04/10/2017 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB9 | |
| HB38 | |
| HB124 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 38 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 9 | TELECONFERENCED | |
| += | HB 124 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 10, 2017
3:51 p.m.
MEMBERS PRESENT
Representative Sam Kito, Chair
Representative Adam Wool, Vice Chair
Representative Andy Josephson
Representative Louise Stutes
Representative Chris Birch
Representative Gary Knopp
Representative Colleen Sullivan-Leonard
MEMBERS ABSENT
Representative Mike Chenault (alternate)
Representative Bryce Edgmon (alternate)
OTHER MEMBERS PRESENT
REPRESENTATIVE DAN SADDLER
COMMITTEE CALENDAR
HOUSE BILL NO. 9
"An Act relating to the Board of Pharmacy; relating to the
licensing and inspection of certain facilities located outside
the state; relating to drug supply chain security; and creating
a position of executive administrator for the Board of
Pharmacy."
- MOVED CSHB 9(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 38
"An Act relating to the calculation and payment of workers'
compensation benefits in the case of permanent partial
impairment; relating to the calculation and payment of workers'
compensation death benefits payable to a child of an employee
where there is no surviving spouse; relating to the calculation
and payment of workers' compensation death benefits for an
employee without a surviving spouse or child; relating to notice
of workers' compensation death benefits; and providing for an
effective date."
- MOVED CSHB 38(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 124
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an effective
date."
- MOVED CSHB 124(L&C) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 9
SHORT TITLE: PHARMA BD & EMPLOYEES;DRUG DIST/MANUFAC
SPONSOR(s): REPRESENTATIVE(s) SADDLER
01/18/17 (H) PREFILE RELEASED 1/9/17
01/18/17 (H) READ THE FIRST TIME - REFERRALS
01/18/17 (H) L&C, FIN
04/07/17 (H) L&C AT 3:15 PM BARNES 124
04/07/17 (H) Heard & Held
04/07/17 (H) MINUTE(L&C)
04/10/17 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 38
SHORT TITLE: WORKERS' COMPENSATION: DEATH BENEFITS
SPONSOR(s): REPRESENTATIVE(s) JOSEPHSON
01/18/17 (H) PREFILE RELEASED 1/13/17
01/18/17 (H) READ THE FIRST TIME - REFERRALS
01/18/17 (H) L&C, FIN
02/24/17 (H) L&C AT 3:15 PM BARNES 124
02/24/17 (H) Heard & Held
02/24/17 (H) MINUTE(L&C)
04/10/17 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 124
SHORT TITLE: BENEFIT CORPORATIONS
SPONSOR(s): REPRESENTATIVE(s) KITO
02/15/17 (H) READ THE FIRST TIME - REFERRALS
02/15/17 (H) L&C, FIN
04/01/17 (H) L&C AT 1:00 PM BARNES 124
04/01/17 (H) Heard & Held
04/01/17 (H) MINUTE(L&C)
04/07/17 (H) L&C AT 3:15 PM BARNES 124
04/07/17 (H) Scheduled but Not Heard
04/10/17 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
RICHARD HOLT, PharmD
Vice Chair, Board of Pharmacy
Wasilla, Alaska
POSITION STATEMENT: Testified in support of HB 9.
BIANCA CARPENETI, Staff
Representative Sam Kito
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Kito, prime
sponsor of HB 124, explained the changes made in the proposed
committee substitute, Version D.
ACTION NARRATIVE
3:51:49 PM
CHAIR SAM KITO called the House Labor and Commerce Standing
Committee meeting to order at 3:52 p.m. Representatives Kito,
Sullivan-Leonard, Knopp, Birch, Josephson, and Wool were present
at the call to order. Representative Stutes arrived as the
meeting was in progress.
