Legislature(1995 - 1996)

04/18/1995 08:10 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
             HOUSE STATE AFFAIRS STANDING COMMITTEE                            
                         April 18, 1995                                        
                           8:10 a.m.                                           
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Jeannette James, Chair                                         
 Representative Scott Ogan, Vice Chair                                         
 Representative Joe Green                                                      
 Representative Ivan Ivan                                                      
 Representative Brian Porter                                                   
 Representative Caren Robinson                                                 
 Representative Ed Willis                                                      
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 None                                                                          
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 CSSB 122(JUD):  "An Act excluding certain direct sellers of                   
                 consumer products from coverage under the state               
                 unemployment compensation laws."                              
                                                                               
                 PASSED HCS CSSB 122(STA) OUT OF COMMITTEE                     
                                                                               
 *HJR 40:        Proposing an amendment to the Constitution of the             
                 State of Alaska repealing provisions establishing             
                 and relating to the budget reserve fund."                     
                                                                               
                 PASSED OUT OF COMMITTEE                                       
                                                                               
 (* First public hearing)                                                      
                                                                               
 WITNESS REGISTER                                                              
                                                                               
 JOSEPH MARIANO, Vice-President and Legal Counsel                              
 Direct Selling Association                                                    
 1666 K Street Northwest                                                       
 Washington, D.C.  20006                                                       
 Telephone:  (202) 293-5760                                                    
 POSITION STATEMENT:  Supported CS for SB 122                                  
                                                                               
 ANNE CREWS, Corporate Affairs Manager                                         
 Mary Kay Corporation                                                          
 Dallas, Texas                                                                 
 Telephone:  (214) 905-5729                                                    
 POSITION STATEMENT:  Supported CS for SB 122                                  
                                                                               
 EVELYN JARVIS-FERRIS, Vice President of Government Relations                  
 Shaklee Corporation                                                           
 444 Market Street                                                             
 San Francisco, CA                                                             
 Telephone:  (415) 954-2016                                                    
 POSITION STATEMENT:  Supported CS for SB 122                                  
                                                                               
 DIRK BLOEMENDAAL, Corporate Government Affairs Counsel                        
 Amway Corporation                                                             
 7575 East Fulton Road                                                         
 Ada, Michigan                                                                 
 Telephone:  (616) 676-7010                                                    
 POSITION STATEMENT:  Supported CS for SB 122                                  
                                                                               
 ROB SHUMAY, In-House Counsel                                                  
 Kirby Company                                                                 
 28800 Clemens Road                                                            
 West Lake, Ohio 44145                                                         
 Telephone:  (216) 892-3000                                                    
 POSITION STATEMENT:  Supported CS for SB 122                                  
                                                                               
 STEVE EGLI                                                                    
 Kirby Corporation                                                             
 9310  Glacier Highway                                                         
 Juneau, AK  99801                                                             
 Telephone:  (907) 790-4446                                                    
 POSITION STATEMENT:  Supported SB 122                                         
                                                                               
 DWIGHT PERKINS, Special Assistant                                             
 Office of the Commissioner                                                    
 Department of Labor                                                           
 P.O. Box 21149                                                                
 Juneau, AK  99810                                                             
 Telephone:  (907) 465-2700                                                    
 POSITION STATEMENT:  Provided information on SB 122                           
                                                                               
 SHERMAN ERNOUF, Administrative Assistant                                      
 Senator Tim Kelly                                                             
 Alaska State Legislature                                                      
 Capitol Building, Room 101                                                    
 Juneau, AK  99801                                                             
 Telephone:  (907) 465-3822                                                    
 POSITION STATEMENT:  Supported SB 122                                         
                                                                               
 REPRESENTATIVE TERRY MARTIN                                                   
 Alaska State Legislature                                                      
 Capitol Building, Room 502                                                    
 Juneau, AK  99801                                                             
 Telephone:  (907) 465-3783                                                    
 POSITION STATEMENT:  Sponsored HJR 40                                         
                                                                               
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 BILL:  SB 122                                                               
 SHORT TITLE: NO UNEMPLOYMENT COMP FOR DIRECT SELLERS                          
 SPONSOR(S): LABOR & COMMERCE BY REQUEST                                       
                                                                               
