SENATE LABOR AND COMMERCE COMMITTEE February 9, 1995 1:35 p.m. MEMBERS PRESENT Senator Tim Kelly, Chairman Senator John Torgerson, Vice Chairman Senator Mike Miller Senator Judy Salo Senator Jim Duncan MEMBERS ABSENT None COMMITTEE CALENDAR SENATE BILL NO. 45 "An Act relating to settlement and payment of claims for minimum wage and overtime compensation claims and to liquidated damages and attorney fees for minimum wage and overtime compensation claims." PREVIOUS ACTION SB 45 - See Labor and Commerce minutes dated 2/2/95. WITNESS REGISTER Sherman Ernouf, Legislative Aide Senator Tim Kelly State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Presented overview of SB 45. Pam Neal, President Alaska State Chamber of Commerce 217 2nd Street Juneau, AK 99501 POSITION STATEMENT: Supported SB 45. Ed Flanagan, Assistant Commissioner Department of Labor P.O. Box 21149 Juneau, AK 99802-1149 POSITION STATEMENT: Supported the intent of SB 45, but didn't support the bill as written. Bob Blasco Robertson, Monagle, and Eastaugh, Attorneys 801 W. 10th, Suite 300 Juneau, AK 99801 POSITION STATEMENT: Supported SB 45. Parry Grover, Attorney 550 W. 7th Street Anchorage, AK 99501 POSITION STATEMENT: Supported SB 45. Ken Legecki, Attorney 425 G Street Anchorage, AK 99501 POSITION STATEMENT: Opposed SB 45. Dwight Perkins, Special Assistant Department of Labor P.O. Box 21149 Juneau, AK 99802-1149 POSITION STATEMENT: Commented on SB 45. Dario Notti, Intern Senator Duncan State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Opposed SB 45. ACTION NARRATIVE TAPE 95-4, SIDE A Number 001 SL&C 2/9/95 SB 45 DAMAGES & ATTY FEES FOR UNPAID WAGES  CHAIRMAN KELLY called the Labor and Commerce meeting to order at 1:35 p.m. and announced SB 45 to be up for consideration. He said this legislation went through both houses last year, but died in the Senate waiting for concurrence. It was controversial at the time. SHERMAN ERNOUF, Legislative Aide to Senator Kelly said SB 45 seeks to remedy four main problems with the current system of awarding punitive damages in claims for payment of overtime compensation and statutory minimum wages under the Alaska Wage and Hour Act. The first problem is with the Kinney Shoe decision that ruled liquidated damages are mandatory. The second problem is that the court ruled private settlements that do not include liquid damages clauses are invalid. The third problem is that only the plaintiff is allowed to recover attorney's fees and costs. The fourth problem is that the Commissioner of Labor has no authority to settle wage or overtime compensation claims. Presently an employer who makes an honest mistake is punished as severely as an employer who knowingly and willingly violates the act, Mr. Ernouf said. If passed, Section 3d would reverse current law and would provide for complete or partial waiver of the liquid damages requirement if it could be shown that an employer acted in good faith and on reasonable grounds. This language is almost identical to the language in the Federal Labor Standards Act. MR. ERNOUF said that SB 45 would allow the court to award liquidated damages in an amount less than required. Section 3 f encourages private out of court settlements of these claims, stipulating criteria for the written agreement. Section 2c would award attorneys fees and costs to the prevailing party in a law suit - similar to Civil Rule 82. PAM NEAL, President, Alaska State Chamber of Commerce, supported SB 42. As the law now stands the employer is automatically saddled with liquidated damages even if there was no intent. Number 187 SENATOR SALO asked how a person could accidentally breach the Wage and Hour Act. MS. NEAL replied that particularly in overtime payments the laws can be complicated and you don't even realize that you are breaking them. She thought there should be the opportunity for some judgement in these matters. Number 217 ED FLANAGAN, Assistant Commissioner, Department of Labor, said he supported the intent of SB 45, but it actually goes much further than taking the situation back to what it was before the Kinney Shoe decision of the Supreme Court. He said the State Wage and Hour Act was working good for 32 years before the Kinney decision. He believes there should be a way to settle before going to court. This flexibility was removed from the Department with that decision. He explained that there is an inherent imbalance in the employer\employee relationship and this is not the only law in federal or state statute that allow for prevailing attorney's fees. The Alaska Wage and Hour Act is not that confusing. Indeed there are many other codes that employers comply with that are more complex like the IRS code and Worker's Compensation. Giving attorney fees to the defendant or reducing fees that are out there is going to have a severe chilling effect on the ability of the employee to make a claim. There are very little funds within the Department of Labor to enforce this and other laws. If there is a deterrent and they know the possibility of liquidated damages is out there, they will inform themselves and obey the law like they did for years. Number 250 BOB BLASCO, Attorney representing Holland America, said there is no prohibition to modifying this law as long as it doesn't restrict benefits that are provided under