 3NR
03/09/94 2676 (H) DP: MULDER
03/09/94 2676 (H) NR: WILLIAMS, SITTON, HUDSON
03/09/94 2676 (H) -ZERO FISCAL NOTE (DCED) 3/9/94
03/09/94 2703 (H) COSPONSOR(S): MULDER
03/18/94 (H) JUD AT 01:15 PM CAPITOL 120
03/21/94 (H) MINUTE(JUD)
03/23/94 (H) JUD AT 01:00 PM CAPITOL 120
BILL: HB 392
SHORT TITLE: PERMANENT FUND DIVIDEND PROGRAM
SPONSOR(S): REPRESENTATIVE(S) PARNELL
JRN-DATE JRN-PG ACTION
01/21/94 2125 (H) READ THE FIRST TIME/REFERRAL(S)
01/21/94 2125 (H) STATE AFFAIRS,JUDICIARY,FINANCE
02/22/94 (H) STA AT 08:00 AM CAPITOL 102
02/22/94 (H) MINUTE(STA)
03/03/94 (H) STA AT 08:00 AM CAPITOL 102
03/03/94 (H) MINUTE(STA)
03/03/94 (H) MINUTE(STA)
03/03/94 (H) MINUTE(STA)
03/04/94 2605 (H) STA RPT CS(STA) 2DP 3NR
03/04/94 2605 (H) DP: VEZEY, G.DAVIS
03/04/94 2605 (H) NR: KOTT, OLBERG, SANDERS
03/04/94 2605 (H) -ZERO FISCAL NOTE (REV) 3/4/94
03/18/94 (H) JUD AT 01:15 PM CAPITOL 120
03/21/94 (H) MINUTE(JUD)
03/23/94 (H) JUD AT 01:00 PM CAPITOL 120
BILL: HB 459
SHORT TITLE: DAMAGES & ATTY FEES FOR UNPAID WAGES
SPONSOR(S): LABOR & COMMERCE
JRN-DATE JRN-PG ACTION
02/09/94 2321 (H) READ THE FIRST TIME/REFERRAL(S)
02/09/94 2321 (H) L&C, STATE AFFAIRS, JUDICIARY
02/22/94 (H) L&C AT 03:00 PM CAPITOL 17
02/22/94 (H) MINUTE(L&C)
02/23/94 2495 (H) L&C RPT 2DP 4NR
02/23/94 2495 (H) DP: PORTER, MULDER
02/23/94 2496 (H) NR: SITTON, WILLIAMS, GREEN,
HUDSON
02/23/94 2496 (H) -ZERO FISCAL NOTE (LABOR)
2/23/94
03/10/94 (H) STA AT 08:00 AM CAPITOL 102
03/10/94 (H) MINUTE(STA)
03/11/94 2719 (H) STA RPT CS(STA) 3DP 3NR
03/11/94 2719 (H) DP: VEZEY, KOTT, OLBERG
03/11/94 2719 (H) NR: SANDERS, G.DAVIS, B.DAVIS
03/11/94 2719 (H) -ZERO FISCAL NOTE (LAW) 3/11/94
03/11/94 2719 (H) -PREVIOUS ZERO FISCAL NOTE
LABOR 2/23
03/23/94 (H) JUD AT 01:00 PM CAPITOL 120
BILL: HB 367
SHORT TITLE: PROHIBITED HIGHWAY ADVERTISING
SPONSOR(S): REPRESENTATIVE(S) OLBERG
JRN-DATE JRN-PG ACTION
01/13/94 2052 (H) READ THE FIRST TIME/REFERRAL(S)
01/13/94 2052 (H) TRANSPORTATION, JUDICIARY
02/23/94 (H) MINUTE(ECO)
03/01/94 (H) TRA AT 05:00 PM CAPITOL 17
03/01/94 (H) MINUTE(TRA)
03/11/94 2716 (H) TRA RPT CS(TRA) NEW TITLE 4DP
1NR
03/11/94 2717 (H) DP: VEZEY, G.DAVIS, HUDSON,
FOSTER
03/11/94 2717 (H) NR: MULDER
03/11/94 2717 (H) -ZERO FISCAL NOTE (DOT) 3/11/94
03/12/94 (H) MINUTE(ECO)
03/23/94 (H) JUD AT 01:00 PM CAPITOL 120
BILL: SB 186
SHORT TITLE: STATE AGENCY PUBLICATIONS
SPONSOR(S): SENATOR(S) FRANK
JRN-DATE JRN-PG ACTION
04/07/93 1221 (S) READ THE FIRST TIME/REFERRAL(S)
04/07/93 1221 (S) STATE AFFAIRS
04/14/93 1354 (S) STA RPT 3DP
04/14/93 1354 (S) ZERO FISCAL NOTE (ADM)
04/14/93 (S) STA AT 9:00 AM BUTROVICH RM 205
04/14/93 (S) MINUTE(STA)
04/14/93 (S) MINUTE(RLS)
04/26/93 1761 (S) RULES 4 CALENDAR 4/26/93
04/26/93 1762 (S) READ THE SECOND TIME
04/26/93 1762 (S) AM NO 1 ADOPTED UNAN CONSENT
04/26/93 1763 (S) AM NO 2 ADOPTED UNAN CONSENT
04/26/93 1764 (S) AM NO 3 FAILED Y10 N10
04/26/93 1764 (S) ADVANCE TO THIRD READING FAILED
Y11 N9
04/26/93 1764 (S) THIRD READING 4/27 CALENDAR
04/27/93 1842 (S) READ THE THIRD TIME SB 186 AM
04/27/93 1842 (S) PASSED Y20 N-
04/27/93 1842 (S) DONLEY NOTICE OF
RECONSIDERATION
04/28/93 1891 (S) RECONSIDERATION NOT TAKEN UP
04/28/93 1893 (S) TRANSMITTED TO (H)
05/06/93 1661 (H) READ THE FIRST TIME/REFERRAL(S)
05/06/93 1661 (H) L&C, STATE AFFAIRS, JUDICIARY,
FINANCE
02/17/94 (H) L&C AT 03:00 PM CAPITOL 17
02/17/94 (H) MINUTE(L&C)
02/18/94 2455 (H) L&C RPT 5DP
02/18/94 2455 (H) DP:PORTER,SITTON,MULDER,
GREEN,HUDSON
02/18/94 2455 (H) -ZERO FISCAL NOTE (ADM) 2/18/94
03/05/94 (H) STA AT 08:00 AM CAPITOL 102
03/05/94 (H) MINUTE(STA)
03/08/94 (H) MINUTE(STA)
03/08/94 (H) MINUTE(STA)
03/09/94 2681 (H) STA RPT HCS(STA) 6DP
03/09/94 2681 (H) DP:VEZEY,KOTT,SANDERS,G.DAVIS
03/09/94 2681 (H) DP:OLBERG, B.DAVIS
03/09/94 2681 (H) -PREVIOUS ZERO FISCAL NOTE(ADM)
2/18/94
03/09/94 2681 (H) REFERRED TO JUDICIARY
03/23/94 (H) JUD AT 01:00 PM CAPITOL 120
ACTION NARRATIVE
The House Judiciary Standing Committee was called to order
at 1:13 p.m. on March 23, 1994. A quorum was present.
Chairman Brian Porter announced that the committee would
begin with HB 376.
TAPE 94-49, SIDE A
Number 037
HB 376 - ASSIST & PROTECT VULNERABLE ADULTS
CHAIRMAN PORTER said, "I would ask that the committee take
the CS on HB 376 in hand. This represents, basically, the
committee substitute that incorporated the items we had
questions on last meeting, and one other item which I will
explain. Section one is new between last meeting and the
development of this CS. This was another section that was
found in the statutes that deals with this issue where we
wanted to change the `elder abuse' to `vulnerable adult,'
which, of course, this bill incorporates. On page six,
which I think is what we do have, on line 18, we have added
verbiage so that the entire sentence says, beginning on the
last of 17, `The Department or its designee shall conduct a
face to face interview with the vulnerable adult, who is the
subject of the report.' We wanted to make sure, just for
clarification, that that's the person of whom we were
speaking. I'll not discuss page seven, because you don't
have it yet [Ed. Note: it was distributed shortly
thereafter.]. On page nine, at the top, line one, we have
added `life threatening' and the word `temporary,' and in
line two, the word `temporarily.' This is the section that
deals with the ability of the department to determine that
an individual is within an emergency situation and takes
steps without permission, without consent, to protect that
vulnerable adult. Obviously, this is one of the sections of
the bill that is of the consideration of this committee and
we thought that it would be appropriate to make sure that
was done in only very serious temporary situations where a
department could, in effect, control someone's life without
otherwise due process or permission."
REP. JOE GREEN: "Did you want to discuss these now or
wait?"
CHAIRMAN PORTER: "We can discuss them now if you like."
Number 110
REP. GREEN: "Just a point of clarification: By adding
`life threatening,' does that modify the temporary nature to
the point that the department will probably minimize that
time in order to stay in context with this life-threatening
thing?"
Number 115
CHAIRMAN PORTER: "That would be my impression, yes. On line
11 of page seven, we have added `procedural status' as
opposed to just `status'. The entire thing, then...`Upon
request of person who made a report to the department under
this statute number regarding a vulnerable adult shall be
notified, shall be notified of the procedural status of the
investigation conducted under (a) of this section regarding
that vulnerable adult.' We wanted to make sure that this
was not interpreted to mean that otherwise confidential
information would be relayed to the person who made the
report, but recognizing it's appropriate for that person to
know the status of that report."
Number 147
REP. CLIFF DAVIDSON: "So, in effect, the new word
`procedural' just means that the person who made the report
shall be notified of where in the procedure the status of
that vulnerable adult is. Is that correct?" Chairman
Porter replied in the affirmative.
REP. DAVIDSON asked further: "The department - are they in
full support of all these amendments?"
CHAIRMAN PORTER: "It's my understanding that they are.
Connie is nodding in the affirmative."
Number 170
REP. PETE KOTT: "Just for clarification here. If there is
some type of action that would require the appointment of
counsel on any matter that would be brought before the
court, who would that be? I don't see a real provision
there. If I understand the system correctly, the Office of
Public Advocacy would be the one that would be representing
as counsel in these matters. And if that's the case, I
don't see a fiscal note."
Number 185
CHAIRMAN PORTER: "The appointment of counsel for a
vulnerable adult initially would be determined by the
financial status of that individual. If that person has, as
we've listed in the bill, and I can't remember exactly which
section, but we've listed that the department can seek
assistance and guidance for these kinds of determinations,
from relatives and spouses or even close associates. Those
people would be in a position to know whether or not there
are funds with which to hire their own attorney, which
obviously is the law, or have to appoint a guardian
(indiscernible.) If a guardian (indiscernible) is
appointed, there would be a fiscal impact, but I don't think
that this bill would create an additional impact; it's just
defining the process for doing that which has already been
occurring."
Number 214
REP. KOTT: "My only question was, at least if I understand
the system correctly, that if you do have appointed counsel
representing these types of cases - either commitment or
guardian cases - it would come from the Office of Public
Advocacy. So I was just suggesting that perhaps there
should be some kind of fiscal impact. I think the office
also falls within the Department of Administration, if I'm
correctly stating that, and that might bring about some form
of conflict."
CHAIRMAN PORTER invited DANIELLA LOPER, COMMITTEE COUNSEL,
HOUSE JUDICIARY COMMITTEE, to comment.
