Legislature(1999 - 2000)
03/29/2000 03:28 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 193 - COLLECTION OF UNPAID WAGES CHAIRMAN ROKEBERG announced the first order of business would be CS FOR SENATE BILL NO. 193(FIN), "An Act relating to the payment of wages and claims for the payment of wages." KRIS KNAUSS, Staff to Senator Drue Pearce, Alaska State Legislature, came forward to testify on CSSB 193(FIN). He stated that the bill was introduced on behalf of Senator Pearce in regard to a constituent, Margaret Bauman, who attained membership with the Alaska Business and Industry Newspaper Publishing Company. Ms. Bauman was hired in the fall of 1998. She had arrears that reached the amount of $10,000 before termination of employment. The employment relationship ceased, and Ms. Bauman went to the Department of Labor & Workforce Development [DLWD], looking for a way to get the arrearage back. She encountered a problem since the maximum the department could deal with was $7,500. MR. KNAUSS explained that CSSB 193(FIN) is a modification of the law and raises the cap to $20,000. Since Ms. Bauman's arrearage amounted to $10,000, it was not feasible for her to gain legal representation on a contingency fee basis. Therefore, CSSB 193(FIN) alleviates that and would allow for Ms. Bauman to get those funds back. REPRESENTATIVE HALCRO indicated Ms. Bauman is a constituent of both his and Senator Pearce's. He spoke with Ms. Bauman this summer regarding her situation. His conversation led him to Randy Carr, who told him the cap has been at $7,500 because the Bar Association and associated attorney organizations have been hesitant in the past to allow the state to "go after any more" because they feared it would encroach on their business. He stated that it is now unlikely to find an attorney to pursue a matter for anything under $20,000. During the interim, Representative Halcro worked with Senator Pearce's staff. They spoke to the Bar Association and other organizations, and they did not have a problem raising the cap to $20,000. He also spoke with Dwight Perkins, Deputy Commissioner, DLWD, and Ed Flannagan, Commissioner of DLWD, who seemed to support this issue. He indicated he had introduced a companion bill but that there was an agreement that Senator Pearce's legislation would move instead. REPRESENTATIVE BRICE asked when the $7,500 cap was established. CHAIRMAN ROKEBERG answered that it was two or three years ago, by the House Judiciary Committee, which raised the limit from $5,000 to $7,500. REPRESENTATIVE HARRIS wanted to confirm that DLWD was supportive of the bill. MR. KNAUSS said that is correct. He noted that he has been working with some defense attorneys who are more familiar with the legal aspects of the issues. A couple of amendments had been made with respect to double-penalizing on liquidation. As far as he knows, everyone is okay with the bill. Number 0457 AL DWYER, Director, Division of Labor Standards & Safety, Department of Labor & Workforce Development, came forward to testify on CSSB 193(FIN). He said he has not heard any complaints from the court system. REPRESENTATIVE MURKOWSKI asked, "Do you have any idea what this is going to mean to the courts in terms of an increase in case load to the small claims court?" MR. DWYER responded that approximately 120 cases have been assumed. Out of those claims, 10 or 20 could possibly end up in court annually. CHAIRMAN ROKEBERG asked if this is because the bill could provide some leverage. MR. DWYER explained that the division turns away a lot of people because of the $7,500 cap. REPRESENTATIVE HALCRO reported that Randy Carr had said that current penalties act as a hammer. Therefore, those in arrears have a vested interest to pay as soon as possible because the penalties are pretty steep. He indicated Mr. Carr had said this mitigates the number of cases that actually make it court. Number 0582 MR. KNAUSS said the employer has three days to pay arrears after employment is terminated. MARGARET BAUMAN testified via teleconference from Anchorage: I am here to testify in favor SB 193, legislation to raise the amount of back wages for residents which the state can pursue through the court system. At present, the Labor Department [DLWD] can only pursue amounts up to $[7],500 and my former employer owes me in excess of $10,000. The employer, Business News Alaska, has refused to pay me any of the amount since last July, although the company has acknowledged in writing that they owe me the money. At the time, I worked as the news editor for Business News Alaska, a monthly business publication in Anchorage, from October 1998 through July 1999. I was also caring for an elderly parent at home. My mother was not in good health and needed 24-hour care, so I needed a job I could do largely at home, except for hours when I had a care giver or my mother was at day care. Business News Alaska hired everyone on a contract labor basis. I had no idea at the time the practice was illegal, as the state Labor Department has twice since concluded. As the company became further and further behind in paying me, the publisher, Kay Cashman, continued to hire other people and kept coming up with excuses for not paying up. When we parted company last summer, I asked for the money due me within three working days. Kay said I was not an employee and she could pay