Legislature(2003 - 2004)
04/16/2004 08:08 AM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
SB 323-WORKERS COMPENSATION AND CONTRACTORS TAPE 04-42, SIDE A CHAIR RALPH SEEKINS called the Senate Judiciary Standing Committee meeting to order at 8:08 a.m. Senators Ogan, French and Chair Seekins were present. Chair Seekins announced the committee would take up SB 323 first and reminded members that during the last hearing on the bill, the committee discussed the exclusiveness of liability and an amendment [Amendment 1] that allows sole proprietorships and partnerships to opt out of workers' compensation coverage in exchange for accepting exclusive liability for any injuries. After discussing several alternatives, that amendment was withdrawn. CHAIR SEEKINS said he had another amendment drafted to address sole proprietors and partnerships. He also considered using SB 311 as the vehicle to address the issue, but he does not believe SB 311 will pass this session. He then moved to adopt the new amendment [Amendment 2], which reads as follows. 23-LS1498\D.6 Craver 4/15/04 A M E N D M E N T 2 OFFERED IN THE SENATE TO: SB 323 Page 1, line 1, following "compensation": Insert ", sole proprietors and partnerships without employees," Page 2, following line 2: Insert a new bill section to read: "* Sec. 3. AS 23.30.045 is amended by adding new subsections to read: (g) Notwithstanding (a) of this section, a project owner, contractor, or subcontractor is not liable for and is not obligated to secure the payment of compensation to a sole proprietor or member of a partnership if the sole proprietor or member of a partnership agrees in writing that the project owner, contractor, and subcontractor do not, in regard to the sole proprietor or member of a partnership, have (1) an obligation to secure compensation; and (2) liability for compensation payable under AS 23.30.041, 23.30.050, 23.30.095, 23.30.145, and 23.30.180 - 23.30.215. (h) A sole proprietor or member of a partnership who has agreed under (g) of this section may not maintain an action against the project owner, contractor, or subcontractor, or an insurer of the project owner, contractor, or subcontractor, at law or in admiralty for damages on account of injury or death." Renumber the following bill section accordingly. SENATOR FRENCH objected for the purpose of discussion. CHAIR SEEKINS informed members that Amendment 2 would prohibit sole proprietors and partners who opt out of workers' compensation coverage from having any recourse against a contractor or project owner for injuries. SENATOR OGAN stated support for Amendment 2 because he believes many sole proprietors would prefer to carry their own health insurance and accept the risk of being injured at the workplace. He then declared a conflict of interest and asked to be excused from voting, as he is likely to be a sole proprietor in the future. CHAIR SEEKINS objected and informed Senator Ogan he is required to vote. SENATOR FRENCH asked the status of the law now with respect to sole proprietors' ability to sue for accidents caused by negligence of the project owner. He expressed concern that Amendment 2 will give the sole proprietor very little; it will no longer require the project owner to provide workers' compensation coverage but will take away a sole proprietor's right to sue for negligence. CHAIR SEEKINS responded: I will guarantee you that I will not hire a sole proprietor or a member of a partnership to perform any work for me unless they have workers' compensation insurance and neither would any other project owner, simply because if they choose not to have insurance under the way this law is read and they could - then I could be liable for that at a later date. So, I have 120 employees, approximately; 119 of those are covered by workers' comp - I'm not. So my only action for a workers' comp accident in my dealership would be against myself and what I'm saying here is that if you're a contractor and you have workers' comp insurance and you're a sole proprietor or partner and you want to work for a project owner or another contractor, a contractor would not hire you unless they would have the same kind of recourse as if you carried the insurance. That's what this amendment does.... SENATOR FRENCH said in his thinking, the worker gets nothing out of this benefit. He suggested giving project owners two choices: either covering all workers with workers' compensation or being subject to liability for any torts caused by negligence on the project site. That way, the economic choice lies with the person best able to control [safety at the work site]. CHAIR SEEKINS replied, "...I don't have any objection to leaving the bill the way it is and putting small contractors out of business if you don't, Senator." He said any subcontractor or partnership with employees would have to cover his or her employees. Amendment 2 will only allow the owners of the business to exempt themselves and look only to themselves for remedy in case of injuries that would normally be covered under workers' compensation. He pointed out that many sole proprietorships consist of single employees and, under the current bill, they will have the choice of getting workers' compensation coverage or not being hired. With Amendment 2, they could opt out of workers' compensation coverage if they are willing to take the risk