Legislature(2017 - 2018)BARNES 124
03/06/2017 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB79 | |
| HB141 | |
| HB79 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 141 | TELECONFERENCED | |
| += | HB 79 | TELECONFERENCED | |
| + | HB 132 | TELECONFERENCED | |
| + | SB 14 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 79-OMNIBUS WORKERS' COMPENSATION
3:17:37 PM
CHAIR KITO announced that the first order of business would be
HOUSE BILL NO. 79, "An Act relating to workers' compensation;
repealing the second injury fund upon satisfaction of claims;
relating to service fees and civil penalties for the workers'
safety programs and the workers' compensation program; relating
to the liability of specified officers and members of specified
business entities for payment of workers' compensation benefits
and civil penalties; relating to civil penalties for
underinsuring or failing to insure or provide security for
workers' compensation liability; relating to preauthorization
and timely payment for medical treatment and services provided
to injured employees; relating to incorporation of reference
materials in workers' compensation regulations; relating to
proceedings before the Workers' Compensation Board; providing
for methods of payment for workers' compensation benefits;
relating to the workers' compensation benefits guaranty fund
authority to claim a lien; excluding independent contractors
from workers' compensation coverage; establishing the
circumstances under which certain nonemployee executive
corporate officers and members of limited liability companies
may obtain workers' compensation coverage; relating to the
duties of injured employees to report income or work; relating
to misclassification of employees and deceptive leasing;
defining 'employee'; relating to the Workers' Compensation
Board's approval of attorney fees in a settlement agreement; and
providing for an effective date."
3:17:56 PM
CHAIR KITO closed public testimony on HB 79.
[HB 79 was set aside and taken up again later in the meeting.]
HB 79-OMNIBUS WORKERS' COMPENSATION
4:10:23 PM
CHAIR KITO announced that for its final order of business, the
committee would return to HOUSE BILL NO. 79, "An Act relating to
workers' compensation; repealing the second injury fund upon
satisfaction of claims; relating to service fees and civil
penalties for the workers' safety programs and the workers'
compensation program; relating to the liability of specified
officers and members of specified business entities for payment
of workers' compensation benefits and civil penalties; relating
to civil penalties for underinsuring or failing to insure or
provide security for workers' compensation liability; relating
to preauthorization and timely payment for medical treatment and
services provided to injured employees; relating to
incorporation of reference materials in workers' compensation
regulations; relating to proceedings before the Workers'
Compensation Board; providing for methods of payment for
workers' compensation benefits; relating to the workers'
compensation benefits guaranty fund authority to claim a lien;
excluding independent contractors from workers' compensation
coverage; establishing the circumstances under which certain
nonemployee executive corporate officers and members of limited
liability companies may obtain workers' compensation coverage;
relating to the duties of injured employees to report income or
work; relating to misclassification of employees and deceptive
leasing; defining 'employee'; relating to the Workers'
Compensation Board's approval of attorney fees in a settlement
agreement; and providing for an effective date."
4:10:44 PM
REPRESENTATIVE WOOL moved to adopt the proposed committee
substitute (CS) for HB 79, Version 30-GH1789\D, Wallace, 3/3/17.
There being no objection, version D was before committee as a
working document.
4:11:59 PM
DEBBIE BANASZAK, Legislative Liaison, Office of the
Commissioner, Department of Labor & Workforce Development
(DLWD), presented the proposed changes in HB 79, Version D. She
explained that the title was changed to reflect the proposed
changes in the bill. Section 9 added language stating that a
person "actively in charge of the operations of the business
entity" or a person that has "the authority to insure the
business entity" would be liable for penalties for an employer's
failure to insure. The change would ensure that if a business
entity has 11 members, all with less than 10 percent ownership
interest, then that person would still be accountable for
uninsured injuries and penalties for failing to insure. She
added that Section 11, in Version D, adds language to clarify
the Division's civil penalty assessment, which must be based on
substantial evidence. The section also clarifies that an
employer's civil penalty assessment is based on the amount the
employer would have paid had the business been insured as
required by law, including properly classifying its employees.