Number 241
MS. LOPER said and reiterated several times that the issue
raised by Rep. Kott did not relate to the bill. She said
only one particular section discussed petitioning the court
for certain protective services by the agency.
Number 250
REP. KOTT: "If I might add, maybe, for counsel to perhaps
address...I'm looking at the original bill, page seven,
lines 26 and 27; it deals with surrogate decision makers.
It talks about...it has no attorney or guardian, in fact, to
serve as the vulnerable adult's surrogate, we're covered
there as well, then? That's my question."
CHAIRMAN PORTER: "What's the question again?"
REP. KOTT: "Well, the comments that were made earlier - I'm
still looking at whether or not we're going to have to
appoint counsel under this particular provision in Section
three on page seven; Where there is no guardian or attorney
(indiscernible) to serve as the vulnerable adult's decision-
maker, will that person then have to acquire perhaps
appointed counsel from the Office of Public Advocacy?"
Number 291
MS. LOPER: "This section on surrogate decision makers for
vulnerable adults is only honing in on the issue of whether
they are going to receive protective services or not. It
goes on to say that the vulnerable adult spouse is going to
be the first on the priority that's going to be looked at,
and on down the line to sisters and brothers and close
relatives and friends. It only relates to the issue of
whether there's going to be protective services or not,
whether they can go ahead and do that or not. Under this
bill, they don't have to petition the court at all."
Number 310
CHAIRMAN PORTER: "From that standpoint, I think it would be
fair to say that there is a cost reduction involved in this
process, as opposed to a cost increase, because we didn't
have the ability to make these kinds of decisions previously
at the administrative level. Any other questions? What is
the wish of the committee? Rep. James?"
Number 315
REP. JEANNETTE JAMES: "I move to adopt the CS that is
before us."
CHAIRMAN PORTER: "The CS being for HB 376 dated 3/17/94-E.
Is there objection? I see no objection."
REP. JAMES: "I move that we send this bill out of committee
with attached fiscal notes and individual recommendations
and ask for unanimous consent."
Number 324
CHAIRMAN PORTER: "Motion to move and ask for unanimous
consent. Is there discussion? Objection? I see none.
Thank you, the bill is moved."
HB 420 - LIMITED LIABILITY COMPANIES
Number 332
CHAIRMAN PORTER: "The next bill for consideration is HB
420. We are in teleconference for this bill, and we have,
initially, the bill sponsor, Rep. Therriault. Welcome, Rep.
Therriault. Please tell us about your bill."
Number 353
REP. GENE THERRIAULT, SPONSOR OF HB 420, said, "I do have a
sponsor statement that I'd like to read into the record, and
then on teleconference we have a number of people that have
worked extensively on drafting the language of the bill and
can talk to the specific legal questions that you might
have. For the record, my name is Gene Therriault, I am a
State Representative to House District 33.
"HB 420 proposes a new hybrid form of business structure
called a limited liability company that combines the tax
advantages of a partnership and the liability safeguards of
a corporation. Although a combination of these two business
structures is currently allowed in statute through formation
of an S corporation, this structure has limitations that are
avoided by LLCs. For example, S corporations do not allow
ownership by certain types of shareholders.
"Under current law, corporate earnings are subject to double
taxation through the payment of corporate taxes and personal
taxes after distribution of dividends. LLCs avoid this
double taxation by allowing earnings to flow through to
individual owners in the same manner partnership income is
handled. Although businesses can be organized through an S
corporation to avoid double taxation and encompass some of
the advantages of partnerships, they do not enjoy all the
advantages of partnerships when it comes to allocating
income and deductions.
"One of the greatest advantages is, as the name implies, the
limited liability offered by the LLC structure. With LLCs,
as with regular corporations, only the company's assets and
not the owner's personal assets, are at risk in business-
related lawsuits. In partnerships, so-called limited
partners enjoy such protection, but general partners don't.
And limited partners face restrictions on how active they
can be in the business. LLCs are designed to protect all
members while imposing no limits on their involvement in
operation of the business.
"Thirty-four states now permit limited liability companies,
and passage in most of the remaining states is expected.
Wyoming passed the first LLC act in 1977. Other states
slowly followed suit until 1988, when the Internal Revenue
Service issued Rev. Rul. 88-76, which classified a Wyoming
LLC as a partnership for federal tax purposes, even though
none of the members or managers were personally liable for
any debts of the company. Following the ruling, formation
of LLCs burgeoned, with two states adopting LLC acts in
1990, four in 1991, 10 in 1992 and more than 20 states
introducing measures in 1993.
"LLCs have tended to be family businesses, professional
service firms, venture capital companies, real estate
businesses and start-ups. I believe the LLC will provide
these business owners with an efficient and flexible
investment vehicle that allows both limited liability and
federal income tax treatment as a partnership. I introduced
the bill, which is based on a prototype American Bar
Association draft, with the intention of generating
discussion on this topic." Rep. Therriault added to this
prepared statement: "Since that time, I did introduce a
sponsor substitute which adopted a lot of work that was done
by a subcommittee of the Alaska Bar Association. I believe
some of the people that are on teleconference to be
available to make comments and answer questions were
involved in that re-drafting which basically took the
American Bar Association draft and kind of Alaskanized it.
With that, Mr. Chairman, I am available to answer any
questions or we can go right to the teleconference."
Number 418
REP. GAIL PHILLIPS: "Rep. Therriault, would you please tell
me who was on that subcommittee? What groups were
represented on the subcommittee?"
REP. THERRIAULT: "I think it was a subcommittee of the
Alaska Bar Association."
Number 427
REP. JIM NORDLUND: "Gene, I think this is a good bill,
actually. I considered introducing it myself, although--I
understood--what I was looking into was limited liability
partnership instead of limited liability company, and I'm
just wondering - maybe you, or maybe somebody who is going
to testify here could explain, if there is a difference."
Number 446
REP. THERRIAULT: "I believe there is a working group in the
Commerce Department, somewhere in the Administration that is
working on limited liability partnerships. It's a different
animal yet than this, but might be another business
structure that people would have to choose from. My wife is
an attorney up in Fairbanks and she has told me that she has
had a number of clients come to her and have said, `We
understand there is a new form of business. Is it available
in the state of Alaska?' So, when people go to form
businesses they have a number of options of what the
business structure can be. It can be a full partnership or
a sole proprietorship, limited partnership, a number of
things. This would just add one more option for them to
consider when forming the business structure."
REP. NORDLUND: "Maybe somebody who was going to testify
could explain. I just wanted to know the difference between
the two."
CHAIRMAN PORTER: "That was one of the questions I was going
to ask, myself, so we'll hope to be edified by the
testimony."
REP. DAVIDSON: "Rep. Therriault, I can certainly understand
the need for favorable tax treatment at the federal level.
My question is, why is this limited liability company
necessary? For example, would it allow for less responsible
actions by companies that do not now have that option?
Could you expand on why this additional option [is
proposed], as far as forming a company is concerned, and how
it would it affect the responsibilities or actions of such a
company?"
Number 453
REP. THERRIAULT: "Well, it would allow no more or no less
of liability than a corporate structure does. But the
corporate structure has a disadvantage in the tax
consequences. So what we're doing is blending the liability
advantages that you can get through a corporate structure
with the tax benefit that you can get through a partnership.
We're just melding those two together, basically."
Number 468
REP. DAVIDSON: "And how is the public treasury impacted by
this efficiency?"
Number 469
REP. THERRIAULT: "I don't believe that the public treasury
would be impacted at all. I think there was some concern
expressed at the earlier committee that maybe we would be
prompting corporations who pay a corporate tax to dissolve
themselves and go into an LLC structure. If they did that,
there would be some fairly serious capital gains
consequences, which I think would actually preempt people
from doing that. What we're really going to do, is just
give those people who are thinking of forming a new company
one more option. Now, they may have chosen a corporate
structure, but I don't know that there's any way that you
can really quantify what people may have done in the future
when selecting those different business forms and what the
potential impact could have been on the treasury."
Number 482
REP. JAMES: "Is it possible to determine that a lot of
people that may have filed corporations will now file this
LLC, and so therefore we as a state might be deprived of any
corporate income tax?"
REP. THERRIAULT reiterated that this would be difficult to
quantify. He was skeptical that corporations already in
existence would be dissolving in large numbers to reform as
LLCs.
CHAIRMAN PORTER introduced the teleconference testimony from
Anchorage.
Number 501
CHARLES SCHUETZE, ATTORNEY, DAVIS & GORDON, testified via
teleconference from Anchorage in support of HB 420. Mr.
Schuetze was present as a member of the legislative drafting
committee for the tax section of the Alaska Bar Association.
MR. SCHEUTZE said, "The primary purpose of the bill is to
enable these companies to reorganize to have the tax
characteristics of a partnership combined with the limited
liability of a corporation. In the past when business
organizations have been organized they've had to make a
significant compromise. If they wanted to have all the
entire panoply of tax [options of] a partnership they'd
choose to be general partners but then they would be
unlimitedly liable. If they wanted to have most of the type
of characteristics of a partnership they could organize a
limited ownership, but still there would be a general
partner who would be unlimitedly liable. If they wanted to
have most of the type of characteristics of a partnership,
they could organize a limited partnership, but still there
would be a general partner who would be unlimitedly liable.
With S corporations, as it's been discussed, certain
restrictions are imposed, on the number, the nationality,
etc., and it's not exactly treated like a partnership. C
corporations of course gave unlimited liability, but the
corporations could be taxed as corporations."
MR. SCHUETZE went on to analyze HB 420 in detail. Testimony
was often difficult to discern due to paper shuffling and
other background noise. Included in his discussion was a
delineation of the characteristics of an LLC as well as the
advantages for estate planning for families in its use. He
concluded by introducing Brian Durrell from Anchorage for
continued discussion.
CHAIRMAN PORTER thanked Mr. Schuetze for his testimony.
Chairman Porter requested that any teleconference
participants in Anchorage who had written testimony forward
a copy to the committee via telefax, 465-3834.
Number 577
REP. THERRIAULT acknowledged that the length of the bill
might give committee members pause. He explained in detail
how the bill provides default language for the formation and
operation of limited liability companies.
Number 600
BRIAN DURRELL, ATTORNEY, BOGLE AND GATES, AND CERTIFIED
PUBLIC ACCOUNTANT, testified via teleconference from
Anchorage in support of HB 420. Noting that he has served
as one of the members of the working group of the joint tax
and business section of the Alaska Bar Association that
drafted the legislation, Mr. Durrell championed the bill as
being very good for business in Alaska. He said it would
help streamline and stimulate business activity in Alaska.
Mr. Durrell said the LLC would not be a substitute for
partnerships or corporations but rather a choice appropriate
for certain circumstances.
MR. DURRELL characterized the primary distinction between an
LLC and a partnership as the ability of the LLC to enjoy
limited liability. He acknowledged SB 348 which deals with
the formation of a limited liability partnership but whose
principles are different. Mr. Durrell described limited
partnerships in relation to LLCs. "There are
differences...primarily that a limited partnership always
must have at least one general partner who would not enjoy
those limitations of liability, and secondly, the management
of a limited partnership would be much different because a
limited partner to enjoy the benefits of the limited
liability cannot be involved in the management of the
limited partnership and an LLC would allow for management by
the members who would also enjoy the limited liability.