me in the indefinite future. I inquired at the Labor Department, filled out paperwork for them to make a determination, as did Kay Cashman. The department spent a lot of time studying the situation and concluded I was an employee; so did the Internal Revenue Service [IRS]. Ms. Cashman and her publishing partner, Raylene Combs, then appealed the Labor Department's decision. The hearing officer for the appeal also concluded I was an employee, and the state is now studying all the records of Business News Alaska because the company hired most people on a contract basis with no benefits and no taxes [with]held. Now Business News Alaska is appealing the matter again, on the commissioner level. It's a good thing the Labor Department took my case, because even if I could afford an attorney to handle my side, I've been advised that given her track record, Cashman has no intention of paying me any of the money she owes. I have with me, for the legislature, copies of records which I paid for myself from Motznik Computer Service, showing that Ms. Cashman has numerous debts outstanding, including a $35,000 judgment against her through the state superior court. She's never paid a dime on that judgment, either. To cover herself, she lists herself as a publisher, and her son and a partner, Raylene Combs, as owners. Changing the state law to allow the Labor Department to pursue, through the court system, back wages would benefit residents like myself who have no other recourse. It would also put companies like Business News Alaska on notice that this state will not tolerate employers who think they can operate outside the law. SB 193 would make Alaska a fairer playing field for employers who do operate under the law and are at a disadvantage when other employers are allowed to operate outside the law. Number 0899 JAY SEYMOUR testified via teleconference from Anchorage. He stated that he is in support of CSSB 193(FIN), although he had some concerns with the bill when it was first introduced. An attorney whose practice almost exclusively deals with labor and employment issues, he has been an Alaskan for over 25 years. As an employment lawyer, he indicated that the most aggravating set of laws that employers face is the wage and hour laws. From an employer perspective, they often result in a windfall for employees who have been fairly paid. He commented: In my experience, I have often seen employees who have been paid $40,000 a year ... or even $80,000 or $90,000 a year when settlements for judgments in excess of ... $100,000 for unpaid overtime on the basis of a good- faith dispute between them and their employer. To add insult to injury, the current law provides for a waiting time penalty, which a court can impose for not having paid the overtime that was in dispute, even though it may have been a good-faith dispute. Paradoxically, there are some gaps in the law, as Ms. Bauman just testified, that don't allow the Department of Labor to pursue those unscrupulous employers with wage claims that are much smaller than the claims that we normally see brought by the plaintiff's (indisc.). I think that SB 193 is a good first step towards providing some relief on both ends of the spectrum - both for those who are paid at the minimum wage or don't have large claims, at the same time bringing a little bit of sanity for those who've already been fairly paid claims in excess of $30,000 or $40,000. The bill provides additional authority to the department to enforce labor laws for the State of Alaska, and I do believe that those are claims that ordinarily would not be brought by most of the attorneys in the claims (indisc.). It also provides some relief to those employers who face overtime claims, so that they don't have to face the claim of additional penalties. That's simply been a good-faith mistake in the application of the law. Number 1069 REPRESENTATIVE MURKOWSKI referred to Ms. Bauman's testimony. She asked whether allowances are being made in the bill for an employer who considers an employee to be an independent contractor. MR. SEYMOUR said he understands that the determination of whether or not an individual is an employee or an independent contractor would not be affected in CSSB 193(FIN). This determination is affected by other provisions of law which, in his experience, are fairly liberal in favor of the employee. He said: I'm not too familiar with the facts in this case, but I understand it to be that there are a lot of indices that Ms. Bauman was, in fact, an employee under the law in this particular case, even though she was labeled an independent contractor, and the Department of Labor or a court would make the determination of (indisc.) issue. REPRESENTATIVE MURKOWSKI responded: In recognizing that, they would, in fact, do that. But this legislation requires that it be paid three days afterwards, and if you fail to do, you've got certain penalties that the employer is facing. So, I guess, if this were to pass, if I were making the argument that no, I was not an employee - I was, in fact, an independent contractor - my employer would be wise to just go ahead and pay me right up-front and then argue about it later. Is that kind of the direction that things could take? MR. SEYMOUR explained that the laws currently provide for the three-day payment. He said: I guess, in most instances, a contractor, or