MS. BANASZAK relayed that Section 13 deals with civil penalty
assessment appeal process and does not have substantial changes;
the previous language in HB 79 was a bit unclear. She stated
that Section 16 addresses preauthorization by adding language to
clarify that the preauthorization request's estimated fee would
be subject to the Alaska medical fee schedule just like any
other workers' compensation medical bill. Section 18 addresses
the hearing schedule and gives the [Alaska] Workers'
Compensation Board control of the scheduling of hearings.
Having the parties control the hearing scheduling process has
led to inefficiencies and protracted resolution.
4:14:34 PM
MS. BANASZAK noted that Section 19 simplifies the self-
representation language of the previous version. Section 23
addresses the reporting of a change in compensation and adds
language stating that the division would provide notice to an
employee when an employer has terminated or changed
compensation. She explained that Section 24 clarifies how an
employee would be notified that his/her employer denied
benefits. Section 25 addresses penalties for failure to timely
preauthorize medical care: the penalty would be 25 percent of
the amount in the preauthorization request.
MS. BANASZAK drew attention to Section 27, which repeals an
earlier section addressing how benefits are paid. The previous
section required payment by check, but with so many current
options for payment, it was determined that this section was no
longer needed. She noted that Section 28 revises language to
allow the Benefits Guaranty Fund to file a lien within one year
of its knowledge of an employee's injury or death. She
explained that sometimes the fund may not become aware of an
injury or death when it occurs. She stated that Section 30
refines the definition of independent contractor to ensure that
true independent contractors can continue to operate as
independent contractors.
4:16:11 PM
REPRESENTATIVE BIRCH recalled a letter from the Alaska Trucking
Association - an association that relies on independent
contractors. He asked if the association's concerns have been
addressed.
4:16:40 PM
MARIE MARX, Director, Division of Workers' Compensation,
Department of Labor & Workforce Development (DLWD), answered
yes: the department believes the current definition addresses
the concerns. She added that truckers and other stakeholder
groups such as the [Alaska State Home Building] Association
relayed their concerns to the department and she offered to
detail how the concerns were met.
4:17:23 PM
MS. BANASZAK continued presenting the changes in the bill. She
noted that Section 36 discusses persons liable for criminal
penalties for failure to pay compensation and adds language
similar to language in Section 9. She explained that Section 37
talks about persons liable for criminal penalties for
transferring assets. It adds a person "actively in charge of
the operations of the business entity" or a person that has "the
authority to insure the business entity" as persons liable for
criminal penalties for knowingly transferring assets with the
intent to avoid the payment of compensation. She said that
Section 39 changes the definition of employee by removing "in
the service of" and inserting "employed by".
4:19:10 PM
REPRESENTATIVE JOSEPHSON asked Ms. Marx to go through the
changes to the definition of employee.
MS. MARX explained that the new revision is found in Section 30,
page 17, line 7, which states that the definition is intended to
apply only to workers' compensation definitions, not [Internal
Revenue Service] (IRS) or other labor law definitions. She
noted that line 8 addresses a relayed concern by adding "for the
purposes of this chapter only". She noted that another change
was made on page 17, lines 13-15, to address concerns raised
about required control and direction; the new language clarifies
that control and direction performed as a result of a
requirement of law or contract would be allowed. An independent
contractor could still have control and oversight without
impacting whether the individual is determined to be an
independent contractor.
MS. MARX offered an example in response to a question: If hard
hats are required for health and safety reasons, then the
business for whom the services are being provided can control
whether the independent contractor wears a hard hat. Such
business control would not disqualify the individual from being
considered an independent contractor.