MR. DURRELL went on to contrast LLCs and corporations. He
said, "To distinguish [LLCs] from corporations, setting
aside for the moment S corporations, so we're talking about
a normal corporation, C corporation subject to taxation, the
primary distinction is the double taxation issue. Limited
liability. Companies would not be subject to the double
taxation. If they are properly formed they are going to be
taxed as a partnership with flow-through taxation and avoid
the double tax that is paid by corporations. And the last
type of entity, the S corporation, which is for state law
purposes no different than any other corporation, it's
merely an election that is made under the federal tax code,
to be taxed as a corporation, that has a flow-through tax
structure much like a partnership. But there are
limitations on who can form S corporations, the number and
types of shareholders; there can not be more than 35
shareholders in an S corporation; the corporation
shareholders cannot be nonresident aliens. Those types of
individuals, corporations, can be members of LLC. So it has
distinctions from each one of these existing business
entities, and again in some instances, it may be better; in
others, one of these existing entities may be a better
choice. We're simply trying to provide the business
community a full array of options that should be available
to them in selecting the manner in which they want to
structure their business."
Number 678
CHAIRMAN PORTER: "Is it your understanding that the bill
that we are considering is without significant difference
from the bills that have been introduced in other states in
the past?"
Number 689
MR. DURRELL: "Well, I have not reviewed each of those 34
bills that have been passed in the other states, so I can't
speak from personal knowledge. My understanding is this is
very similar. I think if we looked at each one of those
bills that every state made minor variations into the bill,
but the general concept is the same. The concept being the
limitation of liability afforded to members and the
partnership tax attributes."
Number 711
BOB MANLEY, ATTORNEY, HUGHES THORSNESS GANTZ POWELL &
BRUNDIN, testified via teleconference from Anchorage in
support of HB 420. "Thank you for letting us testify, and I
mean that seriously, because after running through tort
reform, I imagine you guys are just sick and tired of
lawyers. I'd like to say that we're different. We're CPAs,
tax and estate planning and business lawyers that are
interested in the development of the law. We want to make
more and better options available to our clients.
"Last week I went to a legal seminar outside, and the
speaker was discussing various business entities that you
could offer to your client. He indicated that the count was
now with 37 states with limited liability company statutes,
and he boldly predicted that by 1995 we'd have all 50 states
with LLC legislation. The California senate just passed an
LLC bill expected to be on the governor's desk very
shortly." Mr. Manley went on to express concern that
Alaskans would lose business to other states from
individuals desiring the formation of LLCs.
"Our drafting committee worked from the ABA prototype act.
That was put together by a national panel with the American
Bar Association business law section, and basically, all the
LLC acts throughout the country are substantially similar.
And I think the ABA prototype distills the best of all of
these various bills. We've got a fair amount of experience
with LLC. The first was Wyoming in 1977, then Florida in
1982, so we've got a certain amount of history even though
this is happening relatively rapidly.
"To explain: An LLC has a blend of corporate and
partnership characteristics with a flexible operating
system. It meets the needs of Alaska business and provides
a federal tax advantage. And, as Mr. Durrell pointed out,
it facilitates foreign investment because foreign investors,
nonresident aliens, cannot be in an S corporation. So
accordingly, they are either subject to general partnership
rules regarding liability or, in the alternative, subject to
corporate double tax."
MR. MANLEY posited a hypothetical Japanese consortium
seeking a location to set up a timber mill in either Alaska,
Washington or Oregon. He described the negative response of
consortium accountants to Alaska upon learning that only
Oregon and Washington offered the option of an LLC, with
"pure individual one-bite taxation, and limited liability."
He concluded that LLC legislation was necessary from an
international point of view in order to keep up with
developments in the law.
Turning to the subject of revenue, Mr. Manley said he did
not believe LLC legislation would have "any impact on Alaska
state corporate income tax, because existing C corporations
are not going to dissolve because of the tax and transfer
costs. And, really, this is primarily going to replace, for
the appropriate people, partnerships and S corporations that
don't pay tax right now." [Concurrent conversation in
hearing room reduces testimony sound quality.]. Mr. Manley
finished his testimony by opining it would be a rare
situation in which someone forming a corporation who had
been seriously considering a C corporation, which pays
corporate income tax, would elect a limited liability
company.
Number 780
CRAIG INGHAM, ALASKA BANKERS ASSOCIATION, testified via
teleconference from Fairbanks in opposition to HB 420. "I
represent the Alaska Bankers Association. I am not an
attorney. I am a business person and the Alaska Bankers
Association opposes this bill. We oppose it for some very
fundamental reasons and some technical reasons as well."
MR. INGHAM discussed the very broad spectrum of entities to
be affected by the legislation, including sole
proprietorships, where the risk factors in start-up are
enormous. He addressed the situation of third party vendors
who must sustain considerable losses in the failure of new,
and especially small and sole-proprietor, businesses; the
vulnerability of these vendors provided reason, he said, for
sole proprietorships and partnerships to be liable
personally for the debts of their business.
MR. INGHAM went on to discuss management aspects of the
bill. He explained that "...in a corporation, the
shareholders or owners of a corporation are prohibited, are
not allowed to manage the affairs of a corporation. They in
turn have to elect directors who manage the affairs. And
the directors manage those affairs by appointing officers of
the corporation to act as agent. And they're given specific
authority to corporate resolutions and so forth that carry
on the business at hand for the corporation. In a
partnership or a sole proprietorship, the owner is the
manager."
MR. INGHAM said, "Now, when you mix the two worlds together,
you give the owner limited liability and not unlimited
liability, you are allowing for the manager, basically to
provide, from a management standpoint, the duties and
responsibilities of carrying out the business of the entity
without having to worry about any personal liability. That
could be very confusing. Especially to other businesses
that are trying to do business with this new entity. If you
look at this, just look at the first paragraph under
management, Section 10.51.10 on page seven, it says, `Except
as otherwise provided by this chapter, the members of a
limited liability company manage the affairs and make the
decisions of the company unless an operating agreement of
the company names a manager for the company. Management by
members is subject to a provision in an operating agreement
or this chapter limiting or increasing the management rights
and duties of the members, including limits or increases
placed on a class of members or individual members.'
"So now we have this operating agreement saying who can
manage the affairs of the company and what they can and
cannot do. And this is for small business, that we're
talking about here, as well as big business. If you go
further through the section as it deals with management and
you go over to page nine, at the top of the page, line
three, under subsection (b), it says, unless otherwise
provided in that operating agreement of the company, or by
this chapter, if an operating agreement of a company means
more than one manager for the company -- in other words, now
we can have the operating agreement saying, well, instead of
just one person appointed by the members, we can now have,
you know, five or ten managers; the consent of more than one
half of the number of managers of a limited liability
company is required to decide the affairs of the company.
Does that mean if I do business with one of these entities I
better make sure that the manager has gone out there and
gotten a majority rule on doing business with him?
"So if we move on, here, to the section that I think is most
important of all, article seven, `Relationship to Third
Parties,' that's who these people will be doing business
with. Their customers and other businesses. At the top of
page 14: `Agency Power of Members and Managers.' It goes
on to say, `Except as provided in (b) and (c) of this
section, a member of a limited liability company is an agent
of the company for the purpose of conducting the company's
affairs. A member that, including the execution of an
instrument in the name of the company, that appears to be
performed in the usual way of conducting the affairs of the
company, binds the company.' Well, does that mean now I
need to know what is usual and customary as far as the
affairs of the company? I guess I'm running out of time
here.
"But the big issue here is, there are a lot of big questions
that have not been asked by the business community, and the
people that are going to have to do business with this new
entity as to how it's going to work when it comes down to
relating to third party interests. And let's not think that
we're treading over something brand new here. This was
tried one hundred years ago, in what was called the Business
Trust. And the Business Trust was originated to obtain
certain advantages of corporate status, such as limited
liability. It was very popular in the few years it was in
existence in the 1900s. However, a number of states ruled
that the partners should be held personally liable. The
state legislature enacted laws requiring that. I wonder why
they would do that?" [Tape ends abruptly.]
TAPE 94-49, SIDE B
Number 000
REP. DAVIDSON asked Mr. Ingham if he had any other points.
Number 007
MR. INGHAM: "I do have other points, and I would like to
have a few more minutes of time if I may." Chairman Porter
invited him to continue. "I talked about the management
problems here, how that could be confusing to deal with
other business entities out there as far as this new
business entity. Well, let's talk about the access of a
particular company, or, you know the property that company
owns. If you go now to ownership and transfer of property,
which is Article 10, it basically says that the limited
liability company can hold property in either the name of
the company or the name of the individual member or manager.
That could be extremely dangerous, for the simple reason
that it enables someone to move assets around fairly easily.
There certainly should be language prohibiting property
being held in any other manner but the company's name.
That's pretty clear. If you have a corporate structure and
you go out there and you have vehicles or real estate, it's
in the name of the corporation. It can't be in the name of
the officers of the corporation or the managers. In a
partnership, sure, the assets of a partnership can be
flexible, but that's because those partners are personally
liable for their business actions and their business
dealings. That's a very important issue. And when you
really sit down and look at this bill, from a business
standpoint, I am sure it has all the tax benefits that they
say it does have.
"But if you're looking to come up with a new kind of
business structure, I think it's very, very critical that
not only the legal profession should be brought into this
equation, but the business profession be brought in as well,
and that a good amount of time is spent going through these
issues and coming up with some of the fire walls that you
have in a corporate structure to make sure that assets can't
be moved around and the lines of management are clear and
concise, people doing business with this entity can feel
comfortable doing business with it. And I know we may not
be the first state to adopt this sort of legislation, but
I'd rather be the last state than the first state to adopt
something that changes the way we've done business for the
last three or four hundred years. And I'll just leave it on
that note."
Number 107
WILLIS KIRKPATRICK, DIRECTOR, DIVISION OF BANKING,
SECURITIES AND CORPORATIONS, DEPARTMENT OF COMMERCE AND
ECONOMIC DEVELOPMENT, testified in support of HB 420. "I
would encourage the committee to consider HB 420 and pass it
out." Describing his division, Mr. Kirkpatrick observed,
"...we look at and view it as one of our goals to make
Alaska one of the most easiest places in which to do
business. We feel that is a paramount responsibility of the
Department of Commerce and Economic Development."
MR. KIRKPATRICK noted that the Department of Commerce "...is
a member of what we call the International Association of
Corporation Commissioners. That includes other countries
besides the United States, but it primarily has to do with
the old British Crown corporation type of formation. And we
became aware of limited liability companies and the Wyoming
experience. And so we had been looking at it and how it
might be beneficial to the state of Alaska, especially with
some of the activity that we've been trying to do in the Far
East and eastern Russia."
MR. KIRKPATRICK continued, "In early 1992 we were approached
by members of the Alaska Association of Certified Public
Accountants to encourage us to consider drafting a limited
liability company law. We got a hold of those states that
did have those provisions and tried to seek out what
problems they had. There was a little bit of confusion
because of the IRS ruling as to what is a corporation type
of organization or a partnership type of an organization.
We then took a look at the state of Wyoming, which is what
is called a bullet-proof state, because they were the only
state at that time that had an IRS ruling, so most of the
states early on then following Wyoming's law which meant
that if you had the characteristics of the Wyoming law, then
you were assured a proper ruling from the IRS, relying upon
Wyoming's ruling.