 JRN-DATE     JRN-PG               ACTION                                      
 03/10/95       578    (S)   READ THE FIRST TIME - REFERRAL(S)                 
 03/10/95       578    (S)   JUDICIARY                                         
 03/22/95              (S)   JUD AT 01:30 PM BELTZ ROOM 211                    
 03/22/95              (S)   MINUTE(JUD)                                       
 03/23/95       765    (S)   JUD RPT  CS  3DP 2NR  SAME TITLE                  
 03/23/95       765    (S)   ZERO FISCAL NOTE (LABOR #1)                       
 03/27/95              (S)   RLS AT 11:35 AM FAHRENKAMP RM 203                 
 03/27/95              (S)   MINUTE(RLS)                                       
 03/30/95       846    (S)   RULES TO CALENDAR  3/30/95                        
 03/30/95       848    (S)   READ THE SECOND TIME                              
 03/30/95       848    (S)   JUD  CS ADOPTED UNAN CONSENT                      
 03/30/95       848    (S)   ADVANCED TO THIRD READING UNAN                    
                             CONSENT                                           
 03/30/95       848    (S)   READ THE THIRD TIME  CSSB 122(JUD)                
 03/30/95       849    (S)   PASSED Y19 N1                                     
 03/30/95       849    (S)   PEARCE  NOTICE OF RECONSIDERATION                 
 04/05/95       878    (S)   HELD ON RECONSIDERATION TO 4/6                    
                             CALENDAR                                          
 04/06/95       897    (S)   PASSED ON RECONSIDERATION                         
                             Y18 N1 E1                                         
 04/06/95       900    (S)   TRANSMITTED TO (H)                                
 04/07/95      1170    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 04/07/95      1170    (H)   JUDICIARY                                         
 04/07/95      1172    (H)   JUD REFERRAL REMOVED                              
 04/18/95              (H)   STA AT 08:00 AM CAPITOL 102                       
                                                                              
 BILL:  HJR 40                                                                
 SHORT TITLE: REPEAL BUDGET RESERVE FUND(ART IX SEC 17)                        
 SPONSOR(S): REPRESENTATIVE(S) MARTIN                                          
                                                                               
 JRN-DATE     JRN-PG               ACTION                                      
 04/05/95      1025    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 04/05/95      1025    (H)   STATE AFFAIRS, JUDICIARY, FINANCE                 
 04/18/95              (H)   STA AT 08:00 AM CAPITOL 102                       
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 TAPE 95-49 SIDE A                                                             
 Number 000                                                                    
                                                                               
 CHAIR JAMES called the meeting to order at 8:10 a.m.  All members             
 were present at the call to order.  She announced she was reversing           
 the order of the bills on the calendar.                                       
                                                                               
 SB 122 - NO UNEMPLOYMENT COMP FOR DIRECT SELLERS                            
                                                                               
 Number 040                                                                    
                                                                               
 JOSEPH MARIANO, with the Direct Selling Association, testified via            
 teleconference from Washington, D.C., stating SB 122 is similar to            
 the original version, HB 238, which the State Affairs Committee               
 amended.  He estimated there are approximately 10,000 independent             
 contractor/direct sellers in Alaska, and more than 6 million                  
 nationally.  They support the same amendment for SB 122 that was              
 passed for HB 238 by House State Affairs, because SB 122 currently            
 would apply only to sellers who make sales in the customers' homes.           
 Many direct sellers sell in customers' offices or in the home of a            
 third party hostess and would not qualify as direct sellers under             
 the terms of SB 122.  SB 122 was drafted, as was the original HB              
 238, to deal specifically with Kirby distributors' problems.  These           
 problems have not been experienced by other direct sellers.  The              
 amendment would bring Alaska into agreement with other states and             
 the federal law requirements, and it would address Kirby's problem            
 without endangering any other direct sellers.                                 
                                                                               
 Number 161                                                                    
                                                                               
 ANNE CREWS, Corporate Affairs Manager, Mary Kay Cosmetics,                    
 testified via teleconference from Dallas, Texas, stating Mary Kay             
 has direct sellers everywhere in Alaska, from small villages to               
 large towns, offering career opportunities in all these areas.  As            
 written, the bill does not adequately clarify direct seller status.           
 She stated the bill should be amended to comply with CSHB 238.                
                                                                               
 Number 190                                                                    
                                                                               
 EVELYN JARVIS-FERRIS, Vice President of Government Relations,                 
 Shaklee Corporation, testified via teleconference from San                    
 Francisco, in support of amending SB 122 to comply with CSHB 238.             
 This would solve Kirby's problems and it would not harm other                 
 direct sellers.                                                               
                                                                               