themselves. SENATOR THERRIAULT asked: ...If I own a company that does tile work and I employ the three of you I will have to have insurance on the three of you but I don't have to carry it on myself as the owner of the company, why would you make me carry it on myself if I have no employees? What's the difference? I still own the business. It's just an issue of whether I have employees or not, and whether I have employees or not dictates whether I cover my employees so why would I be held to a different standard just because I have employees for coverage for myself? SENATOR OGAN said he was under the impression that Amendment 2 will allow a sole proprietor with no employees to opt out of workers' compensation. CHAIR SEEKINS agreed and said Amendment 2 will exempt the sole proprietor or partner from carrying workers' compensation coverage on himself and instead make his sole remedy against himself, regardless of whether he has employees or not. He explained that under the current law, the sole proprietor or partner is not required to carry workers' compensation coverage but there is no way under SB 323 to limit him to a single remedy. SENATOR OGAN said having been a sole proprietor for many years and being willing to accept responsibility for his own actions, he believes Amendment 2 needs to pass. As a sole proprietor, he is aware of how difficult it is to wear many hats and deal with business expenses. He noted without allowing them to be accountable for their own actions, SB 323 is a nonstarter without Amendment 2. 8:28 a.m. SENATOR FRENCH opined that SB 323 has flaws and will be made worse with Amendment 2 because a sole proprietor who is injured on the worksite now can sue someone up the line. He explained: "...if the crane swinging lumber over your head - if the wire rope on that crane snaps and drops a load of lumber on you, you can sue someone up the line for their negligence, for not inspecting the cable, for not hiring - for not following safe safety practices. That's your remedy against the negligence against the folks on the job site. This amendment is going to say give it up. This amendment isn't going to cover you with workers' comp, isn't going to make the project owner cover you with workers' comp and, moreover is going to take away your right to be made whole due to the negligence of people upstream from you. So, I don't see how the little guy in this situation is any better off after the passage of this bill than he is right now. Right now he's got 1,000 years of common law protecting him and what he's going to have after this is a statute that says you better go get workers' comp and if you don't get workers' comp, you're on your own when you step on to the job site. So I am not under the impression that this is good for a small business. SENATOR THERRIAULT asked if, under the scenario presented by Senator French, the small business owner with several employees who does not carry workers' compensation on himself would have a different remedy than a sole proprietor with no employees and no coverage. CHAIR SEEKINS asked if the objection to adopting Amendment 2 is maintained. SENATOR FRENCH interjected and attempted to answer Senator Therriault's question. He maintained that someone without workers' compensation coverage has the right to sue, therefore, sole proprietors with and without employees are treated equally under the law right now. CHAIR SEEKINS added that if he were a major contractor who hired a subcontractor with employees who did not cover himself, he would ask the subcontractor to sign a waiver on himself, require him to get workers' compensation coverage or not come on the job site. He noted: What we're contemplating is the small sole proprietor, more than likely, who comes on the job site to perform a job. If I was a major contractor and I never came on that job site, there wouldn't be a risk, but I think if I was the project owner and you were going to come on that job site, I would want to protect myself from that kind of risk by asking you either to make sure you have coverage or that you have signed a waiver yourself.... What this bill, quite frankly, when we talk about the little guy, is it mandates that there be coverage for that little guy but it also says you can only take against any other party upstream from you the same exclusive remedy that you can take against your employer as if you were the only party involved. So if that contractor or that business owner was the only entity involved and something happens, that employee's exclusive remedy is against workers' comp.... SENATOR FRENCH argued the exclusiveness of the remedy has always come in exchange for workers' compensation insurance coverage. For giving up the right to sue, the employee gets covered by a workers' compensation insurance policy. He said he sees this as a bad bargain for working Alaskans. CHAIR SEEKINS said if a person chooses not to have a policy, that person should assume the risk. SENATOR FRENCH maintained his objection to the adoption of Amendment 2, therefore a roll call vote was taken. The motion to adopt Amendment 2 carried with Senators Ogan, Seekins and Therriault in favor, and Senator French opposed. SENATOR OGAN repeated that he believes that SB 323 has improved a lot and he appreciates the work done on it. He said his only concern with the bill is that if a subcontractor or