HB 9-PHARMA BD & EMPLOYEES;DRUG DIST/MANUFAC
3:52:37 PM
CHAIR KITO announced that the first order of business would be
HOUSE BILL No. 9, "An Act relating to the Board of Pharmacy;
relating to the licensing and inspection of certain facilities
located outside the state; relating to drug supply chain
security; and creating a position of executive administrator for
the Board of Pharmacy." [Before the committee was the proposed
committee substitute (CS) for HB 9, Version 30-LS0131\J, Bruce,
4/6/17, adopted on 4/7/17 as the working document.]
CHAIR KITO opened the hearing with the continuation of invited
testimony.
3:53:28 PM
RICHARD HOLT, PharmD, Vice Chair, Board of Pharmacy, testified
in support of HB 9. He said the Board of Pharmacy is requesting
the authority to license and write regulations around that
statute to have the ability to oversee the pharmacy supply chain
of medication coming into Alaska. It is not uncommon for other
states to have similar legislation for the safety of their
patients, he pointed out. Only Alaska, Hawaii, Guam, Utah, and
Massachusetts don't have the ability to license these wholesale
distributors. The Board of Pharmacy is asking for the licensing
opportunity to take care of patients in Alaska and maintain
their safety.
DR. HOLT stated that the proposed executive administrator
position is really needed to assist the Board of Pharmacy in all
the regulations that the board is currently working on. He
noted that pharmacy continues to evolve very rapidly to things
that are being seen elsewhere in the country, but which haven't
begun to be touched upon in Alaska, which really impacts patient
safety. This legislation is very important to achieve, he said.
3:55:19 PM
REPRESENTATIVE KNOPP inquired whether he is correct in his
understanding that Alaska, Guam, and Hawaii have not set up
inspection programs.
DR. HOLT replied that the information he has from the National
Association of Boards of Pharmacy is that the last remaining
areas that have not [set up inspection programs] are Alaska,
Hawaii, Guam, Utah, and Massachusetts. He said he has been
informed that those other areas are actively working on
legislation, but the legislation is not finalized.
REPRESENTATIVE KNOPP stated it is a good bill in concept and he
is not opposed to it. However, he continued, he is reluctant to
create a position in the current fiscal climate because he is
not big on growing government. He asked why [the Board of
Pharmacy] doesn't think Alaska is adequately protected if [other
states] have an inspection process and verification of the
supply chain.
DR. HOLT responded that [the Board of Pharmacy] currently has
statutory authority to register out-of-state pharmacies and part
of that is reviewing out-of-state inspections. Some of the
inspections he has seen coming in from other states, he advised,
show him great cause to be alarmed. Some of them have little to
no detail at all, yet [the board] accepts them in that
circumstance. He noted that with professionals in this field,
licensed pharmacists, and two public members, [the board] feels
that it is its profession to protect the patients in Alaska, so
having the authority to do inspections is important.
DR. HOLT further advised that it must be kept in mind that even
if a facility has a great inspection and meets the adequacies
that [the Board of Pharmacy] would write regulations to, if
something happens [the board] still doesn't have the authority
over that wholesale distributor or other facility if there is
not this piece of legislation. He explained that if the
wholesaler shipped a drug and something happened to the patients
in Alaska, [the board] could not reprimand that facility because
the facility is out of the board's jurisdiction.
3:58:18 PM
REPRESENTATIVE WOOL noted that Massachusetts doesn't have a law
like this and it has a strong medical community. He inquired
why Massachusetts doesn't have a law like this.
DR. HOLT answered he doesn't know the current status, but he has
been told Massachusetts is working on this in light of the 2012
compounding situation in which the New England Compounding
Center was an unlicensed manufacturer of steroid medications.
Based on whether the medication was mislabeled or from
unsanitary contamination, the result was 64 people dying and 800
people sick with fungal meningitis from what this center shipped
across the country.
REPRESENTATIVE WOOL offered his understanding that HB 9 is
trying to solve a few problems, one of them being bad actors and
unclean conditions in compounding facilities, and the other
being pharmacists approached by midlevel distributors that are
often cheaper but without a way of knowing the source and
perhaps the medication being counterfeit. He recalled it was
the sourcing of the medication that was in question and not so
much the process. He said he shares Representative Knopp's
concern about having to hire someone to do more digging around
to verify these licenses. He asked whether it is possible to
avoid midlevel distributors and go with certified big
pharmaceutical distributors.
