Legislature(2003 - 2004)

04/16/2004 08:08 AM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ 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alternatives, that amendment was withdrawn.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.                                                                                               

Document Name Date/Time Subjects