contractor chooses not to have workers' compensation, liability could be transferred to the project owner [for negligence]. However, nothing in the bill will allow the project owner to pursue the subcontractor or contractor who has no insurance. He expressed concern that there will not be a lot of enforcement to ensure that employers have workers' compensation and suggested adding a provision to the bill to allow the project owner to pursue a subcontractor or contractor. CHAIR SEEKINS asked Mr. Miller to address Senator Ogan's concern. MR. JACK MILLER, counsel to the Alaska State Chamber of Commerce, replied: Yes, in fact, under normal subrogation law, if a - for example, current law allows and, in fact, this is the law that's in place, if a subcontractor's employee is injured and the subcontractor does not have the required workers' compensation coverage for that employee, that employee can receive workers' compensation benefits from the contractor. Once that contractor - the contractor's insurer pays the workers' compensation benefits, they are subrogated to the rights of the injured worker to pursue a claim against the subcontractor. CHAIR SEEKINS affirmed that is already in place. SENATOR OGAN asked if anything in SB 323 would change that. MR. MILLER said SB 323 would not. If a contractor has to step in and pay for workers' compensation benefits for an injured worker down the line, once the payment is made, the project owner or contractor is subrogated to the rights of the injured worker to pursue a claim for compensation against the employer of that injured worker. He noted that since that is existing law, nothing needs to be added to SB 323 on that point. SENATOR OGAN pointed out that the bill says, "If the employer is a contractor and fails to secure the payment of compensation to its employees of a subcontractor, the project owner is liable for and shall secure the payment...." He asked for further explanation of subrogation. CHAIR SEEKINS said if he was a contractor and Senator Ogan subcontracted with him and one of Senator Ogan's employees was hurt and Senator Ogan did not have workers' compensation coverage, Chair Seekins would have to make sure that employee receives all benefits due him under workers' compensation. Then, Chair Seekins' insurance company would sue Senator Ogan for the cost of that claim. MR. MILLER affirmed that is correct and repeated that is the current subrogation law in Alaska. SENATOR FRENCH maintained his objection to SB 323 and referred to an e-mail from Mr. Miller that said the bill will have no effect on the obligation of the parties to procure workers' compensation coverage. He expressed concern that it will exclude from liability any person who was liable for or potentially liable for securing payment of compensation. MR. MILLER responded: Let me just say, Senator French has mentioned this several times. When he first mentioned it, I actually contacted him. I didn't want to make a big deal of it on the record and I told him he had been misrepresenting me and he actually sent me an e-mail apologizing for doing that. So let me now, on the record, state clearly that that is a misrepresentation of that e-mail. The question I was asked is are insurance policies going to have to change. Is there going to be some expanded need for more workers' compensation coverage with this bill and the answer is no. However, the injured workers have expanded rights because they now have rights again from the subcontractor to contractor to the project owner and, again, the benefits of this bill are that all [indisc.] parties [indisc.] to a project can integrate their safety practices and I believe dramatically reduce work related injuries. SENATOR FRENCH said his question goes right back to the sentence: Is there anything in this bill that forces a project owner to buy a workers' compensation policy to cover a subcontractor's employees? MR. MILLER said project owners already have it. All workers' compensation policies in the state must fully comply with the terms of the workers' compensation act. He opined that Senator French is asking the wrong question because if a project owner has a workers' compensation policy, it complies with the workers' compensation act and will automatically cover the subcontractor's employees if injured. SENATOR FRENCH questioned what would happen if the project owner does not have a workers' compensation policy. MR. MILLER replied, "If the employee does not have a workers' compensation remedy against anyone, under those circumstances only, they would default into another section of the statute, which allows for a tort claim." CHAIR SEEKINS asked if no one has that policy upstream, the employee has a direct action against the project owner. MR. MILLER said the employee could sue either for workers' compensation benefits or for a tort remedy against his direct employer if neither the subcontractor, the contractor, nor the project owner have coverage. SENATOR OGAN moved CSSB 323(JUD) from committee with individual recommendations and attached fiscal notes. He stated that today's discussion cleared up a lot of questions he had about the bill and that he appreciates the amendment. SENATOR FRENCH objected. The motion carried with Senators Ogan, Therriault and Seekins in favor and Senator French opposed.
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