4:21:45 PM
MS. MARX noted that another change was made on lines 16-18, page
17 of Version D. A concern was raised that contractors may
provide materials or equipment for use but an independent
contractor provides all the other tools and labor. She
remarked:
After hearing from various stakeholder groups, this
clarified that an independent contractor is a person
who provides tools, labor, and other operational costs
necessary, and recognized now that materials and
equipment can be supplied by the contractor to the
independent contractor without pushing that person -
that independent contractor - out of the definition.
MS. MARX mentioned another change found on page 17, line 23,
which clarifies that any license, permit, or certification
required by the work the independent contractors does would
suffice: the previous version had only mentioned a business
license. She said that based on input from various stakeholder
groups and researching other states' determining tests, the
department eliminated the requirement to meet 11 or 12 factors
to be considered an independent contractor. Instead of 11 or 12
necessary factors, Version D provides 7 required factors that
must be met, and 5 optional factors, of which 3 must be met.
She offered her opinion that such a test allows a wide enough
net to capture the true independent contractors, but still
narrow enough to make sure that employees are not included in
the definition. Subparagraph (H), on page 18, lists the
optional "prongs" which allow for more flexibility.
4:24:31 PM
REPRESENTATIVE WOOL asked if the earlier test had required 11
factors.
MS. MARX answered that there were 11 factors, although one
factor was a two-part requirement, so she indicated [that could
be considered a total of 12].
REPRESENTATIVE WOOL asked if the 7 required factors and the 5
optional factors are the same 12 that were in the original
description. He asked if it is accurate to say that the
description went from 12 [factors] to 10 out of 12.
MS. MARX answered, "That's correct." She noted that the most
controversial and complicated "prong" for stakeholder groups was
(H)(v), which read as follows:
the person engages in a trade, occupation, profession,
or business to provide services that are outside the
usual course of business for the individual
MS. MARX explained that prong is optional under the current
version. She stated that stakeholder feedback indicated that
this "prong" would be complicated to apply; therefore, it was
reclassified from a mandatory to an optional factor. If a
person does not meet that factor but he/she does meet three of
the other factors, then he/she could still qualify as an
independent contractor.
4:26:30 PM
REPRESENTATIVE JOSEPHSON offered his assumption that if the
independent contractor [requirements are] met by an individual
who has employees, then he/she would also need to buy workers'
compensation.
MS. MARX stated that is correct. She added that the test is
used to determine whether a person providing services is an
independent contractor. She said that whether or not the
independent contractor has employees is a separate inquiry.
4:27:46 PM
REPRESENTATIVE KNOPP asked if home-based businesses, such as
plumbers, are classified as a separate place of business.
MS. MARX responded that sub-subparagraph (ii), on page 18, line
10, states that the business location has to be separate from
the location for which [the independent contractor] is providing
service. She explained that the department investigates whether
or not the independent contractor operates out of the
contractor's business or receives mail at the contractor's
business. She remarked:
In this day and age, I think it is very common for
people to have merely a website as their base, but it
has to be just different from that contractor, so we
would look to where that contractor's business is and
see if they are there.
REPRESENTATIVE KNOPP asked what was amended in Sections 9 and
11.
MS. MARX explained that Sections 9 and 11 have been repealed and
reenacted in full.
4:30:01 PM
REPRESENTATIVE KNOPP read from a confidential letter he received
from a municipal attorney, as follows:
I see no benefit from deviating from the Federal Labor
Standards Act guidance in Alaska court jurisprudence
regarding the distinction between employees and
independent contractors. ... Subsection 11 of Section
31 of the bill deviates substantially from existing
status quo and adds unreasonable additional
requirements defining someone as an independent
contractor that exceeds federal guidance and prior
decisions by our Alaska Supreme Court.
REPRESENTATIVE KNOPP added that the attorney has not seen the
committee substitute. He asked if the committee substitute
alleviates the concerns mentioned by the attorney. He asked if
the bill would be substantially more restrictive than federal
labor standards.