DR. HOLT replied that in his capacity with his retailer he
doesn't purchase directly. But, he advised, that would limit
the sources and options for the patients receiving those
medications, as well as impacting the economical side of a
business. The intention is not to limit business, but rather to
make sure that the sources of these compounded medications, the
wholesale distributors, and so forth are licensed. Whether it
is a clinic, hospital, or retail pharmacy, there is comfort in
knowing something about that business, he said. Right now [the
board] doesn't license them and it is unknown where things are
coming from, nothing has been looked at. He pointed out that
under HB 9 the executive administrator (EA) position would be
paid from the fees from these three licensing categories, not
just from wholesale distributors.
4:02:50 PM
CHAIR KITO closed public testimony on HB 9 after ascertaining no
one else wished to testify.
4:03:17 PM
REPRESENTATIVE JOSEPHSON commented he thinks HB 9 is a fine bill
and is a quintessential example of how the public doesn't
understand all the things that the State of Alaska does. The
bill, he continued, is a textbook example of what government
must do.
4:03:47 PM
REPRESENTATIVE WOOL moved to report CSHB 9, Version 30-LS0131\J,
Bruce, 4/6/17, out of committee with individual recommendations
and the accompanying fiscal notes. There being no objection,
CSHB 9(L&C) was reported from the House Labor and Commerce
Standing Committee.
4:04:15 PM
The committee took an at-ease from 4:04 p.m. to 4:07 p.m.
HB 38-WORKERS' COMPENSATION: DEATH BENEFITS
4:07:19 PM
CHAIR KITO announced that the second order of business would be
HOUSE BILL NO. 38, "An Act relating to the calculation and
payment of workers' compensation benefits in the case of
permanent partial impairment; relating to the calculation and
payment of workers' compensation death benefits payable to a
child of an employee where there is no surviving spouse;
relating to the calculation and payment of workers' compensation
death benefits for an employee without a surviving spouse or
child; relating to notice of workers' compensation death
benefits; and providing for an effective date."
4:07:26 PM
REPRESENTATIVE WOOL moved to adopt the proposed committee
substitute (CS) for HB 38, Version 30-LS0160\J, Wallace,
3/23/17, as the working document. There being no objection,
Version J was before the committee.
4:07:59 PM
REPRESENTATIVE JOSEPHSON, prime sponsor of HB 38, reviewed the
two changes in Version J. He said the first change is that the
amount of money that would be received by the estate of a person
who died without a spouse or children is reduced from about
$125,000 in the original version to $70,000 in Version J. The
reason for that reduction, he continued, is that it is a more
modest number, but is also pegged at the highest number afforded
by a state in the U.S., which is Louisiana which is also at
approximately $70,000. He pointed out that New York is at
$50,000.
REPRESENTATIVE JOSEPHSON said the second change is that there is
a category of dependents, as noted on page 3, lines 12-16, where
a person may be living alone but have people who are
recognizable as legal dependents. For example, a man might have
an 80-year-old mother living in an independent living facility
that is reliant him for $1,000 a month and it could be that the
man's estate could prove that. In that group, he explained, the
bill would reduce that number to $100,000, which had been based
on the whole-body number of $255,000.
REPRESENTATIVE JOSEPHSON discussed the two things that the bill
would do. First, he said, for the first time in Alaska history,
the life of a person who never married and didn't have children
but who dies at work would have legally recognizable value. The
bill says it's recognizable as $70,000, whereas currently it's
only recognizable in a funeral benefit of $10,000. This is
paying homage and respect to single childless people who die at
work. Second, he stated, the bill would increase the permanent
partial impairment (PPI) whole body number from $177,000 to
$255,000 to reflect an increase in inflation.