 Number 230                                                                    
                                                                               
 DIRK BLOEMENDAAL, Corporate Government Affairs Counsel, Amway                 
 Corporation, testified via teleconference from Grand Rapids,                  
 stating Amway opposes SB 122 in its current form.  He observed                
 although SB 122 has the laudable intent of exempting direct sellers           
 from unemployment compensation laws in Alaska, it unfortunately               
 does not accurately describe direct sellers doing business in                 
 Alaska.  Amway sales take place not just in customers' homes but in           
 offices and other locations.  Amway direct sellers are not                    
 employees of Amway Corporation but are independent contractors.               
 They define their own hours, prices, and expenses.  The independent           
 contractor status of these direct sellers is threatened by SB 122             
 in its current form by subjecting them to the unemployment                    
 compensation law in Alaska.  Amway supports CSHB 238 because it               
 contains the correct definition of direct seller, the same                    
 definition which has been adopted in 25 states since 1982 when                
 Congress enacted the Tax Equity and Fiscal Responsibility Act                 
 (TEFRA), insuring that direct sellers are not considered employees            
 for income tax purposes.  The TEFRA language also insures that                
 nondirect sellers do not fall within the same parameters.                     
                                                                               
 Number 312                                                                    
                                                                               
 ROB SHUMAY, In-House Counsel, Kirby Company, testified via                    
 teleconference from Cleveland.  He stated the Kirby Company shares            
 the opinion of the other members of the Direct Selling Association            
 which testified today, adding the only direct sellers unable to               
 qualify as independent contractors under the current law are Kirby            
 distributors.                                                                 
                                                                               
 Number 340                                                                    
                                                                               
 CHAIR JAMES noted there was no one else signed up to testify on               
 teleconference.  She observed SB 122 fixes the problem for Kirby              
 and does not harm anyone else.  She invited comments from the                 
 committee.                                                                    
                                                                               
 Number 370                                                                    
                                                                               
 REPRESENTATIVE BRIAN PORTER discussed the Internal Revenue Service            
 (IRS) definition of direct seller which prohibits selling in a                
 permanent retail establishment.  He asked if Kirby is in a                    
 permanent retail establishment and whether Kirby has two categories           
 of sellers, those who are considered employees because they sell in           
 a permanent establishment, and others who are not.                            
                                                                               
 STEVE EGLI, Kirby Corporation in Juneau, replied Kirby is unique in           
 the direct seller structure, because they have an actual                      
 distributorship in the location.  Their independent contractors               
 purchase their equipment at wholesale from the local                          
 distributorship, which is considered a service center and                     
 distribution point, and then market it in the consumers' homes.               
 Service and supplies are provided in the store, but the product is            
 not sold retail in the store.                                                 
                                                                               
 Number 400                                                                    
                                                                               
 REPRESENTATIVE SCOTT OGAN inquired if Kirby actually had two                  
 categories of sales people, one outside the store and other                   
 "payrolled" people inside the store.                                          
                                                                               
 MR. EGLI replied yes, the service personnel were employees,                   
 including an accountant, while all sales people sell outside the              
 store.  Kirby Corporation requires that the product not be sold in            
 the store.                                                                    
                                                                               
 Number 412                                                                    
                                                                               
 REPRESENTATIVE CAREN ROBINSON asked Mr. Egli if both he and the               
 Department of Labor approved the language in SB 122.                          
                                                                               
 MR. EGLI replied yes, it solved the problem for Kirby as well as              
 for other direct sellers.                                                     
                                                                               
 Number 421                                                                    
                                                                               
 REPRESENTATIVE JOE GREEN asked if all other direct selling                    
 organizations are covered, why do they object to this version.                
                                                                               
 MR. MARIANO responded there are two issues.  CSHB 238 solves the              
 problem and accurately describes Kirby's method of doing business.            
 The current version of SB 122 makes exemptions which not all direct           
 sellers can meet; it compounds the problem by suggesting this                 
 exemption is necessary under the "ABC test" and could result in               
 lengthy litigation.                                                           
                                                                               
 Number 462                                                                    
                                                                               
 REPRESENTATIVE PORTER asked if he was correct in assuming what Mr.            
 Mariano meant, in plain English, was that Mary Kay and others                 
 besides Kirby do direct selling in something other than the                   
 specific consumer's home, and if that was what he was trying to               
 maintain.                                                                     
                                                                               
 MR. MARIANO replied that was precisely right, and one of the key              
 problems with SB 122 was the language requiring direct sellers to             
 sell the product only when physically present in a consumer's home.           
 Many sales take place in other than a retail establishment but not            
 necessarily in a prospective consumer's home.                                 
                                                                               
 Number 475                                                                    
                                                                               
 CHAIR JAMES added Alaska recognizes Avon, Mary Kay, Shaklee, and              
 other direct sellers, as independent business people, so they are             
 not threatened by having to pay unemployment compensation, and the            
 state would like to leave it that way.  Kirby is different because            
 of their service outlets.  SB 122 fixes it for Kirby and doesn't              
 threaten the others.                                                          
                                                                               
 REPRESENTATIVE GREEN asked Mr. Egli if, because of the wording in             
 the IRS code, their stores were not considered retail                         
 establishments.                                                               
                                                                               