someone who's labeled a contractor, would be claiming that they were in fact an employee - therefore, would be covered by the law. ... This law doesn't impact that determination either way. That would be a separate determination, but you're right: The employer wants to be conservative, and there's some question about whether the worker is, in fact, an independent contractor or is really an employee. The employer [would be] well-advised to make the payment of all wages ... in the time stipulated by law. Number 1233 RANDY CARR, Chief of Labor Standards & Safety, Division of Labor Standards & Safety, Department of Labor & Workforce Development, testified via teleconference from Anchorage. He stated: It is not unusual that an individual presenting a wage claim is responded to by the employer in such a manner that the employer ... wants to lay out a number of possible defenses. One of them may be the fact that they think they're an independent contractor, and the way the law currently reads - and the way the bill also reads - would allow the employer to settle with the Department of Labor at an administrative level, which basically means we can conduct the investigation to determine from the facts whether or not the individual is an employee or an independent contractor. Once we make that determination, if the finding is that the individual is an employee, then the matter becomes one of trying to effect a resolution as to the amount due and get payment from the employer. Once that determination has been made, if the employer resolves this matter administratively with the department, the waiting-time penalties that are addressed in this statute are not a factor. The way the statute is applied now - and the way it would be applied as amended - would be that the waiting-time penalties are there as an incentive to get the employer to deal in good faith with the Department of Labor. If a resolution cannot be reached and the Department of Labor is compelled to take the matter to court, then the waiting-time penalties in that action would become mandatory, but only in that situation. At all other points up until that time, they are a bargaining chip that can be used to reach a negotiated settlement. Number 1339 REPRESENTATIVE MURKOWSKI referred to page 2, subsection (b) [beginning on line 25], and said: You've got three working days after termination to make payment. Then, under subsection (d), if you do not do it within that three-working-day period, then you are subject to the penalties upon the employer and there isn't this waiting period that you're talking about. Maybe that's what I'm missing, is where's the reference to the waiting period? You've got to get through this administrative process where you all settle out, whether or not you are an employee or an independent contractor. MR. CARR explained that the current statute says the waiting-time penalties are not discretionary and must be awarded by a court. They cannot be awarded by DLWD. The present language requires that any party who seeks to collect waiting-time penalties gets a judgment from the court awarding them. REPRESENTATIVE HALCRO said to Mr. Carr: Randy, that goes to the heart of our discussion last August, when you were talking about some employees will simply just string you out, then take you to court. But ... the penalty provisions that were put in place recently act as kind of a deterrent for that, because people know at the end of the day they can string you out, but at the end of the day, they may just suffer the consequences of some heavy penalty. MR. CARR affirmed that it is exactly what the bill would now do. Prior to 1981, the penalties were mandatory. In 1981, the penalties were relaxed and discretion was given to the court to award or not award the penalties. He said: Now what we have before us is a compromise in matters wrought by the state Department of Labor. If we are compelled to go to court to prosecute on behalf of someone to collect their wages, any appropriate waiting-time penalties would be mandatory. MR. CARR indicated that in private cases it would be up to the discretion of the court to award waiting-time penalties or not. There is one exception to this, addressed in Section 5, subsection (f), page 3 of CSSB 193(FIN), which reads: (f) In an action brought for unpaid overtime under AS 23.10.060 that results in an award of liquidated damages under AS 23.10.110, the provisions of (d) of this section do not apply unless the action was brought by the department under (e) of this section. He said the waiting-time penalties under this statute would not come into effect. The language has been worked out as a compromise. CHAIRMAN ROKEBERG asked Mr. Carr to explain the amount that the liquidated damages under AS 23.10 could be. Number 1536 MR. CARR replied that the liquidated damages under AS 23.10 are equal to the amount of unpaid minimum wage or unpaid overtime. It is a punitive damage and, under the current statutory construction, the employer may assert a good-faith defense to his violation. If that defense is acceptable to the court, then the court has the authority to waive some or all of the liquidated damages for cases brought in the private sector. Liquidated damages are mandatory in cases brought by DLWD. The mandatory aspects in cases brought by DLWD are not there to specifically "roll up