"We then were approached by members of the Alaska Bar
Association and we told them of our efforts and they
indicated that they were interested in working on such
legislation, so we sent them our draft. What has resulted
from their effort is a little different from our draft - not
substantially - but they included in their draft language of
our draft that had to do with the administration of the Act.
So, what has been, as a Sponsor Substitute, includes those
items of administration ability that we had in exercising
this type of law."
Noting that he himself was not a lawyer, Mr. Kirkpatrick
went on to describe the extensive history of the origins of
the legislation at hand. Mr. Kirkpatrick discussed the
origins of the Alaska Corporation Code and the evolution of
corporation law in Alaska and acknowledge a need to
recognize the risks of doing business.
Number 249
REP. DAVIDSON: "Mr. Kirkpatrick, you heard Mr. Ingham's
comments and concerns. Could you take say one or two or
three of those concerns and give us your perspective as far
as - you seem to be very much for the bill and don't see any
downsides. Mr. Ingham, of course, who is a banker, saw
considerable downsides. I was wondering if you could give
us return fire."
Number 266
MR. KIRKPATRICK responded, "I think Mr. Ingham has some very
good points." He compared the process of drafting the
legislation at hand with protracted formulation of the
controversial Alaska Corporation Code and noted there would
always be room for debate in determining the nature of
proposed business structures. "Maybe," Mr. Kirkpatrick
suggested, "there should be somebody else taking those
points [to] debate them on the other side.... I don't have
any problem at all with some of the suggestions that he
makes in tightening up property ownership...."
MR. KIRKPATRICK recommended that some issues raised in HB
420 requiring further discussion be considered at a later
date in amendments. He stated that he did not feel that in
a business organization law the law could be structured to
protect creditors and went on to describe the criteria
courts could use in evaluating the responsibilities of
debtors. Mr. Kirkpatrick concluded by reiterating that he
did not see how one could structure a corporate organization
that would protect creditors from risk, but that he did
understand and appreciate Mr. Ingham's concerns.
Number 350
REP. THERRIAULT: "I am certainly willing to consider any
proposed changes to the bill. I know there have been
negotiations and discussions going on between the regulator,
the regulatees, the people that want to be involved in
forming these new business ventures. I think one thing
that's important to point out, the previous speaker just
brought up, that creditors can require personal assurances,
just like they can with corporations. I was involved in a
business. We wanted to get a bank loan, and they required
personal guarantees. They can do that, they do that right
now with corporations because of the limited liability, and
some concern, and being risk adverse. They can do that same
thing with limited liability. So we're not forming a new
structure that has any more of an ability to leave creditors
hanging out there than existing business structures. I
understand that Mr. Ingham represents a trade group that is
severely risk averse. I think they have means at their
disposal to protect themselves."
MR. INGHAM asked if he might respond to that; Chairman
Porter first recognized Rep. Davidson's question.
Number 378
REP. DAVIDSON posed a question concerning the possibility of
providing some protections under law for smaller business
entities to mitigate the risk of new business organizations.
Number 395
CHAIRMAN PORTER, acknowledging the extensive information and
analysis yet to be prepared before the bill could be
properly evaluated, referred HB 420 to a subcommittee to be
chaired by Rep. James and to include Representatives Kott
and Davidson. He noted, moreover, that while in general he
was supportive of the legislation, he wished to know the
effects of removing extant limitations of businesses -
limitations for which reasons existed-before seeing them
eliminated.
Number 425
REP. DAVIDSON: "Mr. Chairman, thank you. In view of what
you've just said, it seems to me that we are a different
kind of state. We are a resource rich state. And one of
the problems we see, and it's not always a problem, but we
have a tremendous amount of foreign investor ownership in
our state, already. For comparative purposes, it seems
we're more like a third world country in terms of business
practices, than part of more up to date modern societies or
states, but that is a concern that I have. And I was
wondering, you know, if in fact a bill like this is going to
encourage additional foreign ownership of our resources.
Where does that leave us protection to ensure that our
children and their grandchildren are going to be in a
position to control the picture up here? And that's one of
my main concerns."
CHAIRMAN PORTER responded that he would refer this inquiry
to the subcommittee and suggest to them that they consult
with Mr. Ingham and Mr. Manley on this and other aspects of
HB 420. This was acceptable to the committee.
HB 392 - PERMANENT FUND DIVIDEND PROGRAM
Number 459
CHAIRMAN PORTER introduced discussion on HB 392, Permanent
Fund Dividend Program and welcomed Richard Vitale from Rep.
Parnell's office.
Number 462
RICHARD VITALE, OFFICE OF REP. SEAN PARNELL, SPONSOR OF HB
392, testified in support of that bill. [Chronic background
noise diminishes sound quality.] Mr. Vitale described HB
392 as a bill his office had been working on in cooperation
with the Permanent Fund Dividend Division of the Department
of Revenue at their request to address needs that have
arisen over the years. Mr. Vitale said the bill was divided
in three parts: (1) to address a recent court case
nullifying the piggyback rule and affecting about 1600
Alaskans' dividends for the past two years; (2) to roll over
into statute regulations which currently exist; and (3) to
address loopholes. He noted that Tom Williams of the
Permanent Fund Division was present to respond to questions.
Number 489
REP. DAVIDSON: "Which are the loopholes that we're going to
be dealing with and who's going to be on our back if we
close them?"
Number 496
TOM WILLIAMS, DIRECTOR, PERMANENT FUND DIVIDEND DIVISION,
DEPARTMENT OF REVENUE, testified in support of HB 392. He
said there were a variety of loopholes as well as areas
requiring "cleaning up." Mr. Williams discussed in detail a
loophole in the provision allowing a child born out of state
in the first two years of its life to remain eligible for
the dividend, even though the child has never been in the
state.
MR. WILLIAMS made reference to the situation of individuals
who have received suspended impositions of sentences who are
currently permanently banned from future participation in
the program. He also discussed the impact of felony
convictions of PFDs.
MR. WILLIAMS discussed the question of limiting or
prohibiting assignments of PFDs, and if permitted, under
what circumstances, to individual parties or government
agencies. He described an amendment clarifying the language
in regulating government agency or court ordered restitution
with regard to PFDs.
CHAIRMAN PORTER asked if there were further questions of Mr.
Williams or Mr. Vitale. Chairman Porter referred the
committee to Amendment #1 and recognized Rep. Kott, who
moved Amendment #1. Rep. Kott moved Amendment #1 and began
to describe its intent, which was to address the needs and
rights of Alaskans obliged to be out of state on excused
absences, such as military personnel, who nevertheless stood
to lose their PFDs after five years. He rescinded the
motion at Chairman Porter's request, however, until another
amendment could be discussed first.
CHAIRMAN PORTER: "And we will make yours Amendment #2. I'm
taking this on faith. You have in front of you another
amendment that is not numbered. It says `Alaska Department
of Revenue, suggested language.' Would you mark that
Amendment #1, please. Tom, this is the one that you've just
described?"
MR. WILLIAMS: "Yes, that's correct, and that's requested by
the court system."
Number 620
REP. DAVIDSON: "I would move Amendment #1, and ask for
unanimous consent."
CHAIRMAN PORTER: "Amendment #1 has been moved. Is there
discussion? Is there objection?" There being no further
discussion or objection, Amendment #1 of HB 392 was adopted
by the committee.
Number 625
REP. KOTT: "I'll move Amendment #2." At Chairman Porter's
request, Rep. Kott went on to reiterate the scope of this
amendment. He explained that the amendment would eliminate
the five year rule limit for individuals outside on
allowable absences.
REP. DAVIDSON: "Mr. Chairman, I speak against the
amendment. I think, if we really want to solve this problem
of who gets a dividend, I think we have to get tough. And
getting tough means that you draw the line, and I think that
Alaska permanent fund dividends should go to people who
reside in Alaska. And for purposes of this Act, it seems to
me a resident should be defined as one who spends not more
than ninety days outside the state of Alaska in any given
calendar year. So, while I certainly understand the need
for the group of people of which Rep. Kott speaks, I think
you still have to draw the line somewhere. And I think this
one goes too far."
Number 646
REP. KOTT: "In response to the way the bill is currently
written, then we are now discriminating against two classes
of individuals, which I think would be unconstitutional.
Because we have a group that was out there, that will, under
the provisions of the committee substitute of State Affairs,
continue to receive that for five years, and now, what you
have suggested, we're going to cut everybody off, maintain
that if you're not living in the state, then you don't get
it. In that sense, the current form that we have here in
State Affairs, allows for a person to be outside for five
years. So, I'm not sure, if you have an amendment to the
amendment, or you're just addressing the provision where we
would draw the line."
REP. DAVIDSON: "I would like to hear what the agency has to
say about this amendment."
CHAIRMAN PORTER: "Tom, for perspective, is it a fair
characterization that Amendment #2 would return us to the
status quo?"
MR. WILLIAMS: "Yes, it would return us to the status quo.
The language that is proposed to be deleted from this
amendment was not included in the original bill, and what
the original bill would have done would basically have
maintained the status quo. The language that is looked to
be deleted was added by the House State Affairs Committee.
REP. DAVIDSON: "So, a question then to Rep. Kott: the
intent then was to, in fact, in State Affairs, to cut off
these individuals, is that right?"
Number 670
REP. KOTT: "That is the intent of the amendment to the
original bill, the committee substitute of State Affairs
basically established that after five years you wouldn't
receive it. I think we would perhaps be facing a
constitutional issue, however, if we kept this particular
provision in there, beyond some other considerations and
concerns I have with it."
Number 680
REP. NORDLUND: "I am just wondering what the sponsor thinks
of this amendment."
Number 693
MR. PARNELL: "The sponsor is in support of the amendment to
withdraw the five-year clause out of the bill, although
there is, definitely, concern about allowable absences and
how to address the problem of abuses. It's not the feeling
that this does a good job of addressing it. It gets some of
those that may be abusing it; and some of those who don't
abuse - students, if they're out on allowable absences,
would lose their PFDs that really have intent to come back -
and I think there's probably other ideas that would better
address the problem of allowable absences. The second point
would be, we don't feel this is the proper vehicle to make a
major policy change in the department. This was viewed as a
bill trying to clean up a lot of the loose ends that have
occurred over the years and we're thinking of bringing on a
major policy decision here into a bill that wasn't
addressing anything like that before. We prefer to see a 14
page document not become a longer document, and so, we
support this amendment."
Number 697
REP. DAVIDSON asked Rep. Kott, "Was there discussion in
State Affairs that if the class of person you're talking
about, a person out on an excused absence due to service to
the nation, I thought it was possible for at least every
three years, those people get rotated and have an
opportunity to go to their home state. Is that not
correct?"
REP. KOTT: "There were very few discussions involving this
particular issue, but I will also say, as a former military
member, that you can apply to come back to the state as
often as you like, [but] during your military career there
is no guarantee.... Just because you say, `I want to go to
Alaska,' is no guarantee that you're going to get there."
REP. DAVIDSON: "But there's still, there are flights that
come up here from all over, right?"
REP. KOTT: "That's true. We still have the requirement to
come back to the state every two years. That's still a
provision. But what I'm suggesting is that after five
years, we're now segregating Alaskan citizens. If you live
in state, we'll give it to you. If you're outside the
state, we're not going to give it to you. And I think we've
got a constitutional problem there. If we're going to
segregate those classes in that category in that particular
way. We either treat 'em all the same, or -- "
Number 720
REP. DAVIDSON: "I'll withdraw my objection, then Mr.
Chairman."