4:11:41 PM
REPRESENTATIVE JOSEPHSON brought attention to his PowerPoint
presentation entitled, "HB 38, Abigail Caudle Act". Displaying
the fourth slide entitled, "What is the current law?" he said
the current law for PPI is $177,000 and HB 38 would increase
that to $255,000. He referenced a document in the committee
packet from Legislative Research Services that says the amount
would be $255,000 had the consumer price index been in effect
the last 17 years. A way to think about this, he suggested, is
that it's as if minimum wage is being paid at whatever it was in
the year 2000. The bill would raise the PPI rating from
$177,000 for the whole body to $255,000 and would link it to the
consumer price index.
REPRESENTATIVE JOSEPHSON continued discussing the fourth slide
and explained that, under current law, for deceased workers
there is no provision for compensating the estate if there are
no surviving widow, widower, or dependents. Two different
concepts are included in the same bill, he explained, because
they both are in workers' compensation statutes and it is like a
mini-omnibus workers' compensation bill.
REPRESENTATIVE JOSEPHSON moved to the fifth slide entitled, "How
do we fix it?" and discussed the first bullet point. He stated
that if the PPI were properly set at $177,000 in the year 2000,
then it would be proper that it's set at $255,000 now. If it's
not that now, he continued, then one is really saying that it
never should have been $177,000 in the year 2000. He addressed
the next set of bullet points and noted that if the deceased did
not have dependents that lived at home but there were dependents
that relied on the deceased, then the bill would increase the
amount from $20,000 to $100,000. He pointed out that the figure
of $20,000 hasn't changed since 1968, so the amount of money the
state gives to those dependents hasn't changed in about 50
years. The real reform, along with reforming the PPI, he
stated, is the creation of a workers' compensation award for the
estate of the person who died unmarried and without children.
4:14:44 PM
REPRESENTATIVE KNOPP brought attention to page 3, line 19, which
states, "if there is no widow or widower or child or children,
and the father, mother, grandchildren, brothers, and sisters
were not dependent on the deceased at the time of injury, then
$70,000 is payable in a lump sum to the estate of the decedent."
He asked why the state would in this case pay $70,000 to the
estate.
REPRESENTATIVE JOSEPHSON replied that there are three things the
state can do with single people who could be of any age. One is
nothing - leave the law the way it is. But, he continued,
imagine talking to the parent of a 22-year-old child who died at
the work place, like Abigail Caudle did, but hadn't yet met a
spouse or borne a child. Raven Electric, Inc. did have some
OSHA fines, and, in effect, it is being said that all Raven
Electric had to do was cut a check for Abigail's funeral
expenses. He asked, How would you have that conversation with
Marianne Burke, her mother? It is being said that the value of
a single person's life is less to the legal system than everyone
else. Other states provide this benefit, he pointed out.
Version J cuts this benefit almost in half, down to $70,000 from
the original [proposed] benefit of $125,000. This benefit, he
argued, would create a little further incentive for a company to
say it better have a safe work place. This is an exclusive
remedy, he further noted, as these single, childless people
cannot sue, and their estates cannot sue.
REPRESENTATIVE JOSEPHSON continued his answer by posing a
scenario in which two people are in an elevator at a business
when the elevator suddenly crashes downward, killing both
people. One of the people was an unmarried, childless worker at
the business and the other a customer of the business. He
explained that the customer could collect potentially millions
of dollars in damages, but under Alaska law the worker would
receive nothing. Two lives experienced the same thing, he
continued, and this is an injustice that [the legislature] can
correct. He referred to the [Division of Legal and Research
Services'] research paper provided to committee members and
pointed out that it states there would not be an appreciable
amount of workers' compensation impact. For example, he
continued, the State of Oregon said a change in these benefits
would not materially affect workers' compensation premium rates
due to the small number of compensable deaths each year.
4:18:36 PM
REPRESENTATIVE KNOPP maintained that the aforementioned elevator
scenario is not an apples-to-apples comparison because the
customer would collect under civil or criminal litigation and
the employee's family would have the same option. It isn't an
apples-to-apples comparison, he continued, because the customer
would not collect under workers' compensation litigation. He
asked why an employee's family would not be eligible under the
same rules that applied to the customer as far as civil or
criminal litigation.