 MR. EGLI replied they sell supplies such as shampoo, belts, and               
 bags for a product, but the actual product, the Kirby Home Cleaning           
 System, is not sold through the store.  But since the sales people            
 do not operate in the store, it is not considered a retail store.             
                                                                               
 REPRESENTATIVE GREEN asked Mr. Egli if, by the definition in the              
 IRS code, he felt the salesmen of the vacuum cleaners would be                
 threatened.                                                                   
                                                                               
 MR. EGLI replied either bill would solve Kirby's problem.                     
                                                                               
 REPRESENTATIVE GREEN said if CSHB 238 did not cause any problems              
 and took care of Kirby, and there is some concern that SB 122 might           
 cause problems, shouldn't the committee accept CSHB 238 which is              
 the least argumentive version.                                                
                                                                               
 CHAIR JAMES said she would like to hear from the Department of                
 Labor before making a decision.                                               
                                                                               
 Number 518                                                                    
                                                                               
 DWIGHT PERKINS, Special Assistant to the Commissioner, Department             
 of Labor, requested the committee adopt the Judiciary version of SB           
 122, noting the bill packet contains no in-state direct seller                
 opposition to SB 122.  He stated Mr. Mariano is misinforming people           
 that "the sky is falling" when it really isn't.  CSSB 122(JUD) is             
 an Alaskan solution for an Alaskan employer.  He referred to a                
 memorandum from Ed Flanagan, Deputy Commissioner with the                     
 Department of Labor, which states:                                            
                                                                               
     In the case of HB 238, the Department's initial reaction was to           
     oppose any exemption for direct sellers.  During discussions              
     with the proponents of the bill, however, the Commissioner                
     asked how the situation of Kirby vacuum cleaner salespeople               
     differed from other sellers of consumer products such as Amway,           
     Avon, Shaklee, Mary Kay, etc.  Our UI (unemployment insurance)            
     tax section responded that those entities were never audited or           
     taxed because the sellers involved were clearly independent               
     contractors, not employees, under existing law.  Kirby's                  
     situation differed in that the sellers had a relationship with            
     a distributor who operated a retail establishment, was in the             
     same business as the dealers, and provided support to them in             
     the form of training, leads, etc.  This relationship has always           
     caught the Kirby sellers in the statutory definition of                   
     "employees," subject to UI tax.                                           
                                                                               
 He continued the "fix" to this is in SB 122 and he asked the                  
 committee to stay with that version.                                          
                                                                               
 Number 552                                                                    
                                                                               
 REPRESENTATIVE PORTER asked why the provision of SB 122 saying                
 "sale in a prospective consumer's home" would not adversely affect            
 people who sell in someone else's home, in their office, or a hotel           
 room.                                                                         
                                                                               
 MR. PERKINS replied the Department of Labor had an agreement with             
 Kirby "that the designation `independent seller' whereby this is              
 their normal business mode of operation for selling vacuum cleaners           
 through direct home sales."                                                   
                                                                               
 REPRESENTATIVE PORTER said he understood Kirby's situation, but he            
 was talking about everybody else.                                             
                                                                               
 MR. PERKINS said everybody else is already covered under existing             
 law where they are indeed independent contractors.  There is not,             
 has not been, and will not be a problem with them.                            
                                                                               
 REPRESENTATIVE PORTER asked what then, is the concern about HB 238.           
 What does it do that causes concern?                                          
                                                                               
 MR. PERKINS replied, "This has been a problem of an Alaskan                   
 employer.  The Department of Labor has gotten together with this              
 individual, their counsel, and we have come up with this version of           
 this bill, in SB 122.  We feel that this addresses the needs, and             
 we don't need federal language pre-empting things that are                    
 in-state."                                                                    
                                                                               
 Number 583                                                                    
                                                                               
 CHAIR JAMES noted Kirby has been around a long time, and so has               
 she.  She has owned Kirbys and she has been in Kirby stores where             
 new machines were on display, and she bought a second-hand Kirby              
 vacuum cleaner in a Kirby store.  She understands that Kirby has a            
 different way of doing business.  She said SB 122 would be so                 
 specific that if one Kirby salesperson does any selling in the                
 store, he would disqualify himself from being a direct seller.  She           
 was not sure  Kirby wanted to be in that vulnerable position.  She            
 added the federal law gives them more protection than SB 122 does.            
                                                                               
 MR. PERKINS said SB 122 would be the proper vehicle.                          
                                                                               
 Number 611                                                                    
                                                                               
 MR. MARIANO refuted Mr. Perkins' statement that direct sellers                
 would have no problem and reiterated CSHB 238 contains "tried and             
 true language" which addresses the Kirby problem and eliminates any           
 of the uncertainty which SB 122 would create.                                 
                                                                               