the dollar value of the case, but to offer an incentive to the employer to negotiate harder, and reach a settlement with the department short of court action." CHAIRMAN ROKEBERG referred to Section 5, subsection (f), amending AS 23.05.140. He asked, "If you go into a small claim court under this provision, you could get the mandated liquidated damages as well as the section (e) damages also?" MR. CARR said that is correct because the damages are for different violations of different laws. The liquidated damages in AS 23.10 relate to failure to pay the minimum wage or overtime. The waiting-time penalties relate to failure to pay whatever is due. For example, it could be vacation pay, wages all together, minimum wage or overtime that the employee is entitled to. Number 1627 CHAIRMAN ROKEBERG said: You've indicated the reason that you have the waiting time penalties - in particularly, like, the (f) section, liquidated damages, which would be mandatory - is to try to get a settlement before you go to court, but that doesn't square up with ... we're giving you a free pass to small claims court right out of the chute. MR. CARR replied that it is not so much that the bill is giving a pass to small claims court; rather, it is providing the ability to take a claim into [their] "offices to administratively investigate it and attempt to resolve it." Currently, the ability to do that does not exist because it is over the statutory limit. He said, "Our track record has about a 85 to 90 percent resolution administratively, short of ever having to go to court." CHAIRMAN ROKEBERG indicated he was not aware that a statutory limitation existed on their jurisdiction. REPRESENTATIVE MURKOWSKI asked whether she understands correctly that a person can be assessed both liquidated damages and the waiting-time penalty. MR. CARR said that is correct. That is the current status of the law, unchanged by the bill. The changes effected by the bill would be if DLWD brings a case in court and has to go through the court process to judgment; then the penalties will be mandatory. In the private sector, the penalties may be discretionary if awarded by the court. He expanded on his answer: Let's say someone takes a claim for unpaid vacations and unpaid wages, and they get an attorney to take a case to court for them. Then the court can award the waiting-time penalties or not. If the claim, as identified in Section 5(f), is strictly for overtime - such as the case that Mr. Seymour is referring to, where he has an individual who is a highly paid person who files an overtime claim - usually those arise out of a dispute over whether the individual was exempt from overtime or not. And so, they have an overtime claim for 30, 40, 50 thousand dollars; they win that claim, they also get liquidated damages awarded by the court. In that situation, this bill says waiting-time penalties would not apply because it's a highly paid individual in the first place, and it's a large claim. The compromise here is that the liquidated damages should suffice for the recovery, and the waiting-time penalties should not be an issue. CHAIRMAN ROKEBERG wondered if a private party, under this bill, could bring an action for a wage-and-hour claim up to $20,000 to a small claims court. MR. CARR said that is not correct. Only the DLWD can bring an action for $20,000 in small claims court. All other issues in small claims court are subject to the $7,500 cap set out in the small claims statute. CHAIRMAN ROKEBERG asked whether the penalties would, therefore, apply. MR. CARR affirmed that. CHAIRMAN ROKEBERG referred to Section 4, subsection (d), page 3, of CSSB 193(FIN). He requested clarification. MR. CARR replied that the demand is going to be set by DLWD's first notice to the employer. The deadline can be set, in rare cases, when the employee has articulated a demand for their wages in writing. In most cases, there has not been that sort of a formalization in the dispute. In the private sector, it may well be more frequent that the demand is established in writing because the party has usually received legal counsel sometime well before the filing of a lawsuit. CHAIRMAN ROKEBERG said it appears to be an incentive to drag one's feet, up to 90 days, so that one's award could be bigger. MR. CARR responded, "No." He clarified that the award only starts from the day of demand until the day of payment. If a person waits 45 days before demanding his or her wages, the clock doesn't start until the 48th day, and that is when the 90 days begin to run. CHAIRMAN ROKEBERG asked Mr. Seymour, "In your capacity as counsel on these types of wage-and-hour [disputes], you represent both ... employees and employers normally, or what is your typical practice?" MR. SEYMOUR replied that he typically only represents employers. CHAIRMAN ROKEBERG asked whether Mr. Seymour is satisfied with the conditions set out in the bill. MR. SEYMOUR reiterated that he thinks the bill is a good first step. There are some provisions in law not covered in the bill, but it is well balanced. Number 1934 REPRESENTATIVE HALCRO made a motion to move CSSB 193(FIN) out of committee with individual recommendations and the attached zero fiscal note. There being no objection, CSSB 193(FIN) moved out of the House Labor and Commerce Standing Committee.
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