REPRESENTATIVE JOSEPHSON responded that Title 9 is Alaska's
personal injury or torts statute and is the rules of the road
for personal injury damages, and Title 23 is Alaska's rules of
the road for workers' compensation. In the elevator scenario,
he explained, the worker's benefits would fall entirely under
[Title 23], and that statute says the worker would get $10,000
funeral expenses, period. If the family goes to the supreme
court like Abigail Caudle's mother did, he said, he thinks that
ultimately the court will say it can't help because the people
in Juneau won't help. Abigail's mother went to the [Alaska
Workers' Compensation Appeals Commission], he continued, which
told her that policy arguments must be directed to legislature,
which will be in connection with currently pending legislation.
He added, "That is the bill before us."
REPRESENTATIVE JOSEPHSON continued and stated that the ultimate
answer to Representative Knopp's question is, "It's not like you
could really, really try to file a wrongful death and maybe
they'll let you do it - it is 1,000 percent prohibited." If it
is not in the workers' compensation statute, he continued, "and
you're a worker, you don't get a benefit." In the elevator
scenario, he added, the customer's family at least gets a
feeling that the issue of not checking the elevator shaft or
doing maintenance will get recognized and the family can come
after the business for damages as appropriate. The customer's
family would get that, but the worker's family would not.
4:21:14 PM
REPRESENTATIVE BIRCH stated that this must be hugely frustrating
to attorneys. He said he looks at workers' compensation as a
form of insurance providing for wage replacement and medical
benefits to employees injured in the course of employment. But,
he posited, what is being talked about [in the bill] is life
insurance. While workers' compensation pays to bury someone, he
said, he struggles to understand how workers' compensation
migrates over into a life insurance policy, which is effectively
what the bill does. Every employer must pay for workers'
compensation and it is for medical benefits and to replace wages
lost due to injury. He asked what prohibits any employee from
buying a large [life] insurance policy like he has done for
himself. He requested the sponsor to address how workers'
compensation is being migrated into a life insurance deal.
REPRESENTATIVE JOSEPHSON answered that it presumes that an
unsophisticated person in their early twenties would think that
they could die at this job and need to provide a remedy to the
people who care about him or her. It's not a fix for unsafe
workplaces, so it doesn't solve that problem, he said. The bill
adds [paragraph] (6) to a death benefit section where there are
already death benefits being paid out. He noted that other
states do this and that the [proposed] award is fairly modest
and would not materially change the workers' compensation rates.
There really are only three options, he said: do nothing; do
something like this bill; or offer these single, childless
people the chance to sue [the employer's] pants off. Under
wrongful death, he continued, they would then carry the burden
by a preponderance of the evidence that they themselves weren't
negligent. He added that if he were an employer, he would not
be sure he'd want the third option because the damages total in
workers' compensation could be far greater. Given that other
states are doing this, if he were the employer, he would say he
could work with this. Otherwise, it seems highly unjust.
REPRESENTATIVE BIRCH noted that the Department of Labor and
Workforce Development can fine an employer for unsafe work
conditions, so he surmised the department would also be able to
sue the pants off of" an employer for an unsafe work condition.
He said all he hears about workers' compensation is how
expensive it is, especially for jobs that are more dangerous
than others. Workers' compensation rates are high and getting
higher, he opined, and HB 38 doesn't seem like it is going to
mitigate the cost of workers' compensation and therefore he
would like to see the additional cost component.
4:26:30 PM
REPRESENTATIVE WOOL recalled Representative Josephson's
statement about how to have the conversation with the family.
Obviously, he continued, it would be a very difficult
conversation, whether or not the individual has dependents. He
said he agrees in some ways with Representative Birch that
workers' compensation insurance covers certain things and life
insurance covers other things. He offered his agreement that
the current $10,000 for funeral expense is a paltry amount. He
inquired whether the sponsor is saying that by adding more it
would make a bad situation a little better.