 Number 618                                                                    
                                                                               
 REPRESENTATIVE GREEN described a hypothetical situation in which a            
 direct seller invites 10 people to a public display room in a hotel           
 and "touts his wares."  Under SB 122, would the seller be in                  
 violation and no longer considered an independent contractor?                 
                                                                               
 MR. PERKINS replied he did not think there would be a problem with            
 that.                                                                         
                                                                               
 REPRESENTATIVE GREEN referred to page 1, line 7 of SB 122, "only              
 when physically present in a prospective consumer's home," stating            
 it "mucks up the waters."  He added using the federal definition              
 instead would not usurp the state's authority.  He asked Mr.                  
 Perkins why he would not accept the simpler version.                          
                                                                               
 MR. PERKINS did not respond.                                                  
                                                                               
 Number 639                                                                    
                                                                               
 REPRESENTATIVE PORTER asked about Mr. Perkins' statement that other           
 direct sellers which aren't specifically defined in SB 122 are                
 protected somewhere else in the law.                                          
                                                                               
 MR. PERKINS replied the "ABC test" clearly states the difference              
 between independent contractors and employees.                                
                                                                               
 REPRESENTATIVE PORTER asked where the ABC test is in statute.                 
                                                                               
 MR. PERKINS said it was case law.                                             
                                                                               
 REPRESENTATIVE PORTER observed case law can be changed tomorrow by            
 any judge.  He stated he would not favor SB 122 because, if the ABC           
 test which supposedly covers all other direct sellers is in case              
 law, and case law is based on existing statute, then changing the             
 statute would create potential restrictions.  SB 122 changes the              
 statute and creates a problem, whereas HB 238 fixes that problem.             
 He added he had yet to hear a reasonable explanation of what is               
 wrong with HB 238.                                                            
                                                                               
 REPRESENTATIVE CAREN ROBINSON said she thought the ABC law was                
 under the employment tax section.                                             
                                                                               
 Number 665                                                                    
                                                                               
 SHERMAN ERNOUF, administrative assistant for Senator Tim Kelly,               
 stated he had said "case law" because the problem with Kirby goes             
 back to the interpretation of the ABC test which is codified in the           
 unemployment compensation laws.  Everyone other than Kirby has been           
 exempted.  He said Senator Kelly introduced SB 122 as an immediate            
 fix for Kirby's being in court right now, this legislative session.           
 It was not intended to affect anyone else.  SB 122 is consensus               
 language with the Department of Labor.  Kirby went to Senator Kelly           
 for help, and since the department opposes HB 238 it could die and            
 leave Kirby in the same situation.                                            
                                                                               
 REPRESENTATIVE PORTER asked again what is the Department of Labor's           
 problem with HB 238.                                                          
                                                                               
 MR. ERNOUF said he could not speak for the Department of Labor, but           
 the TEFRA language in the federal law is expansive and the                    
 department worked very hard with him on SB 122.  He could not say             
 why they did not like TEFRA.  He asked the committee to keep the              
 vehicle SB 122 together and "let the two collide at a later date              
 instead of potentially killing the bill by adopting TEFRA in this             
 committee."                                                                   
                                                                               
 Number 692                                                                    
                                                                               
 REPRESENTATIVE GREEN said it made him nervous to rush out to fix a            
 specific company's problem at the potential detriment of the other            
 committees.  He referred to Mr. Ernouf's statement to "fix Kirby              
 now and let these two collide later," asking if that really was the           
 best thing to do.  He asked again why HB 238 did not address his              
 same concerns.                                                                
                                                                               
 MR. ERNOUF clarified what he said earlier.  The House version has             
 the TEFRA language in it; the Senate version has the consensus                
 language.  He did not mean by "collide" that Mary Kay would end up            
 in court later.  He meant keep both bills alive and see which one             
 passes.  If TEFRA is adopted here and then does not make it through           
 the system, then Kirby has another whole year to be in court.                 
                                                                               
 CHAIR JAMES said the vehicle they have is SB 122 because it is                
 already in the House.  HB 238 is a dead issue because it is still             
 in the House.  So they do not have both languages, they only have             
 SB 122.   She asked the Department of Labor, regarding their                  
 lawsuit with Kirby, if they were saying they were willing to fix              
 something for Kirby which would make the department lose the                  
 lawsuit.                                                                      
                                                                               
 TAPE 95-49, SIDE B                                                            
 Number 000                                                                    
                                                                               
 MR. PERKINS said he did not know where the lawsuit was right now.             
                                                                               
 REPRESENTATIVE ROBINSON said she understood SB 122 would void the             
 lawsuit, and both the Department of Labor and the Kirby industry              
 would like to see that happen.  As things stand now, the Department           
 of Labor has no choice but to continue the lawsuit.                           
                                                                               