CHAIRMAN PORTER: "Is there any further discussion of
Amendment #2? Is there any other objection?" There being
no further discussion or objection, Amendment #2 of HB 392
was adopted by the committee.
Number 729
REP. NORDLUND asked Mr. Williams, "What this bill will do is
take out the ability of the commissioner to determine what
are allowable exemptions? "
MR. WILLIAMS: "Yes, that would be one effect of the bill.
Because basically all of the currently allowable absences
would be moved into statute and discretionary [indisc.]."
REP. NORDLUND: "Is that just a hot potato that you didn't
want to have to handle anymore? I'm just wondering...it
seems to me like there might be situations, like the Olympic
athletes one that came up that seemed reasonable, to allow
an exemption, that you won't have that authority any more
where you have to go back to the legislature to do that."
MR. WILLIAMS: "You must remember that when the original
dividend program was enacted, there were five or six
allowable absences listed there. I think that the
legislature said, well, we really don't know what all might
come up. I think the dividend program has matured
sufficiently in the last 12 years to really consider a whole
variety of allowable absences. You're right that the
commissioner did adopt, has recently adopted one other
allowable absence, but I think as a practical matter, those
are policy issues with regard to the expansion of allowable
absences that are properly addressed by the legislature."
Number 747
REP. KOTT made a motion for HB 392 to be moved out of
Judiciary Committee with individual recommendations.
CHAIRMAN PORTER: "Is there further discussion? Is there
objection?" There being no further discussion or objection,
HB 392 was moved out of committee.
HB 459 - DAMAGES & ATTY FEES FOR UNPAID WAGES
CHAIRMAN PORTER introduced discussion of HB 459, noting that
testimony had been taken in the Labor and Commerce
Committee. He acknowledge that four people were present to
testify before the Judiciary Committee and invited the
bill's sponsor, Rep. Mulder, to discuss the bill.
Number 763
REP. ELDON MULDER, SPONSOR OF HB 459, said he was unable to
speak at length due to illness and requested that one of his
staff be permitted to read the sponsor statement. Prior to
Mr. Joyce's presentation of the statement, Rep. Mulder did
remark, "I would like to point out to the Committee that we
have been working with members of organized labor, the
Department of Labor, and representatives from the employer's
groups to coalesce or come together on a compromise piece of
legislation which you see before you as the proposed
committee Judiciary substitute. It has been a cooperative
effort. I'm glad that it's worked together and has come
together and with that, I'll let Howard read the statement."
HOWARD JOYCE of Rep. Mulder's office delivered the sponsor
statement:
"This legislation addresses the awarding of punitive damages
in claims of underpaid overtime compensation or statutory
minimum wages under the Alaska Wage and Hour Act (AWHA).
State statute imposes the payment of unpaid minimum wages or
overtime compensation to an employee by an employer who has
violated provisions of the AWHA. In addition to this, the
employer may be liable for mandatory liquidated damages of
an equal amount (AS 23.10.110(a)).
"The Alaska Supreme Court in McKeown v. Kinney Shoe Corp.,
820 P.2d 1068 (Alaska 1991), ruled that liquidated damages
are mandatory and that any individual settlements out of
court that did not include liquidated damages were invalid.
"Prior to the Kinney Shoe ruling, an employee with a claim
for underpaid overtime or minimum wages had a few options
for redress. One, they could file complaint with the Alaska
Dept. of Labor, who was able to negotiate a settlement.
Two, the employer could attempt to reach a private
settlement with the employer in question. In either of
these cases, a settlement could be reached for an amount
below full liquidated damages. Finally, if a settlement
could not be reached in the above options, the case could be
taken to court, where liquidated damages would be awarded in
full if the case was found for the plaintiff.
"As the law stands currently, an employer who is in
violation of the state's minimum wage or overtime
compensation laws is automatically liable for liquidated
damages, regardless of the circumstances. Though this is
intended as a deterrent to the employer in these instances,
it creates an imbalance in certain situations. Under the
current law, an employer who makes an "honest mistake" is
punished as severely as an employer who knowingly violates
the law. In these situations, the employer either takes his
case to court, facing the possibility of paying full
liquidated damages plus court costs or settling out of court
for the claim plus full liquidated damages.
"The Federal Labor Standards Act, upon which AWHA is based,
contains identical language to AS 23.10.110(a), but also
contains the following language:
`....if the employer shows to the satisfaction of the
court that the act or omission giving rise to such
action was in good faith and that he had reasonable
grounds for believing his act or omission was not in
violation of the Fair Labor Standards Act, . . . the
court may in its sound discretion, award no liquidated
damages or award any amount thereof not to exceed the
amount specified in [29 U.S. Code Section 216].'
29 U.S. Code Section 260
"This additional language in the FLSA creates some
flexibility for employers when an honest mistake is made.
The discretion is left to the courts to decide to award
partial or no liquidated damages where the employee shows it
acted in good faith and it had a reasonable basis for
believing it was not violating the law.
"CSHB 459 (JUD) also adds a provision in Section 2 that
provides the payment of court costs and attorney fees to the
prevailing party in a claim decided by the court. Previous
statute only provided payment of these costs to the
plaintiff (employee) in these cases. This change would help
to prevent erroneous claims against an employer from being
brought to the court. If the Commissioner of Labor was the
prevailing party in an action under this section, any court
or attorney fees awarded would be remitted to the Division
of Revenue for deposit into the General Fund. The House
State Affairs committee added some further clarification to
this provision in their committee substitute, by adding the
word `recovered.' (Page 1, line 14 now reads
`..commissioner shall remit the recovered attorney fees to
the Dept. of Revenue.')
"CSHB 459 (JUD) would also provide some protection to the
employee during a compensation claim in settlements that are
not supervised by the Dept. of Labor or the courts. In
Section 3 (f), an employee may enter into a written
settlement agreement with the employer waiving the right to
receive full or any liquidated damages. CSHB 459 (JUD)
requires that this settlement meets five qualifications:
(1) the settlement is written in a manner that is understood
by the employee; (2) specifically waives the rights or
claims in AS 23.10110(a); (3) advises the employee to
consult with an attorney or with the Dept. of Labor before
entering the agreement; (4) allows the employee seven days
to consider the settlement and (5) gives the employee five
days after they enter into the settlement to revoke
agreement.
"The goal of HB 459 is to change the state standards
regarding the awarding of liquidated damages to be congruent
with federal standards. This results in a more equitable
situation for both parties; protection is still provided to
the employee and flexibility is afforded to the employer who
makes a mistake in good faith, providing they meet the
burden of proof."
Number 845
REP. DAVIDSON: "A couple of questions, if I may. You
talked about, on page One, line 14, that the fees shall be
remitted to the Department of Revenue. Is that because
[it's] the Department of Revenue out of whose budget fees
for the attorneys would have come? Or does it come from the
Department of Labor's budget?"
REP. MULDER: "It comes from the Department of Labor's
budget. If the commissioner is the person who is the party
who is the defendant, or the plaintiff [inaud.], as the case
may be, if they are the ones who are found in their favor in
court, it would just require that the funds that go to the
commissioner go back to the General Fund simply because they
are the ones who are expending the funds."
Number 857
REP. DAVIDSON stated that he was trying to ensure that the
Department of Labor, in doing its job, was not caused to
expend funds from its diminishing budget only to have them
absorbed into the budget of another department. He
observed, "It appears to me that there are losers and
gainers here, in terms of rights, who wins and who loses; in
terms of dollars, who wins and who loses, in this
legislation."
REP. MULDER: "The purpose of the bill is to make the
playing field even or level as it was before, pre-Kinney.
Certainly there is very little tolerance or forgiveness
considered within this bill or within many people in the
legislature that I see, for those employers who are
knowingly trying to defraud employees out of overtime.
That's not the folks we're trying to address in this
legislation. And those people are not addressed in this
legislation. If an employer is knowingly cheating his
employees out of overtime, they ought to be punished through
liquidated damages, which is double the claim for back
overtime. What is being attempted here is to cover those
employers who are honest employers, who make a sincere
mistake. It was not intentional. And they have to
demonstrate that, through good faith, that they did not
intentionally try to defraud or hurt or damage their
employees. So, in terms of winners and losers, I wouldn't
put it really on that playing field as much as trying to say
that we're trying to make the field level and equitable for
those employers who made an honest mistake."
Number 884
REP. DAVIDSON: "Then, are we trying to make it easier for
these people to cover their mistakes? Why aren't they more
careful? There's a lot of questions here about this bill,
Mr. Chairman. It makes me uneasy. Thank you very much."
TAPE 94-50, SIDE A
Number 003
PARRY GROVER, ATTORNEY, testified via teleconference from
Anchorage in support of HB 459. "I am an attorney
practicing law in Anchorage. I've practiced here for
approximately 14 years. Most of my practice is
representation of management in all aspects of employment
law, including wage and hour. I also do some work for some
public entities as a hearing officer, a neutral dispute
resolver, if you will.
"I'm speaking in favor of CS 459. The reason I do it is
this: I have, over the years, had occasion to talk to my
counterparts in other states, all over the United States. I
would say I've talked to maybe 12 to 15 labor law
practitioners in other states. I probably know that west
coast states better than the other ones. And what I found,
through these discussions with other lawyers, and a few
cases with judges, with labor law professionals, that our
Alaska Wage and Hour Act is harsher for Alaska employers
with respect to liquidated damages than the laws of most
other states and the Federal Fair Labor Standards Act. And
it really has always been a mystery to me as to why Alaska
should have a harsher law on liquidated damages. For any
reason, many of our businesses have a more difficult time
keeping a stable, uniform workforce because of the seasonal
fluctuations where they may be very busy in the summer
months and just die for business in the winter. And the
seasonal fluctuation that other working conditions peculiar
to Alaska, I think, have made compliance with the Wage and
Hour Act more difficult in this state than it is in many
other states where labor performance really doesn't vary
from month to month significantly. But the essence of this
bill as I think Mr. Joyce and Rep. Mulder said, is not to
really tip the scales, but to simply bring back a level
playing field. And I'd like to just talk about the four
major substitute provisions and give you my view as to why I
think that is the case.
"In Section two, the existing law simply allows a prevailing
plaintiff to recover attorney's fees. The amendment would
bring this legislation into compliance with what is more
common in Alaska, Alaska Civil Rule 82, where the prevailing
party recovers at least partial attorney's fees. That's the
rule that we're used to in Alaska. Most litigation,
including most employment litigation, is governed by Civil
Rule 82. And again, it just equalizes the playing field.
If the plaintiff wins, he or she recovers at least partial
fees. If he loses, he may have to pay, at least partial
attorney's fees. That same rule applies to both sides.
Right now the rule is one-sided. That's one of the aspects
of the law that is harsh.
"In Section three of the CS, there are three substantive
provisions. Each of them accomplishes a distinct function I
would like to mention. Section three (e) we bring into
Alaska law something that has never been here - and again, I
don't know why that is the case. But under the Federal Fair
Labor Standards Act, which has been the law in the Federal
Government since the 1930s, an employer who fails to pay
overtime or minimum wages if they are due, is subject to
liquidated damages. But the federal government has for many
years provided a limited defense - let me emphasize, limited
defense - if the employer can show to the satisfaction of
the court; and that means bear the burden of probing, that
it acted in good faith and had reasonable grounds for
believing that the person was not entitled to overtime, then
the court may in its discretion, award no liquidated damages
or partial liquidates damages. Now, as I said, that is a
limited defense. The employer must show that it acted in
good faith, which under Alaska law means honestly; that the
employer actually honestly believed that the position of
them not paying overtime was exempt. And it must have
reasonable grounds for believing that. It can't just stick
its head up in the air and say, well, I think this is a
salary-exempt position so I won't pay overtime. It would
have to have some good reason for treating the position as
being exempt.