REPRESENTATIVE JOSEPHSON replied yes. He related that last year
in Anchorage a hole was dug in the ground and the man in the
hole died when it caved in. The man was young and therefore
could have been single and childless. He said the difference is
that it is one thing to go to the other family and say that the
state has a remedy for the widow or children that will offer
them a modicum of solace. It's another thing, he continued, to
go to the other person and say your child didn't have any kids
and never married and while the parent can sue it will likely be
thrown out immediately, no damages can be filed, and there is no
award from workers' compensation.
4:28:41 PM
REPRESENTATIVE WOOL posed a scenario in which he works for a
company and is driving the company car one day when suddenly the
brakes don't work, and he drives off the road and is killed. He
said he would think he has some legal recourse for negligence
and that people could sue, so he therefore finds it hard to
believe that that would not be the case. He further stated that
it is hard to believe that if it were blatant negligence then a
customer could sue to the full extent of the law, but an
employee could not, which is shocking, he added. He surmised
that more people die in the fishing industry than in the
restaurant industry and asked whether the fishing industry would
therefore be more affected.
REPRESENTATIVE JOSEPHSON offered his belief that the Jones Act
or other maritime acts would answer that. He said he thinks
fishermen are covered differently. He added that for fishermen
there is a huge carve-out under federal law often in terms of
Jones Act damages. In terms of Representative Wool's scenario,
he agreed it would be negligent of the company. He gave his
assurance to the committee that it truly is the exclusive
remedy. He said it might be that if the brake manufacturer
could be sued independent of the company that owned the car for
which the brakes gave out there could be possibility of
litigation. Workers' compensation is the grand compact that was
designed to end litigation, he continued, although it never
really did do that.
REPRESENTATIVE STUTES pointed out that fishermen are independent
contractors and therefore not covered by workers' compensation,
so the bill's provisions would not apply. She commented that it
seems odd to have any kind of law that would make a carve-out
where it had to be said to someone that his or her child has no
value. She said it is inconceivable to her to think along those
lines and therefore it is very difficult for her when it is an
easy remedy to fix.
4:32:00 PM
REPRESENTATIVE KNOPP stated that instead of putting a death
benefit into the workers' compensation bill he would rather see
legislation that would allow surviving members, dependent or
not, to have a course of legal action against the employer for
something unjust. He said he has issues with there being a
death benefit of $10,000 in funeral expense on page 2, line 27,
and $70,000 in addition to be given to the estate of someone who
has died and has no dependents, and this figure being tied to
the rate of inflation. More important, he continued, is the
provision for partial impairment. He drew attention to language
on page 1, line 12, through page 2, line 2, which states: "In
case of impairment partial in character but permanent in
quality, and not resulting in permanent total disability, the
compensation is $255,506 [$177,000] multiplied by the employee's
percentage of permanent impairment of the whole person." He
opined that this is complicated and complex.
REPRESENTATIVE JOSEPHSON responded that the $70,000 provision is
not tied to inflation and is a fixed amount. Twenty years from
now, he continued, $70,000 may not seem like what it is now, and
someone may ask to increase it. Regarding partial impairment,
he pointed out that the cited language is existing law, not the
bill, and that what HB 38 does is grow the number from $177,000
to $250,000. He further pointed out that that is not the amount
the person gets, it is the base amount from which a permanently
damaged appendage or bodily organ would be multiplied. He noted
that about a dozen other states do this; for example, Minnesota
provides $60,000; New York provides $50,000; and Louisiana
provides $75,000 to each surviving parent.
4:36:01 PM
REPRESENTATIVE WOOL moved to report CSHB 38, Version 30-
LS0160\J, Wallace, 3/23/17, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 38(L&C) was reported from House Labor and
Commerce Standing Committee.
4:36:27 PM
The committee took an at-ease from 4:36 p.m. to 4:38 p.m.
HB 124-BENEFIT CORPORATIONS
4:38:41 PM
CHAIR KITO announced that the final order of business would be
HOUSE BILL NO. 124, "An Act relating to corporations, including
benefit corporations, and other entities; and providing for an
effective date."