 CHAIR JAMES asked Mr. Egli who the plaintiff was in this case.                
                                                                               
 Number 042                                                                    
                                                                               
 MR. EGLI responded the Department of Labor was the plaintiff.                 
 Kirby has gone through three years of appeals with the Department             
 of Labor.  He added this is not a new problem, in fact Kirby                  
 prevailed in court in 1974 against the Department of Labor in                 
 Superior Court.  The ABC test currently is too ambiguous.  No Kirby           
 sales people have applied for unemployment and the law needs to be            
 changed.                                                                      
                                                                               
 Number 111                                                                    
                                                                               
 REPRESENTATIVE GREEN asked Mr. Egli if he was in agreement with SB            
 122.                                                                          
                                                                               
 MR. EGLI replied yes, he was.                                                 
                                                                               
 REPRESENTATIVE GREEN asked Mr. Egli about the hypothetical scenario           
 of giving a sales demonstration at a hotel to several people                  
 instead of at a consumer's home, thus violating SB 122, inquiring             
 if Kirby would never do that.  SB 122 would prohibit their doing              
 that.                                                                         
                                                                               
 MR. EGLI replied in principle someone might be fortunate enough to            
 sell a Kirby in that situation.                                               
                                                                               
 REPRESENTATIVE GREEN said maybe vacuums were not the right example,           
 but Shaklee and other health product sellers deal with groups of              
 people in a neutral location.  He asked if they would be out of               
 line even though they meet the ABC test.                                      
                                                                               
 MR. EGLI said his sales people do meet the ABC test currently.                
                                                                               
 REPRESENTATIVE GREEN noted SB 122 was an agreement with the                   
 Department of Labor to get their litigation out of the way, even              
 though it could jeopardize other network sales people.                        
                                                                               
 MR. EGLI replied the opinion of his attorney was that if someone              
 fell outside of this particular statute, they would still be                  
 subject to the ABC test in the current statute.                               
                                                                               
 REPRESENTATIVE GREEN spoke to Mr. Egli, saying, "You are an                   
 independent contractor, you feel, because ABC protects you; but the           
 Department of Labor doesn't feel that way."                                   
                                                                               
 MR. EGLI said yes, and that was why they need to change the law.              
                                                                               
 REPRESENTATIVE GREEN added, "Or change the attitude of the                    
 Department of Labor."                                                         
                                                                               
 Number 162                                                                    
                                                                               
 REPRESENTATIVE ROBINSON said the ABC test under the IRS definition            
 says "in the home or otherwise than in a permanent retail                     
 establishment."  This takes care of the problem.  She said by                 
 moving SB 122, Kirby's problem is taken care of this year without             
 hurting anyone else.  She added HB 238 could continue to move                 
 forward and go through the Senate, and maybe be the final language            
 next year.                                                                    
                                                                               
 CHAIR JAMES noted HB 238 would die because SB 122 replaces it.                
                                                                               
 REPRESENTATIVE ROBINSON agreed that was true for this year, but               
 there was no reason HB 238 had to die; it could progress next year.           
                                                                               
 Number 197                                                                    
                                                                               
 REPRESENTATIVE GREEN said he was concerned with Representative                
 Robinson's reference to the IRS code which says "or otherwise."  He           
 said that is covered in the House version, but it conflicts with              
 the Senate version.  The Senate version says the sales must occur             
 within the consumer's home or the seller is not an independent                
 contractor.  He added the Department of Labor had still not                   
 answered that concern.                                                        
                                                                               
 REPRESENTATIVE IVAN asked why the Department of Labor opposes the             
 federal language.                                                             
                                                                               
 MR. PERKINS said they were starting to go in circles.  He returned            
 to the original intent.  The Department of Labor sees no problem              
 with the current direct sellers other than Kirby.  In good faith,             
 the Department of Labor worked with the bill sponsor and came up              
 with SB 122, and that is the language they prefer.                            
                                                                               
 Number 249                                                                    
                                                                               
 MR. BLOEMENDAAL asked the committee not to solve one problem and              
 create another for direct sellers in Alaska.  He said they had                
 chosen not to notify the direct sellers in Alaska of the existence            
 of this legislation because they needed to concentrate on building            
 their businesses, and asked the committee not to take the absence             
 of Alaskan testimony as a sign there was no local concern about the           
 bill.  He again asked the committee to adopt the TEFRA language, as           
 25 other states have already done.  He noted the Department of                
 Labor still has not adequately expressed their objections to that             
 language.                                                                     
                                                                               