federal law. Saying you can't modify attorney fees is not accurate, because the federal law indicates you cannot modify benefits that are provided to the employee. Attorney fees are not benefits to the employee. This bills is very expansive in its protection of the employee and the goal of the federal and state law is to prevent over-reaching. SENATOR KELLY asked if he was a registered lobbyist. MR. BLASCO answered that he was. SENATOR KELLY asked who had retained him on this issue. MR. BLASCO said Holland America had retained his firm. Number 300 SENATOR SALO asked him to explain "over-reaching." MR. BLASCO explained that it means the employer is in a situation of being able to take advantage of the employee. SENATOR SALO asked him if the provisions in the bill allow for over-reaching. MR. BLASCO responded no. SENATOR SALO commented that provision #1 removed great disincentives to breach the Wage and Hour Act by eliminating the potential of liquidated damages. If there is no potential of liquidated damages, all that's being done is deferring wages. MR. BLASCO responded that the only change in the liquidated damage provision is to allow a good faith exception allowed under federal law. He continued that protections are built in along the way. For instance, if a judge or jury determines that the good faith burden is not met by the employer, then there's no change in liquidated damages. SENATOR SALO asked why the potential of private settlements doesn't allow for intimidation by the employer. She said she didn't agree that the employer/employee relationship is a level playing field. She also wanted more information on bogus claims. MR. BLASCO said there is not a level playing field between the employer and employee. That's why the extensive protections are built in. The only thing this bill does is specify a long list of protections in a situation where there can be a settlement. There is nothing that would compel a settlement. In general, he said, they are trying to present more options to deal with the kinds of cases that come up. SENATOR SALO asked how many bogus claims there were in Alaska. MR. BLASCO said he couldn't give her figures, but he had an example of someone who came up with many sheets of overtime which was all done on the same day with the same pen on the same form. SENATOR SALO asked if that person wouldn't lose the case anyway. MR. BLASCO said that was right, but if they allow someone to bring a fabricated case with no down-side risk, which creates all of the loss of time and expense before court, in court, and through the whole case, that person and their attorney can just walk away. He stressed there wasn't a prohibition in the federal law, but it was just silent on the subject. Number 412 SENATOR DUNCAN said the provision about the attorney's fees bothers him because most of the people involved in this sort of case are lower paid individuals. Even if they think they have a claim, they will be very hesitant to hire an attorney and go to court knowing that Westmark Hotels or Holland American have a lot of money and can hire top notch attorneys. Applying Civil Rule 82 to very low paid employees seems to deter them from going to court and collecting what is rightfully theirs. MR. BLASCO said that should be a concern if you were talking about attempting to prevent good cases and marginal cases. This provision matters where someone has essentially no case, but is attempting to get something through the system. SENATOR DUNCAN asked to see language stating that the only cases it's going to impact are those that don't have merit. MR. BLASCO said it wouldn't say that anywhere. He said chances are if a low paid individual has a claim, it would be on a contingency basis, and the attorney would not be paid until the claim was paid. Number 450 SENATOR KELLY asked if there were any plaintiff's attorneys present. KEN LEGECKI said he was an attorney and did this kind of work and wished strongly to testify. While he wasn't representing anyone specifically he felt so strongly about this bill that he had to testify against it. He perceives this as another attempt by big corporations to try to exploit little people. MR. LEGECKI held up a free pamphlet from the Federal and Alaska Department of Labor explaining the terms of the Fair Wage and Hour Act. He invoked stories of less pay and longer hours that took place during the depression. He emphasized that it was the Legislature's job to make sure that there is a level playing field between employer and employee. MR. LEGECKI suggested getting an opinion on the bill from the Attorney General. He didn't see how an employer could have read that pamphlet and not know that he was to pay overtime for over 8 hours in a day and 40 hours in a work week. He asked if Holland America and other similar firms had consulted with the Department of Labor to find out if they were in compliance. He said he represents people who work for an hourly wage and they cannot afford an attorney. The Kinney case did not change the law he said; it was their outrageous behavior in that particular case that forced it to go to the Supreme Court. The question is, how does an employee who makes an hourly rate fight an employer without worrying about how to protect his job? He has not heard of one horror story of one