"Now, if the court, or the jury, later finds out that the
person in the position was not exempt and that overtime is
owed, the overtime is going to have to be paid. The
plaintiff is going to be the prevailing party. So they are
going to get at least partial attorney's fees. They are
also going to get prejudgment interest in Alaska, so they
have a fairly substantial recovery. But, again, if the
employer can show-and this is true under federal law, and
this is true under the law in many other states, that it had
a good faith basis and acted reasonably in believing that
the position was not entitled to overtime, then the court in
its discretion can decide not to award liquidated damages.
That's a very limited defense, but it's one that Alaska
doesn't have, and it makes our playing field quite uneven
when compared to other states under the federal government.
"Subsection (e), Section three (e), [is] something that the
Commissioner of Labor asked for early on when we proposed
this legislation, and we thought this was fine. In the
Kinney Shoes case, or at least let's say by the time of the
Kinney Shoes case, the Department of Labor concluded that it
could no longer settle overtime claims brought to it out of
the mandatory assessments of liquidated damages, that it had
no discretion in light of Kinney, not to demand liquidated
damages. Prior to Kinney, it was the practice of the Alaska
Department of Labor, to waive liquidated damages when in its
judgment it thought they should be waived; it could not be
required to do so. But when in the commissioner's judgment
the commissioner felt that liquidated damages should be
waived, they could do so. Since Kinney they haven't been
able to do that. Section (e) restores to the commissioner
the power to take that action. It doesn't require the
commissioner to waive liquidated damages, but it allows them
to.
"Section (f) has to do with private settlements. One of
the, I think, unfortunate things about the Supreme Court's
decision in Kinney is whoever drafted the decision may have
used language a little more - I'm searching for the right
word - but the point I'm going to make is, they said that
all settlements are void. They used the language a couple
of times in the decision, that the type of settlements of
overtime claims and liquidated damages claims are void.
Now, I don't object to that, in the facts of the Kinney
case, and if you apply that just in the facts of that case,
that probably was a reasonable result. The problem with the
language is, they didn't limit it to the facts, they just
said private settlements for these types of claims are void.
"The result has been, and my office has actually had to
participate in this, when we've had cases where we had
competent counsel on the other side, a claim hadn't been
filed but we had discussed the claim, reached a compromise,
which included all or partial liquidated damages, and
looking at Kinney Shoes, we did not think that the
settlement would hold up if challenged unless we took it to
court. And we've actually had to tell in some cases the
plaintiff to go file the complaint so we could turn around
and settle it. That sort of result I think is bad policy,
because it simply encourages litigation where the parties
have reached private settlement. Section (f) will allow
private settlement, and as you will notice in the CS, there
were concerns raised by the Department of Labor on behalf of
employees, that employees could be taken advantage of by
their employers. We recognized the validity of what the
Department of Labor was saying, and we then built in to it
five hurdles an employer must jump through to make a private
settlement.
"These hurdles are taken out of comparable federal
legislation, specifically, the Age Discrimination and
Employment Act, which requires a very clear settlement
agreement, a clear waiver of liquidated damages, written
advice to the employee that he or she should consult with an
attorney or the Department of Labor, a period of seven days
to consider the settlement agreement before it's signed, and
five days after it to revoke it. In other words, giving a
lot of deference to the employee and encouraging the
employee to get competent advice either to the Department of
Labor or an attorney before a private settlement is entered
into. This will, again, allow private settlements, and I
think at the same time, protect employees from being taken
advantage of by those few employers who may not be so
inclined. Thank you."
Number 245
REP. DAVIDSON: "I have this image in my mind of the `equal
playing field,' with a summer employee, part-time bus driver
or waitress on one end of the field, and all the expertise
of the legal beagles - and that very small company, the
Holland America Line - on the other, and somehow it just
doesn't seem like we're playing on an equal playing field
here."
CHAIRMAN PORTER: "That's why we've got a Department of
Labor."
Number 262
BRUCE WEYHRAUCH, ATTORNEY, FAULKNER, BANFIELD, DOOGAN &
HOLMES, representing a number of hourly workers, testified
in opposition to HB 459. After expressing appreciation for
the efforts of those involved in the legislation he stated:
"Alaska is very unique. We are a seasonal state, we have a
lot of seasonal workers, we're resource based, there's a lot
of hourly workers here. Why should Alaska have a harsher
law than other states? Because we are such a state, because
we rely on hourly workers to do the work for businesses."
MR. WEYHRAUCH cautioned against the constitutional issues
which could be expected to rise if the legislation were
deemed retroactive. "If the intent is not to tip the scale
here, this retroactive date on here would probably tip the
scales significantly in favor of those who haven't been paid
their wages and who are due them, and those who are owed
wages. And I think there may be significant constitutional
problems with this retroactive date here. We think that it
should read, instead of application of the Act, this action
will apply only to work performed after its effective date.
"Also, this statute is intended to act like a private
attorney general. Instead of having to hire a bevy of
bureaucrats and Department of Law investigators, it gives an
incentive to the worker to get an attorney to pursue their
claims for them. It puts the rights right in the hand of
the individual to pursue the claim. That's why you have
liquidated damages, to make sure that people get the wages
that they're owed and you make it so that they don't go
bankrupt pursuing their claims. So instead of having
reasonable attorney's fees or determined according to court
rule on the first page in (c), if you make it according to
prevailing party and make sure the prevailing party gets
their actual attorney's fees, then both sides benefit. If
the person who says, `I have a wage that I'm owed,' and they
in fact are owed that wage, they should get their actual
attorney's fees, not reasonable fees set by court rule.
Same way, if their claim isn't valid, then the prevailing
party, which would be the employer, gets their actual fees.
So it works both ways. That seems to be a more level
playing field.
"Finally, we talked about who had input on this bill, the
employer groups, organized labor, Dept. of Labor. I think,
at least I understood, that Mr. Carr from the Dept. of Labor
would be here to testify, no one representing the hourly
worker, Joe Doakes, was in on these negotiations, and we'd
like an opportunity to participate in these negotiations.
We think there could be language that adds a provision that
if somebody is going to waive liquidated damages, that the
amount of those liquidated damages being waived should be
specified so that they fully understand what's going to be
waived and that some language be put in the bill, that if a
waiver is knowing and voluntary, that should depend on all
the circumstances, not just these specific six or five
provisions set forth in this bill. I've provided your staff
with those edits and also Rep. Mulder's staff, and we'd be
glad to discuss that further with anyone that you wish, Mr.
Chairman."
Number 331
REP. MULDER: "Concerning Bruce's point that no one was
there representing the interests of the Wage and Hour
person, I take offense to that, because I think the
Department of Labor does a very good job in that regard.
They were an advocate, a very strong vocal advocate for the
Wage and Hour individual. And, as it currently exists, if
you have a dispute with your employer, you can go to the
Department of Labor free of charge, no attorney's fees, and
ask for their assistance and their intervention, and they
will help you. So, there is representation, there is
allowance here for the little guy, in fact."
REP. PHILLIPS: "Mr. Weyhrauch, did you say you were an
attorney?"
MR. WEYHRAUCH: "Yes."
REP. PHILLIPS: "And are you an attorney lobbying on behalf
of a specific group of people, or -- what is your
relationship, if you wouldn't mind."
MR. WEYHRAUCH: "We represent individual wage earners from
around the state."
REP. PHILLIPS: "And how do you do that? Through
individual-I mean, are you representing them here today as a
lobbyist on their behalf or are those legal cases that you
are dealing with in your company?"
MR. WEYHRAUCH: "Both. There's one specific. I'm
registered for one specific person on this, but we represent
numbers of people around the state."
REP. PHILLIPS: "And who are you registered to lobby for?"
MR. WEYHRAUCH: "It's an individual, I can provide you that
name after this..."
REP. PHILLIPS: "Well, it is a matter of public record,
would you please state it for the record, who you are
lobbying for."
MR. WEYHRAUCH: "I can't state it right now."
REP. PHILLIPS: "Okay. I will get the information, and we
will put it on public record. The lobbyist record is a
matter of public record."
MR. WEYHRAUCH: "Yes, it is."
Number 363
REP. NORDLUND: "I'm just glad that Bruce has stepped
forward and offered an opinion for a group of people who are
affected by this legislation. I think it's entirely
appropriate that there is a representative for that person;
whether they work for him or not, I think is irrelevant."
REP. PHILLIPS: "Nothing in this committee in debate is
irrelevant. Nothing. That has been pointed out time after
time after time in this committee by everybody."
CHAIRMAN PORTER: "No, but opinions can be stated, so...and
they can be refuted."
REP. PHILLIPS: "Which I just did."
CHAIRMAN PORTER recognized Rep. James.
REP. JAMES: "I just wanted to comment on the comment made
by Rep. Mulder regarding the Department of Labor. And since
my business has been dealing with small businesses,
accounting, I can verify that the Department of Labor does
an excellent job of handling claims of people who have a
problem. They go to the end of the world to try to help
them and do help them tenaciously, so I believe that if the
Department of Labor was involved in this bill, that those
people have been represented."
Number 387
C.J. ZANE, LOBBYIST, HOLLAND AMERICA LINE-WESTOURS, INC.,
testified in support of HB 459. "My name is C.J. Zane. I
am registered to represent Holland America Line. We are one
of several corporations that have formed a coalition to
support this legislation. There are in your packets, I
think there are letters of support from the Providence
Hospital Group, from the State Chamber of Commerce, from the
Carr-Gottstein food chain, from Tesoro Petroleum...the point
is, we have a broad based range of Alaskan employers, and we
count ourselves among the group of Alaska employers, and I
am here to testify in favor of the bill, and in favor of the
CS which we have worked out. This bill has been around for
several weeks now. The process has been open. We have
negotiated with legislators, with staff, with the Department
of Labor, with members of organized labor; we have had an
open process. And I want to assure the members of the
committee that this compromise is a solid one, and one that
does protect the employees in this state.
"And what we sought to do was two very simple things with
this legislation: We wanted to, one, go back to the pre-
Kinney Shoe decision as it related to private settlements
and as it relates to the department's authority and ability
to settle cases, not necessarily imposing liquidated
damages. They can still do that but in some cases where
it's warranted this bill will allow them to waive some or
all of that.
"The other thing that we sought to do was something that
should be just very common sense, man or woman in the street
kind of thing, which is the federal law upon which I don't
think there's any disagreement that the state wage and hour
law is largely based, does provide for something called a
good faith and reasonable belief defense. Not a defense
against the original claim or the base amount of the claim;
it's a limited defense that can be invoked on the issue of
the doubling of liquidated damages, and that good faith and
reasonable belief standard is not an easy one to meet, but
it is one that is allowed under federal law and it is one
that is allowed in all the Pacific coast states. We have
done research on this: Washington State, Oregon and
California; Idaho, we've subsequently found, also, provides
for this basic sort of common sense, good faith reasonable
belief defense. With that, Mr. Chairman, I just want to say
again that we have worked long and hard to reach a viable
compromise, one that still protects the interests of
employees and brings some measure of balance back to the
equation as far as employers are concerned."