 Number 276                                                                    
                                                                               
 CHAIR JAMES referred to her own experience in the accounting field            
 with small businesses, saying she knows how the Department of Labor           
 auditing works.  Kirby does a quarterly employee report to the                
 Department of Labor.  If there is an audit, the department goes               
 through the checkbook to see if the person is on the payroll.  A              
 commission check could be seen as creating an employee situation.             
 This would not happen with Shaklee, Avon, Amway, or the others,               
 because the sellers send their money to the supplier and they are             
 treated as small businesses.  She said she realizes the Department            
 of Labor wants a "narrow fix."                                                
                                                                               
 Number 348                                                                    
                                                                               
 REPRESENTATIVE GREEN asked if any other network marketers on                  
 teleconference had a problem with being restricted to selling only            
 in the consumer's home.                                                       
                                                                               
 CHAIR JAMES said they were considered small business people, not              
 direct sellers, and would not be affected.                                    
                                                                               
 Number 362                                                                    
                                                                               
 MS. FERRIS said the question just raised really explained a major             
 part of Shaklee's concern with SB 122, because their sales do not             
 just take place in the prospective consumer's home.  She was also             
 concerned that for the first time in Alaska they would be excluded            
 from the definition of direct seller.                                         
                                                                               
 CHAIR JAMES asked Ms. Ferris if it was true that they were                    
 classified as small business people.                                          
                                                                               
 MS. FERRIS said they are classified as independent contractors/               
 direct sellers, and added it is critical that they continue to be             
 defined this way.                                                             
                                                                               
 CHAIR JAMES asked why they would not like to be called small                  
 businesses.                                                                   
                                                                               
 MS. FERRIS said in general they were, but under a variety of state            
 laws which specifically refer to direct sellers as a component of             
 the independent contractor world, they find it of great concern               
 that Alaska might have a definition which excludes them.                      
                                                                               
 REPRESENTATIVE PORTER asked what the status of Kirby is during the            
 lawsuit.                                                                      
                                                                               
 MR. PERKINS said the sales people were doing business as usual.               
                                                                               
 Number 415                                                                    
                                                                               
 REPRESENTATIVE ED WILLIS moved CSSB 122(JUD), 9-LS9857/F.  There              
 were objections.                                                              
                                                                               
 REPRESENTATIVE PORTER noted two bills have been in this committee.            
 No one but the Department of Labor had a problem with HB 238,                 
 though the problem was never specified.  Five large national sales            
 companies have a problem with SB 122.  If the Department of Labor             
 causes HB 238 to be vetoed, Kirby had stated they would probably              
 win their case anyway.                                                        
                                                                               
 CHAIR JAMES called for the vote.  Representatives Ogan, Green,                
 Ivan, Porter, and James voted no.  Representatives Willis and                 
 Robinson voted yes.  The motion failed to pass.                               
                                                                               
 Number 451                                                                    
                                                                               
 REPRESENTATIVE GREEN moved to amend SB 122 by substituting CSHB               
 238.  Representative Willis objected.  Representatives James, Ogan,           
 Green, Ivan, and Porter voted yes.  Representatives Robinson and              
 Willis voted no.                                                              
                                                                               
 REPRESENTATIVE PORTER moved the committee move HCS CSSB 122(STA)              
 with individual recommendations and fiscal notes attached.  There             
 were no objections; the bill was moved out of the State Affairs               
 Committee.                                                                    
                                                                               
 HJR 40 - REPEAL BUDGET RESERVE FUND (ART IX SEC 17)                         
                                                                               
 Number 485                                                                    
                                                                               
 REPRESENTATIVE TERRY MARTIN, sponsor of HJR 40, said the                      
 Constitutional Budget Reserve Fund (CBR) is not what it was                   
 intended to be.  It has not accomplished any of the original goals            
 of cutting the budget and getting state spending under control.               
 Instead, it has helped increase state spending by compelling                  
 majority and minority members of the legislature to work out deals,           
 including expensive capital projects, to obtain the necessary                 
 three-quarters vote to gain access to the CBR.  In addition, the              
 CBR might have a negative effect on permanent fund dividends                  
 because those funds would have to be spent before the CBR could be            
 tapped.  It could also have a devastating impact on the state's               
 cash flow, delaying availability of funds when the general fund               
 runs low.  The legislature has borrowed from the CBR and not paid             
 it back, in spite of the requirement that debts be paid back before           
 the end of the next fiscal year. The voters should be allowed to              
 repeal the CBR and avoid the potential disasters it creates.                  
                                                                               
 Number 562                                                                    
                                                                               
 REPRESENTATIVE MARTIN continued, adding the legislature did not               
 intend to have to spend the permanent fund earnings before being              
 able to use the CBR, and Alaska can't afford to keep borrowing                
 money from the CBR.  It has become inoperative and is choking                 
 Alaska.  The voters need to be told the truth.                                
                                                                               