MS. MARX answered that HB 79 has a very narrow application: It
does not apply to all labor standards, it applies to workers'
compensation. She stated that in the last 10 years, other
states have found that multi-factored balancing tests are not
effective in tackling the misclassification issue. She
explained that the IRS has a 20-factor balancing test [to
determine the status of an independent contractor]. She
suggested that although that test may work for the IRS, the
multi-factor balancing tests aren't working for workers'
compensation, which has a goal of protecting employees from
severe injury or death and protecting employers from huge
uninsured losses. She said that some employers have contacted
the Division of Workers' Compensation in order be proactive
about determining whether their employees are independent
contractors. She remarked:
They want to be proactive, and we want to be
proactive. And we give them a balancing test where no
one factor is determinative. It is very difficult for
these employers - especially small business employers
- to know whether they meet that test without going to
an attorney and perhaps getting some legal advice.
Our goal is to make this a ... much clearer test so
employers know ahead of time what the requirements are
- and employees or independent contractors can know
and protect themselves .... So it is different and it
was intended to be a change.
REPRESENTATIVE KNOPP pointed out that within the letters of
support [included in the committee packet], some components of
the bill were supported and some were not. He asked for a
breakdown of the areas of concern.
4:33:23 PM
CHAIR KITO stated that he plans to weigh the issues of concern
and determine whether the committee will move forward or cover
the issues in a future committee meeting. He said he does not
intend to move the bill today and the bill will have public
testimony in the future.
4:33:54 PM
REPRESENTATIVE JOSEPHSON expressed that the multi-factor tests
sound like a continuum of behavior or acts undertaken by an
employee; however, HB 79 lays out clear statements. He analyzed
that in the current system, which Ms. Marx claimed is
unsuccessful, the employer must sort out the employee's
classification based on tasks and actions.
4:34:41 PM
MS. MARX responded that the current test set in regulation
defines "employee". She explained that some states narrowly
define "independent contractor" instead of defining "employee"
with a broad definition. Defining "employee" has led to
complications and misclassification. She stated that
misclassification is being dealt with throughout the United
States. She assessed that the tests defining "employee" are
more difficult to apply. States defining "independent
contractor" have a much clearer application. She said that HB
79 defines "independent contractor" and revises the definition
of "employee" to mean someone that is not an independent
contractor that has a contract for hire.
4:35:54 PM
REPRESENTATIVE KNOPP offered that a constituent of his is a real
estate broker, and all of his brokers are independent
contractors. He asked how HB 79 would apply to such an
organization in regard to minimum wage and [the Federal
Insurance Contributions Act] (FICA).
MS. MARX answered, "He would be safe." She explained that
persons who perform services for real estate have an exemption
under AS 23.30.230 paragraph (10), and therefore the Workers'
Compensation Act does not apply to them.
4:37:14 PM
CHAIR KITO announced that there will be more updates to the
expansive bill.
4:37:38 PM
REPRESENTATIVE WOOL said, "Basically there's two types of people
in this world - employees and independent contractors. Trying
to define employee got complicated, so you're going to define
what an employee isn't."
MS. MARX responded that there are more than two types of people
involved. Someone could be a volunteer or a trespasser, but for
the purpose of the bill, there are two categories. She added
that since 2007, states have found that multi-factor tests
defining "employee" don't work and have led to misclassification
and confusion for employers. She explained that HB 79 is in
line with what many states are doing - defining "independent
contractor" instead of "employee".
REPRESENTATIVE WOOL asked if doing so basically defines what an
employee isn't.
MS. MARX responded that an employee would be someone who is not
an independent contractor but also has a contract for hire. It
differentiates them from a volunteer or trespasser. In response
to a comment, she added that babysitters would also be exempted.
4:39:21 PM
REPRESENTATIVE JOSEPHSON stated his understanding that the term
"contract for hire" would include lawn-mowing 12-year-olds and
could be complicated in court.
MS. MARX responded that HB 79 applies to employers, and
employers are those who conduct business. She explained that as
a homeowner, unless you do business out of your house, you are
not an employer and would not fall under HB 79.
4:40:57 PM
CHAIR KITO announced that HB 79 was held over.