Number 448
KEN LEGACKI, ATTORNEY, testified via teleconference from
Anchorage in opposition to HB 459. "Obviously, there has
been a lot of discussion about this bill. I would like for
the committee to try to envision an employee who makes
$4.75/hr. or $5/hr. trying to negotiate with his employer.
A wage earner who is dependant on the employer for his job,
dependent on his employer to make payment, dependent on his
employer to feed his children, and the employer hands him an
agreement and says, `Here, sign this.' An employee has no
choice but to sign that agreement. If everybody is
commenting about the Department of Labor being such an
advocate, why don't we change that language in the bill and
make it mandatory that the Department of Labor approve of
the settlement? If it's such a fair and honest deal, and if
the employer is dealing in such good faith...if they have
nothing to hide?" He introduced three of his clients who
were present with him. "The employer of Mr. Pat Bliss told
him to take seven and a half cents on the dollar. When Mr.
Bliss said, that's not fair, the employer then harassed him
and terminated him. What's his remedy? He's been out of
work for a year and a half. He's a man in his fifties. Mr.
Stewart went to five attorneys. They all said his claim was
not worth enough money because `I only get a percentage of
your claim, your claim's not that high.'
"I've looked at the federal law, which said that the
employer has to pay attorney's fees if it's a good case. We
won at the Supreme Court, and that's the law they're now
trying to change. But try and imagine somebody who, like
Mr. Stewart, who made $4.75/hr, going to an attorney who
charges anywhere from $125 to $150/hr. to ask him to look at
a piece of paper. Is that fair to the employee? Mr. Harris
complained to the employer that they were violating the Wage
and Hour Act. The employer then told Mr. Harris that they
were `downsizing' and asked if he would either be terminated
or moved to California. To keep his job he moved to
California. Shortly thereafter he was terminated by the
company."
MR. LEGACKI presented further testimony concerning workers
who were being deprived of wages and who feared retaliatory
treatment by employers in pursuing their claims. [Underlay
of whispered conversation damages sound quality.] He noted
in particular one individual who was afraid to appear before
the committee because his employer was a major proponent of
the legislation.
"There's a lot of people who would like to testify and tell
stories on how this bill would impact. It is not a level
playing field. If you have someone like Holland America
Inc., or any big company, it is in their best interests to
fight these cases tooth and nail, because they know if they
have to pay one, they will probably have to pay another
one. And it is a gamble that they take." You're
encouraging them to take a gamble....
"You'll hear a lot of stories about people who file
complaints with the Wage and Hour, that the employers, even
though the Department of Labor tells them they are in
violation, still will not pay the wages. So what you're
encouraging for these big companies with the good faith
defense is to try to gamble, and if they get caught, they
can negotiate that. It's a calculated risk, a business risk
for them.
"There's a lot of work that has to be done with this bill, a
lot of testimony, a lot of input that still needs to be
done.... The Department of Labor's hands are tied, because
they can only address certain issues.... I know lots of
people who would like to put more input into this bill, and
a lot of people who would like to testify. I request that
you hold up this bill...get more people to testify and tell
you about their stories, tell you what it's like to be
threatened. As I said, I have Mr. Harris, Mr. Bliss and Mr.
Stewart here with me, they'd be happy to tell you their
experiences in dealing with their employers and the results.
Thank you."
REP. JAMES: "My question is, these three people that you're
talking about there, that have had such bad luck, did each
one of these people take their claim to the Department of
Labor in the beginning?"
Number 560
MR. LEGACKI: "Yes, all three of them did." Mr. Legacki
described the saga of Mr. Harris, who had indeed gone to the
Department of Labor but whose case had undergone some
considerable, concealed manipulations by the national
corporation for whom he had worked, and the story of Mr.
Bliss, whose employer, in spite of a written ruling from the
Department of Labor, had independently determined what it
was willing to pay.
CHAIRMAN PORTER interjected a question. "Ken, before you
leave the first one. Are you saying that this bill would
change the situation on that first case? It seems to me
that was certainly something less than good faith."
MR. LEGACKI: "Oh, absolutely. But [the employee has] to
hire an attorney. And now you're saying that instead of
paying my actual attorney's fees, for example...they have
three attorneys in Chicago - "
CHAIRMAN PORTER again interrupted, saying, "Just a second,
yes. But that's a different issue, really, than
compensation for your client."
MR. LEGACKI: "Not necessarily. Not if he has to pay his
attorney out of his wages at the end of the rainbow."
CHAIRMAN PORTER: "Well, that's generally a court rule."
MR. LEGACKI: "Yes, the court has ruled and this bill will
change [indisc.], the court has ruled that the employer has
to pay the actual attorney's fees. [Underlay of conversation
amongst committee members again detracts from sound
quality.] Now, this employer has taken me all around the
country, and costs and attorney's fees [increase]. Now, if
the claim is only worth $100,000, after a while the attorney
says, `I can't work any more for free and I'm going to take
1/3 of your wages that you earned.' The employee is left
with less than what he is entitled to. And that's one of
the things [the] company is doing, it's trying to make an
example, they're trying to push the gamble up as much as
possible, make it as difficult as possible, so the employees
will cave in.
[Consider] the seasonal employees. Look at a bunch of
seasonal employees working for Holland America, for example.
Now, at the end of the season if an employee fights, the
company is going to put all of its resources against that
employee because it does not want to set a precedent for the
other employees. They may even offer some of these kids,
you know, 25, 50 cents on a dollar, than what they normally
should pay them to go away. If you take away the attorney's
fees provision, the attorney has got to get paid out of the
employee's wages, and that's wrong, because the employee
earned that money, and he should be paid that money. The
attorney's fees are over and above what the wages should
be."
CHAIRMAN PORTER: "Okay, Ken, thank you. Are there any
other questions? Rep. Mulder?"
REP. MULDER: "What Mr. Legacki doesn't point out to you is
the fact that nothing in this bill prohibits employees or
former employees who have wage disputes from taking it to
court. We're not restricting that ability at all. If you
have a gripe and cannot get it solved through DOL, your
recourse is to take it to court. And we're not prohibiting
that option from you. You're fully allowed to do that."
MR. LEGACKI: "First of all, the Department of Labor does
not take claims over $5,000. They have a policy there now,
and I think there's a state statute that says to that
effect, that the department claims jurisdiction only up to
$5,000. Second, you are forcing them to take it to court
because you want to litigate the good faith issue. And
[indisc. - when?] we have to take that to court, you do not
want to pay the full attorney's fee. That's why this
package that's being introduced, it's actually harmful to
employees, and more beneficial to the employer because it
gives the employer an advantage. An employer who has a lot
of money has an advantage to try to oppress the employee.
This bill with the private settlement, as I mentioned
before, if an employer hands a wage earner who is dependent
upon that employer to feed his wife and children, what other
option does the employee has? He has to sign that. That's
the reality."
CHAIRMAN PORTER: "I saw some shaking of heads on that
$5,000 plateau. Is that - ? "
Number 633
RANDY CARR, CHIEF, WAGE AND HOUR ADMINISTRATION FOR THE
ALASKA DEPARTMENT OF LABOR, responded to Chairman Porter's
question. "The representation by Mr. Legacki is correct,
but misguided. The statutes divide wage and hour authority
into two sections. One section deals solely with the Wage
and Hour Act; that is, minimum wage and overtime violations.
That section does not have a statutory limit with regards to
the amount of claim that the Department of Labor may pursue.
There is a separate section of the statutes that deals with
general wage claims and contract enforcement. That has a
$5,000 cap. So the only statutory limit applies to issues
other than overtime. The overtime cases that we take now
are not limited in any way by statute, but we have practical
limitations placed upon us by budgetary considerations."
REP. DAVIDSON: "You spoke about budgetary limitations,
so...if someone were to try to get back wages for last
summer, when could that person, with your backlog and
diminishing resources with which to deal with these kinds of
things, when could that person reasonably expect to resolve
this dispute with their employer through your offices?"
MR. CARR: "We track our closure time frames on cases on an
annualized basis, and the average length of time to process
a case through collection now is six and one-half months,
presently."
REP. DAVIDSON: "Thank you."
CHAIRMAN PORTER asked if there were further questions; there
being none, he requested the wishes of the committee.
Number 660
REP. NORDLUND: "I have an amendment I would like to offer."
Number 668
REP. KOTT: "I would move that we adopt CS for HB 459 dated
3/14/94-J."
CHAIRMAN PORTER: "We have a motion to adopt the CS. Is
there objection? Seeing none, the CS is in front of us, and
the amendment is coming around. Will you mark this
Amendment #1, please."
Number 670
REP. NORDLUND: "I drew up this amendment based on some of
my conversations with Mr. Weyhrauch who testified for us
today, and it's my understanding that the Department of
Labor would not have any problem with these two changes to
the bill. What the first one would do is state that, under
the conditions by which a waiver is written, the five points
that are in the bill right now, the conditions of the
waiver, would not be limited to those five points, but that
other circumstances could be considered.
"My concern here is that you've got to keep in mind the
intimidation that a large employer has over an employee.
And where they might be willing to sign all of these things
on a statement, that there might be other conditions or
circumstances that the court might want to take into
consideration that might be to the detriment of the employee
or might be able to discern some way in which the employee
was intimidated into signing such a statement.
"The other part of that is adding a fifth element to that
list that sets out the amount of liquidated damages that the
employee would be waiving. I think it's important that they
know exactly how much money they would be giving up. With
that, Mr. Chairman, I would move the amendment."
Number 703
REP. PHILLIPS: "Object."
Number 705
REP. DAVIDSON: "I certainly support this amendment. I
think it's fair for people at this level of the economic
ladder to understand more fully what it is they're giving up
when they're competing on such an equal playing field."
Number 708
REP. MULDER: "I would speak against the amendment because,
in a nutshell, all it's going to do is encourage further
litigation, which is what we're attempting to diminish or
overcome to begin with; second, in relation to--sets off the
approximate amount of liquidated damages--there's really no
way to determine that. It's a very ill-defined term in
relation to a quantifiable amount. I think Mr. Grover could
highlight that point if you will give him the opportunity to
respond."
REP. NORDLUND: "My understanding of liquidated damages is,
it's just double. It's again the amount that was owed. So,
if you know the amount that's owed, you know what the
liquidated damages are."
REP. MULDER inquired if Mr. Grover was still on-line. Mr.
Grover responded affirmatively.
REP. MULDER asked, "Parry, this is Eldon. They have
proposed the amendment first to, whether a waiver is knowing
and voluntary depends on upon all of the circumstances,
however a waiver is not knowing and voluntary unless the
settlement agreement includes all the following; and then,
also, the second part of the amendment, it sets up the
approximate amount of liquidated damages that is being
waived. Could you talk about those two amendments?"
Number 729
MR. GROVER: "Sure. As to the first one, I believe that's
implicit. It simply says that a waiver shall not be
considered knowing and voluntary unless the five conditions
are met. You've got to meet those five conditions. As I
listened to Mr. Legacki talk, he talked about employer
threats and intimidation. I don't know of any court in
Alaska that they found in fact that an employee was
intimidated by the employer, in the manner that he
described, would find that a knowing and voluntary waiver.
So I think the existing language already addresses that.
"Now, in terms of the second amendment that I heard
described, about putting in the amount of liquidated
damages, the amount may be uncertain. In fact, it usually
is because if the employer thinks they've acted in good
faith and fairly, they may believe they owe no liquidated
damages. It's like any other claim. If you have an
employment discrimination claim, an employee may believe a
very large figure, the employer may believe a small figure.
And the whole essence of the settlement is, having those
different points of view, they compromise. And they reach a
middle ground and settle. The same thing is true here. It
could be as much as double or the employer could believe,
`No, I've got an opinion from the Dept. of Labor, I thought
the position was exempt, I owe you zero liquidated damages.'
So we're just adding another factor that I don't think makes
the settlement any fairer or makes it any more knowing and
voluntary, but makes it more likely to be challenged by a
lawyer who finds some defect in what the employer wrote
down."
Number 752
REP. NORDLUND: "I thought it would be implicit also that if
the employee is willing to sign an agreement, that they are
signing an agreement on the amount of wages that they are
owed. That is a determined amount, and that they are just
also being made aware of the fact that they are waiving the
opportunity to collect double that amount, that specific
amount. The amount that was agreed upon."
MR. GROVER: [Loud paper shuffling in foreground damages
sound quality of Mr. Grover's testimony.] "I have handled
many, many cases in this category. Quite often, there are a
number of things that are uncertain. Whether it be the
Department of Labor - and most courts look at these
exemptions on a week by week basis - there may be a question
of whether the employee was exempt, say, during the summer
months, throughout the winter months, how many hours he
works; there can be all sorts of factual issues that bear
upon how much is owed. So frequently, just like any
employment claim, be it a wrongful termination claim, a
sexual harassment claim, there may be any number of factors
which make the figure imprecise. And that's to say that's
true with wage and hour claims. And that's certainly true
with settlement of wage and hour claims with the Department
of Labor. So the parties may not know exactly the amount
that is owed. The employer may think it's low, the employee
may think it's high. That's the essence of a settlement, is
a compromising of disparate views."
Number 774
REP. DAVIDSON: "In the discussion by Mr. Grover, at the
first part of this amendment - and I've learned to be very
careful as far as dealing with these kinds of situations -
he did say `a waiver shall not be considered to be' saying
it was about the same. I am pretty sure he meant to say, as
the bill says, `a waiver may not be considered to be.'"
MR. GROVER: "Unless it makes the five criteria. That's
right. Thank you."
CHAIRMAN PORTER: "I think in that context `may' and `shall'
are synonymous - but usually they're not, that's correct."
Number 784
REP. NORDLUND: "For Mr. Grover: The first part of my
amendment, then, you say it's implied. What would be the
danger in putting this language in there just so it's
instructive to the attorneys as well as to the employee that
those are not the only conditions?"
MR. GROVER: "I don't really have any quarrel with that
first change, sir. Would you mind reading back that
language? I'm not sure I heard you, I want to make sure I
understood exactly what that was."
CHAIRMAN PORTER: "I think, if I may, if I understood Rep.
Nordlund's first statement of explanation of the amendment,
I don't know if it says what it is that you intended. If I
am not mistaken you want the ability to bring up any other
criteria to determine whether or not the statement was
knowing or voluntary, not just all of the five."
REP. NORDLUND: "That is correct."
CHAIRMAN PORTER: "You want a sixth or a seventh or an
eighth if you..."
REP. NORDLUND: "All of the circumstances that...yes, that's
right."
CHAIRMAN PORTER: "Do you understand that, Parry?"
MR. GROVER: "Yes. I believe that what Rep. Nordlund is
talking about is language that Mr. Weyhrauch had proposed,
and he had the other day presented language to us that reads
as follows: `Whether the waiver is knowing and voluntary
depends on all of the circumstances,' and then it goes on
and says, `but is not considered knowing and voluntary
unless the settlement agreement...,' and then it's one, two,
three, four, five. If that's the language -"
CHAIRMAN PORTER: "That's substantially the language, yes."
MR. GROVER: "I think we're on the same plane."
REP. MULDER: "So, Parry, I'm still trying to get back from
you, when we had discussed it earlier, your feeling was that
it has the potential of leading to further litigation. Is
that still your point? Or do you think that that's not a
great concern."
MR. GROVER: "The language that I just read to you, I think,
if the committee feels it's necessary, I think it would be
acceptable. What I object to is adding additional points to
the laundry list of things that employers must do, the one,
two, three, four, five. I was objecting specifically to the
proposal that you list the amount of liquidated damages, for
the simple reason you're going to have different views on
what those are. And the figure may not be right. It may
simply open up another avenue for attack. Frankly, ladies
and gentlemen, lawyers are nitpickers. Look at any kind of
agreement, anything that's done, is to find one little thing
that is wrong with it, blow it up and convince the judge to
throw it all out. I am very reluctant to see additional
subpoints added. I think that just increases the chance
that the entire settlement will be thrown out."
Number 825
REP. NORDLUND: "I move that we divide the question so that
we can vote separately on the additions to page two, line
27, and then a separate question on the additions to page
three, line two."
CHAIRMAN PORTER: "Is there objection to a motion to divide?
Seeing none, we have before us then Amendment #1 as amended,
which only would affect page two, line 27."
REP. NORDLUND: "So I'll move Amendment #1A, do you want to
call it that?"
CHAIRMAN PORTER: "We'll call it 1A."
REP. PHILLIPS and REP. JAMES objected.
CHAIRMAN PORTER: "There is objection. Is there further
discussion? Could we have a roll call vote, please?"
A ROLL CALL VOTE WAS TAKEN by the committee.
REPRESENTATIVES NORDLUND, DAVIDSON VOTED YEA;
REPRESENTATIVES KOTT, GREEN, PHILLIPS, JAMES AND PORTER
VOTED "NAY.".Amendment #1A to HB 459 was therefore not
adopted by the committee. Chairman Porter asked for a
motion on Amendment #1B.
REP. NORDLUND: "Mr. Chairman, I wish Mr. Weyhrauch was
here, because I frankly don't have the knowledge to rebut
Mr. Grover's comments about whether or not liquidated
damages can be determined or not, so...I know, Rep. Davidson
had the same amendment, unless you want to pursue that..."
Number 844
CHAIRMAN PORTER: "For what it's worth, these are
settlements that would happen before that would be
determined. And the only way that would be determined
really, would be by an outside agency, if there was
agreement or if there was disagreement, on how much was
owed. We could be talking about a situation where he forgot
to punch out but has a friend who said he really did work,
and those kinds of things that, somebody would just have to
make up their mind how much actual overtime was going to be
considered, DOL or a court. Then you'd have an absolute
number for liquidated damages. But if you're trying to
settle it beforehand, that's the whole idea. If there's a
dispute, that you would not be able to know...at least,
reach an agreement on what kind of damages it would be."
Number 855
REP. NORDLUND: "There might be a better way of arriving at
this, then. The point here is that to agree to sign a
waiver like that without knowing within at least some range,
let's say, of how much money that they're giving up, might
make the person change their mind on signing the waiver.
And that's the point of it. And I don't have the expertise
to know what the experience has been to determine what kind
of range you're talking about."
Number 861
CHAIRMAN PORTER: "I think it has to be a knowing waiver,
and generally knowing that liquidated damages means twice
the amount of disputed overtime, is part of knowing what
you're waiving."
REP. MULDER: "Rep. Nordlund, your concern was one that we
did discuss in great length and detail; in fact, did
compromise on. And those concerns related to the five
points under Section (f). And specifically, number three,
under (f), says, part of that agreement, that settlement
agreement, advises the employee to consult with an attorney
or with the department before entering into an agreement.
In other words, if they have any misunderstanding, any
misgivings about it, talk to someone who may have better
information. If you are at all unclear about it, the
department, you know, that's what they exist for in terms of
that specific division. So that was part of the give and
take in this whole process. To try and make adequate
concern for the employee. To make sure that they weren't
being coerced, they weren't being hoodwinked in a sense of
the way, shape or form, that they were being adequately
informed about what they could potentially be owed."
CHAIRMAN PORTER: "I particularly like the fail-safe of five
days after the signing."
REP. NORDLUND: "Just a point on hiring an attorney: they'd
probably have to pay the attorney more than they'd ever
collect, in some cases, so -- I wish I could figure out a
better way of structuring my intent here. I can't do that,
so at this point I guess I'll just withdraw the amendment,
unless, Cliff, you want to go ahead with it?"
REP. DAVIDSON: "No, I agree."
CHAIRMAN PORTER: "Amendment #1B is withdrawn. What is the
wish of the committee?"
REP. JAMES: "I move that we move - do we have the CS before
us?"
REP. NORDLUND: "Mr. Chairman, I do have one other
amendment." [Side A ends abruptly.]
TAPE 94-50, SIDE B
Number 000
CHAIRMAN PORTER: "...We're off teleconference."
Number 004
REP. NORDLUND: "This deals with the effective date of the
Act and the retroactivity aspect of the bill, rather. I
have some concerns about that. It seems to me that if we're
going to create new legislation to put everybody on notice,
that it should apply to cases that happen after the
effective date of the Act. To go ahead of that time, I
think, causes possible constitutional problems regardless of
the language in here, and even if it is constitutional, you
can be absolutely sure that this is going to be a point
that's going to be litigated in every case. If the intent
of this is to lessen the amount of litigation, I think
making this basically a retroactive effective date is
counter-productive to the intent of the bill."
CHAIRMAN PORTER: "Do you want to move the amendment?"
REP. NORDLUND: "I'll move the amendment."
Number 032
REP. PHILLIPS: "Object. Just on the point of
retroactivity, certainly in the history of Alaska
legislative deliberations and statutes being passed, etc.,
etc., the issue of retroactivity has been constitutionally
upheld time after time. And it is argued on a case by case
basis, but it has been upheld many times in many laws that
we've written."
Number 045
CHAIRMAN PORTER: "If I could speak to it just quickly, this
is even a different kind of situation than a standard
retroactive provision, because the situation that requires
the Department of Law to only settle with limited liquidated
damages, has only come about as a result of this court case.
Before that, that wasn't what they were doing. So, we've
had different standards. And actually making it retroactive
would give the department a little more leeway and employers
and employees a little more leeway, than they have right
now. I would speak against the amendment."
REP. NORDLUND: "You can see that this is inviting further
litigation on the issue of constitutionality in those cases,
and it doesn't seem like a good idea to me."
CHAIRMAN PORTER: "The objection is maintained. Could we
have a roll call vote please on Amendment #2 - we will call
this J.4, dated 3/23."
A ROLL CALL VOTE WAS TAKEN by the committee.
REPRESENTATIVES DAVIDSON AND NORDLUND VOTED YEA;
REPRESENTATIVES PHILLIPS, GREEN, KOTT, JAMES AND PORTER
VOTED NAY. Amendment #2, J.4, of HB 459 was therefore not
adopted by the committee.
CHAIRMAN PORTER: "We have in front of us then CS HB 459."
Number 094
REP. JAMES: "Mr. Chairman, I would move this bill out of
committee, with individual recommendations, and ask for
unanimous [indisc. due to paper shuffling noise --
agreement?]."
CHAIRMAN PORTER: "And attached fiscal notes, which are
zero."
REP. JAMES: "And attached fiscal notes."
CHAIRMAN PORTER: "The motion has been made to move. Is
there objection? Seeing none, the bill is moved."
ADJOURNMENT
No time was given in notes for adjournment.
BILLS NOT HEARD
HB 367: PROHIBITED HIGHWAY ADVERTISING
SB 186: STATE AGENCY PUBLICATIONS
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