 Number 617                                                                    
                                                                               
 REPRESENTATIVE GREEN asked Representative Martin how a ballot                 
 measure could be phrased so it would not look like a legislative              
 raid on an account the public had set aside.  He feared it would              
 just look like a way for the Nineteenth Legislature to get their              
 "sticky fingers" on the money.                                                
                                                                               
 REPRESENTATIVE MARTIN replied people are not dumb; they will be               
 able to understand there is nothing left, and we owe $3.4 billion.            
 They will see the CBR is not workable when they have all the                  
 information.  There will be a lawsuit anyway, when the CBR is not             
 repaid after this session.  Let the people see the facts and                  
 discuss the issue during the interim.  We would really get their              
 attention if we had to tap the permanent fund dividends and there             
 were none for the people.                                                     
                                                                               
 Number 660                                                                    
                                                                               
 REPRESENTATIVE PORTER said the problem is finding a precise                   
 definition of the CBR.  People's ideas of what it means have                  
 changed.  He did not believe anyone intended the CBR to be the                
 beginning and the end of every capital budget in the state, but               
 because of court interpretations that is what it has become.  He              
 will support the Resolution.                                                  
                                                                               
 CHAIR JAMES referred to a time when they had the statutory budget             
 reserve, which contained the remainder of the money that was on the           
 table, and asked if it were possible to use that when there was a             
 cash flow shortage.  She also asked, did Legislative Budget and               
 Audit have to authorize that, or how was it accessed?                         
                                                                               
 REPRESENTATIVE MARTIN said that money was put into the CBR.                   
                                                                               
 CHAIR JAMES said technically the statutory budget reserve would go            
 away and not be there at all until the CBR was repaid and there was           
 money left.  So in reality, there never would be any money in the             
 statutory budget reserve, and in fact, if there were any it would             
 be there illegally.  Even if this Resolution passed, a ballot vote            
 would still be 18 months away.  If education were taken out of the            
 budget language, there would still be money left over which should            
 go into the CBR.  She asked where money would come from for a cash            
 flow deficit on a month-to-month basis.                                       
                                                                               
 REPRESENTATIVE MARTIN replied the automatic use of the CBR should             
 not be allowed, if we are to put a restraint on government                    
 spending.  There should not be easy access to the CBR.                        
                                                                               
 TAPE 95-50, SIDE A                                                            
 Number 000                                                                    
                                                                               
 REPRESENTATIVE MARTIN said education funding could be prorated.               
                                                                               
 CHAIR JAMES said that was her exact point.  It would be easy for              
 the legislature to prorate it and give schools 1/12 each month, but           
 that forces them into a negative cash flow, throughout the state.             
 There is no guarantee, even on a monthly basis, that there will be            
 enough money.                                                                 
                                                                               
 REPRESENTATIVE MARTIN agreed, noting money was being borrowed from            
 other accounts.                                                               
                                                                               
 Number 092                                                                    
                                                                               
 CHAIR JAMES again stated that was her point.  Before money can be             
 taken from the CBR with a simple majority vote, the earnings                  
 reserve of the permanent fund must be first expended.  She                    
 expressed concern about serious cash flow deficits and the                    
 devastating effects on the economy of the state as a whole.                   
                                                                               
 Number 135                                                                    
                                                                               
 REPRESENTATIVE MARTIN said this Resolution is not the entire                  
 answer, but it would tell the people a serious mistake had been               
 made.  The people could be shown there is no way to spend other               
 accounts first.  In any case, after the education budget is passed,           
 there will be no money in the CBR.  There will be one, maybe two,             
 lawsuits this year.                                                           
                                                                               
 CHAIR JAMES stated $600 million of the money used from the CBR was            
 directly from the reduction in the price of oil to less than $10 a            
 barrel.  She did not want to take the blame for that, and it could            
 happen again before July 1.                                                   
                                                                               
 Number 173                                                                    
                                                                               
 REPRESENTATIVE MARTIN pointed out this could be a good education              
 process for the public.  Alaska is the richest state in the Union,            
 with almost $20 billion in different accounts, and yet we are so              
 poor we cannot pay our monthly bills.                                         
                                                                               
 Number 187                                                                    
                                                                               
 REPRESENTATIVE GREEN moved to move HJR 40 out of committee with               
 attached fiscal note and individual recommendations.  There were no           
 objections.                                                                   
                                                                               
 REPRESENTATIVE MARTIN noted representatives from Legal and from               
 Management and Budget would attend the next hearing on this                   
 Resolution in Judiciary.                                                      
 ADJOURNMENT                                                                   
                                                                               
 CHAIR JAMES adjourned the meeting at 9:45 a.m.                                
                                                                               

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