employer getting sued unfairly, but he has many stories from people he has represented who have been treated unfairly. He pointed out also, that it is difficult for underpaid people to get representation, because they might not be able to pay the attorney even if he prevails in his claim. This means the law will not be followed. SENATOR MILLER asked him if he had lost any of these cases. MR. LEGECKI answered that he had lost only one, and he disagreed strongly with the court on that one. TAPE 95-4, SIDE B Number 587 SENATOR MILLER said he understood his frustration and thought it was mostly toward big business, but noted this issue also applies to small businesses in the State of Alaska. He said he is a small business owner and he doesn't have the big money he is talking about. He thought by and large that small Alaskan businesses were "honest" and believed that if you are wrong, you pay. MR. LEGECKI said that the nature of business is to try to make as much money as possible, and he thought employers would skirt the law if it made more money for them. He also asked if as a small business owner obeying the law, would it be fair to you if your competitor is allowed to violate the law and "get ahead of you." SENATOR MILLER said the vast majority of businesses in this State do not try to cheat their employees. SENATOR DUNCAN asked if he represented his clients on a contingency basis. MR. LEGECKI said yes, that his fee is usually 1/3 of the gross or, if the court awards, a higher fee. SENATOR DUNCAN commented that if they pass the bill in its current form, section 2 that deals with Civil Rule 82, says that all attorneys would go on a contingency basis. So the employee would have to go to court to collect wages and might end up getting 60% of what is due him which doesn't seem fair. MR.LEGECKI agreed and added that there are costs involved like depositions that cost anywhere from $500 - $1,000. He also said that employers fight these claims vigorously, because it sets a precedent for the rest of their employees. Number 445 PERRY GROVER, Attorney from Anchorage, supported SB 45. He said he is not representing anyone but himself, although the majority of his experience is with representing employers. He also has served as a neutral in resolving labor disputes. He said Alaska has the harshest Wage and Hour Act of any of the states on the west coast. He said that section 3 merely builds a defense that has existed under the Federal Fair Labor Standard Act for many years. Many cases that end up in court in Alaska would not get there under the federal system. He said he respects the opinions and abilities of the people in the Department of Labor, but they are not always correct. Mr. Grover said Section e was requested by the Commissioner of Labor because he wanted the power to make settlements (taken away in the Kinney Shoe decision) restored. He had no objection to that. Section f allows private settlements with safeguards taken from the Federal Age Discrimination and Employment Act. Even if this bill passes there are many ways in which the Alaska law will remain harsher than the Federal Fair Labor Standards Act, he said. Number 335 DENNIS BRANDON, Vice President, Westmark Hotels, said they are the only non-union hotel chain in Alaska. He said they are in total support of the SB 45. He said the Fair Labor Standards Act, on which the Alaska Statute is based, provides the flexibility of the federal law. Alaska businesses should not be placed under a more burdensome standard than the thousands of businesses in other states. DARIO NOTTI, Intern for Senator Duncan, said he was representing himself and said he had much construction experience. He commented that he thought about a third of the companies he worked for had some sort of a "scam" to reduce overhead. He related the times he had worked overtime, through coffee breaks, and at other very questionable times. He said he's been told this is a right to work state and if you don't like it, we can lay you off tonight and have another guy working in your place in the morning. MR. NOTTI said that employees need protection that the current law offers. Number 209 C.J. ZANE, Holland America Line, said he believed that Alaskan employers, big and small, make every effort to comply. Claims come from areas where employees are hired in an exempt category who also perform work outside of that employment that would have fallen under Wage and Hour, and then produced some log that they kept. Once the claim is made, the only option the employer has is to defeat that claim outright which is very difficult; or pay double what the claim is. There is nothing in between under Alaska law. That is just not fair, he stated. Regarding Rule 82, for instance, victims of sexual harassment are certainly as outraged as people who are out some wages. Rule 82 applies to those very important bodies of cases in this state. It just means that the attorney and his client need to think hard about bringing the case. Number 256 SENATOR DUNCAN requested a more definitive position paper by the Department of Labor on this legislation. He was concerned with subsection f on page 2. SENATOR KELLY concurred with that request and said the Committee would take up the bill at a future date. SENATOR KELLY adjourned the meeting at 3:00 p.m.