4:38:46 PM
REPRESENTATIVE WOOL moved to adopt the proposed committee
substitute for HB 124, Version 30-LS 0348\D, Bannister, 4/4/17,
as the working document.
4:39:00 PM
CHAIR KITO objected for purposes of discussion.
[Chair Kito passed the gavel to Vice Chair Wool.]
4:39:26 PM
CHAIR KITO, prime sponsor of HB 124, stated that the committee
heard the bill previously and there are some changes, most of
which are technical.
4:39:56 PM
BIANCA CARPENETI, Staff, Representative Sam Kito, Alaska State
Legislature, on behalf of Representative Kito, prime sponsor of
HB 124, reviewed the five changes in Version D. She said the
first change is to standardize the use of the term "general
public benefit". Since this term is a unitary concept it does
not take an indefinite article, she explained, and there were
some inconsistencies in the [original] bill where there was an
indefinite article. This change is seen on page 5, line 29;
page 9, lines 7 and 24; page 10, line 7; and page 11, line 2.
The second change, she stated, is changing the word "reasonably"
to "rationally" in keeping with model legislation establishing
benefit corporations. This change occurs in four places twice
on page 6, lines 9 and 11, and page 9, lines 17 and 19. She
said the third change is removal of "for general public benefit
purposes" to avoid redundancy on page 15, line 7. The fourth
change, she continued, is deletion of the word "purpose" in
order to use the definition of those terms in the definition
section without tying them to the public benefit corporation
requirements. This change occurs on page 15, line 11. The
fifth change, she reported, is that the effective date is
changed to July 1, 2018. This change occurs on page 17, line 7.
MS. CARPENETI addressed questions asked by committee members
during the bill's previous hearing. Regarding Representative
Knopp's question about examples of benefit corporations, she
noted that many types of businesses have become benefit
corporations since the first law was passed in Maryland in 2010.
The benefit corporations currently incorporated in the U.S. come
from a range of industries, including retail, manufacturing,
technological, service, professional services, private
education, and food and beverage production. They come in all
sizes from one-person service companies to large-scale
international brands. Examples of well-known benefit
corporations, she related, include Method, Kickstarter, Plum
Organics, King Arthur Flour, Patagonia, Solberg Manufacturing,
Laureate Education, and Alt School.
MS. CARPENETI addressed the committee's question about whether a
benefit corporation must be publicly traded and reported that
they do not have to be publicly traded to be a benefit
corporation. She said the legal designation of a benefit
corporation does not set requirements as to whether a benefit
corporation is publicly traded or privately held. Currently
there are around 5,000 benefit corporations throughout the U.S.
and only one of them is publicly traded and that is Laureate
Education and Alt School, which went public in February 2017.
MS. CARPENETI addressed the question about why the need for a
benefit corporation if it isn't publicly traded. She explained
that most of the 5,000 benefit corporations throughout the U.S.
are private companies. However, she continued, many have also
taken outside capital in the form of venture capital or private
equity dollars and so being able to protect the company's
mission over time and consider stakeholders is incredibly
important to these entrepreneurs, especially when outside
capital has been raised.
MS. CARPENETI noted there were several questions about a special
taxation benefit conferred to benefit corporations. She said
there is no special tax benefit conferred, the benefit
corporation status only affects requirements of corporate
purpose, accountability, and transparency. Everything else
regarding corporation laws and tax laws remain the same, she
reported. So, a type of corporation whether C or S must
still be elected.
MS. CARPENETI addressed Representative Wool's question about
whether Newman's Own is an example of a benefit corporation.
She said she's found no indication of Newman's Own being
registered as a benefit corporation, rather Newman's Own gives
100 percent of its after-tax profits to the Newman's Own
Foundation, a private non-profit foundation, which in turn gives
the money to various educational and charitable organizations.
While the way Newman's Own operates is commendable, she
continued, it's probably not a good example of being a benefit
corporation because being a benefit corporation means the
business is run in a particular way. So, if a company were a
poor employer and had bad corporate citizens in a community
where it operated but gave away some of its profits, that would
not make it a benefit corporation. The focus of benefit
corporations, she continued, is on being profitable in a
responsible way, not what the corporation does with its profits
once they've been earned.
MS. CARPENETI addressed another question from Representative
Wool about whether benefit corporations would be exempted if the
tax law were changed. She explained that tax wise benefit
corporations still elect whether to be C or S corporations, so
this benefit corporation status only affects the requirements
for corporate purpose, accountability, and transparency.
Everything else regarding the tax status remains the same.
4:44:59 PM
REPRESENTATIVE BIRCH posed a scenario of Microsoft with Bill
Gates operates Microsoft as a regular corporation. He said
whoever owns those shares can decide whether to direct shares to
a charitable purpose. He said he is still trying to understand
the merits of a benefit corporation since there is not a tax
benefit he is aware of.
CHAIR KITO recounted that in previous discussion it was
mentioned that it is a culture of social responsibility, so a
corporate structure that would allow individuals within the
corporation as well as the earnings of the corporation to be
utilized for a tangible beneficial purpose. With just a profit
motive or fiduciary motive then the profits could be used for a
charitable purpose or not. But as was heard last week from Mr.
Letourneau, he continued, a corporation would like to operate
with a culture of being responsible and giving back to the
community and this can be done by registering as a benefit
corporation, which allows the company to be accountable to its
shareholders and that the shareholders would also expect certain
behaviors from employees, directors, or others, so not just a
profit or charitable giving motivation.
REPRESENTATIVE BIRCH asked what the advantage is in doing it in
that manner as opposed to a non-profit like United Way.
CHAIR KITO replied that there are significant differences
between the services provided by a non-profit and the services
provide by a profit. For example, if he operated a for-profit
corporation that made and sold a "widget", he doesn't know that
he would be able to convert that into a non-profit organization
and if he did, 100 percent of that benefit would go to the non-
profit. He said it is about cultural sensitivity and giving
back to the community and, depending on what form a particular
owner, or a board of directors would want to take for their
corporation, they could structure with this bill a corporation
that would allow them to do what they would like to give back in
their way. For example, if their company was a mountain guide
company, rather than just making a profit the company could
choose to have its employees do 20 hours of community service
once a month and that could be part of the corporate culture and
bylaws so that that whole mountain guide company is committed to
giving back to some component of the community.
4:48:18 PM
VICE CHAIR WOOL recalled that in the committee's conversation
with the gentleman from Anchorage last week it was said that
this could almost be used as a marketing badge to say, "This is
how we run our company and another reason to support them."
CHAIR KITO said that is one of those things that are identified
specifically in the bill - that it is not a designation for
marketing purposes - but it can be utilized as a selling point
of the company and what the company might be able to offer.
MS. CARPENETI added that corporations are also generally
expected to put the interests of their shareholders as their
primary consideration. Two cases have set the precedent for
this, she said. One is Dodge v. Ford Motor Company and the
other is eBay Domestic Holdings Inc. v. Newmark. Both cases
affirmed that all activities of a for-profit corporation must
seek to maximize the economic value for its stockholders. It is
important to note, she continued, that the benefit corporation
status is needed to protect mainly directors from being sued in
a derivative suit. So, it is a legal protection as well for the
corporation to say that it is going to add the consideration of
its mission in addition to its economic.
4:50:10 PM
CHAIR KITO removed his objection to the adoption of Version D as
the working document.
[Vice Chair Wool returned the gavel to Chair Kito.]
4:50:21 PM
REPRESENTATIVE WOOL moved to report CSHB 124, Version 30-LS
0348\D, Bannister, 4/4/17, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 124(L&C) was reported from the House Labor
and Commerce Standing Committee.
4:51:18 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:51 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB38 Supporting Document - 2017 Research Report 3.24.17.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB0038 ver J 3.24.17.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 Explanation of Changes version A to version J 4.10.17.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 PowerPoint Presentation 4.10.2017.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 ver J Sectional Analysis 4.10.2017.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 ver J Side-by-side 4.10.2017.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |