Legislature(1995 - 1996)

03/28/1995 08:10 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HSTA - 03/28/95                                                               
 HB 238 - NO UNEMPLOYMENT COMP FOR DIRECT SELLERS                            
 Number 139                                                                    
 GEORGE DOZIER, Legislative Assistant to Representative Pete Kott,             
 reported HB 238 would amend Alaska law to exempt direct sellers               
 from unemployment compensation coverage.  The sponsor,                        
 Representative Kott, believes that outside salesmen who are                   
 direct sellers are not traditional employees, but independent                 
 contractors because they have no supervision and are not                      
 controlled by an employer.  They assume the risk of their                     
 activities, earning money only when they sell.                                
 Number 169                                                                    
 MR. DOZIER offered a committee substitute, CS HB 238(STA) version             
 F, for consideration.                                                         
 Number 184                                                                    
 REPRESENTATIVE GREEN asked why the CS was significantly shorter               
 than the original bill.                                                       
 MR. DOZIER replied the original bill potentially excluded a                   
 significant number of sales people from its coverage, so the CS               
 broadens the coverage with respect to the original bill.                      
 Number 204                                                                    
 MICHAEL LUNCEFORD, Mary Kay Cosmetics, testified via                          
 teleconference from Dallas in support of the proposed CS because              
 it now includes many other direct sales people than the original              
 bill, and because it is now consistent with employment statutes.              
 Number 256                                                                    
 BILL JERMAIN, attorney who represented the Kirby Company in                   
 litigation regarding the employment security act, testified via               
 teleconference from Anchorage in support of HB 238 or the CS,                 
 stating individuals covered by the bill are clearly not                       
 employees, they are independent contractors, and it will help                 
 avoid a great deal of litigation.                                             
 Number 309                                                                    
 JAMES CROSS, a Kirby Company distributor, testified via                       
 teleconference from Anchorage in support of HB 238.  He said the              
 bill defines independent contractors and avoids many potential                
 Number 340                                                                    
 ROB SHUMAY, in-house counsel for the Kirby Company, testified via             
 teleconference from Ohio in support of HB 238.  He agreed with                
 previous testifiers and stated he was available for questions.                
 Number 340                                                                    
 EVELYN JARVIS-FERRIS, Vice President of Government Relations,                 
 Shaklee Corporation, testified via teleconference from San                    
 Francisco in favor of the CS for HB 238, stating it would bring               
 Alaska law into consistency with federal law in its definition of             
 independent contractor as it relates to direct sellers.                       
 Number 397                                                                    
 DIRK BLOEMENDAAL, Corporate Government Affairs Counsel, Amway                 
 Corporation, testified via teleconference from Oklahoma in favor              
 of the committee substitute for HB 238, stating it tracks federal             
 law.  He agreed with previous testifiers that the original bill               
 had problems in terms of location of sale as well as the                      
 definition of compensation.  A bill similar to the proposed CS                
 has passed both legislative houses in Michigan.                               
 Number 338                                                                    
 JOSEPH MARIANO, Vice President and Legal Counsel, Direct Selling              
 Association, supported proposed committee substitute for HB 238.              
 His association applauded Representative Kott's efforts for                   
 bringing Alaska law into agreement with federal law.                          
 Number 460                                                                    
 STEVE EGLI, Kirby Company of Southeast Alaska, testified in favor             
 of HB 238, saying he had been in a legal dispute with the                     
 Department of Labor for three years and the laws need to be                   
 redefined to end such disputes.                                               
 Number 487                                                                    
 REPRESENTATIVE GREEN asked Mr. Egli whether either version might              
 stop the litigations currently in Superior Court.                             
 MR. EGLI replied "yes."                                                       
 Number 500                                                                    
 CHAIR JAMES said she had gotten a FAX from the Department of                  
 Labor and they oppose the bill, but they had prefaced that                    
 statement by saying the Department of Labor is rarely, if ever,               
 in support of legislation removing classes of employees from                  
 coverage under any of its protective statutes.  She added the                 
 committee therefore could not count on ever getting a positive                
 response from the Department of Labor; their function is to                   
 include, not exclude, people.                                                 
 CHAIR JAMES added the committee substitute for HB 238 would also              
 help independent contractors get out from under other                         
 requirements such as minimum wage and overtime.                               
 Number 525                                                                    
 REPRESENTATIVE ROBINSON said her understanding was the Department             
 of Labor was against the proposed working draft, not the original             
 bill, and in fact had worked with Senator Kelly to help draft the             
 original Senate bill.                                                         
 Number 533                                                                    
 MR. EGLI said the Senate committee substitute says on line 11                 
 "commissions on sales or other remuneration directly related to               
 sales or sales performance," and this covers their concerns.  He              
 added sales people want to be independent.  Selling is a skill,               
 and successful direct sellers are never out of a job or                       
 unemployed.  Unsuccessful sellers would never make enough money               
 to pay into unemployment so could never collect it anyway and                 
 would have no benefits, so it is an unfair tax on the successful              
 direct sellers.                                                               
 Number 558                                                                    
 CHAIR JAMES observed HB 238 is somewhat open-ended regarding                  
 employee or nonemployee status.                                               
 Number 570                                                                    
 MR. MARIANO reinforced Chair James' comments, adding the typical              
 profile of a direct seller is a person who is a woman who sells               
 on a part-time basis.  The most important aspect is they view                 
 themselves as independent business people, not employees, both                
 legally and philosophically.  The committee substitute clarifies              
 Number 585                                                                    
 REPRESENTATIVE GREEN observed the Department of Labor prefers the             
 original bill, and wondered whether the committee should adopt                
 the committee substitute as a working draft.                                  
 CHAIR JAMES noted the Department of Labor would soon be available             
 for questions on conference call.                                             
 Number 605                                                                    
 PAM NEAL, Executive Director, Alaska State Chamber of Commerce,               
 stated Avon is a member of the Chamber, as are some other direct              
 sellers.  She agreed the changes outlined in HB 238 are                       
 Number 632                                                                    
 ED FLANAGAN, Deputy Commissioner, Alaska Department of Labor,                 
 testified via conference call, stating he was not familiar with               
 the proposed CS for HB 238.                                                   
 CHAIR JAMES read the proposed committee substitute for Mr.                    
 Flanagan and asked for his comments.                                          
 Number 680                                                                    
 MR. FLANAGAN referred to the letter he had FAXed outlining the                
 department's position.  He said the department opposes any                    
 exemption to protective statutes.  He had, however, met with                  
 proponents of this bill, namely people from the Kirby Vacuum                  
 Company of Alaska, and asked why Kirby was in litigation when                 
 other direct sellers were not.  It became apparent Kirby sellers              
 are set up as distributors with their own stores, engaging also               
 in retail sales, and thus could not meet the test of being                    
 independent contractors.                                                      
 MR. FLANAGAN continued the Department of Labor has problems with              
 the draft CS.  Independent contractor status has been abused, and             
 the original bill dealt with this.  The department would oppose               
 adopting the CS or any other language similar to the federal law,             
 which leaves too many loopholes and is too open to abuse.  He                 
 urged the committee to adopt the original bill.                               
 Number 696                                                                    
 CHAIR JAMES referred to her own experience as a small business                
 owner, accountant, and tax preparer.  She added she believes the              
 original bill is just as open as the federal law.                             
 MR. FLANAGAN said he did not agree; the exemption would provide a             
 safe harbor which would be too broad and would open itself to                 
 other businesses that should not be considered independent                    
 TAPE 95-36, SIDE B                                                            
 Number 000                                                                    
 MR. FLANAGAN noted there is a difference between the Senate and               
 House versions of the bill.  The CS for Senate Bill 122 (JUD) is              
 a little tighter, but both bills allow bogus schemes for abusing              
 the definition of independent contractors.                                    
 Number 047                                                                    
 CHAIR JAMES stated she thinks the Department of Labor's goal                  
 should be to include as many people as possible for benefits, and             
 secondary to that should be collecting the tax from those people,             
 rather than having the goal be just collecting the tax for their              
 MR. FLANAGAN replied the two go hand in hand.  Concern for the                
 trust fund is to assure there is money to pay the benefits; it is             
 basically an insurance system for people who need it.                         
 Number 084                                                                    
 REPRESENTATIVE ROBINSON said it was her understanding the                     
 Department of Labor favors the bill as amended in the Senate and              
 asked if that was correct.                                                    
 MR. FLANAGAN said she was correct.                                            
 Number 100                                                                    
 MR. MARIANO observed it is vital to the direct selling industry               
 that the CS and the federal language be adopted.  It would be                 
 unfortunate to inadvertently exclude a majority of direct sellers             
 from a direct seller exemption, which could happen without the                
 CS.  He added the federal language is very clear cut and                      
 articulate and would not allow unintended beneficiaries to take               
 advantage of the exclusion.                                                   
 Number 141                                                                    
 CHAIR JAMES said she believed it would be most fair to include                
 the federal language.                                                         
 Number 154                                                                    
 REPRESENTATIVE OGAN moved to accept the CS as the working                     
 REPRESENTATIVE GREEN asked for a delay in the vote until the back             
 page of the CS was available.                                                 
 MR. EGLI said the back page was the same as the back page of the              
 original HB 238.                                                              
 Number 171                                                                    
 REPRESENTATIVE ROBINSON asked Mr. Flanagan why the Department of              
 Labor was opposed to the working draft.                                       
 MR. FLANAGAN said it references a federal statute which lends                 
 itself to problems.  True direct sellers who are truly                        
 independent contractors "aren't broke and they don't need                     
 fixing."  Although Kirby needs a special exemption, others do                 
 Number 219                                                                    
 REPRESENTATIVE ROBINSON said as she understood it, Mr. Flanagan               
 was saying the laws in Alaska have not presented a problem to                 
 date except for Kirby, and the Department of Labor wants the                  
 language narrowed to accommodate just that one problem.                       
 MR. FLANAGAN said she was correct, and the Department of Labor                
 could only support a bill which was that narrow and limited.                  
 Number 235                                                                    
 CHAIR JAMES asked Mr. Flanagan how he would define "sale of                   
 MR. FLANAGAN this could be construed as the performance of actual             
 labor on somebody's dwelling, which is frequently abused, and                 
 this is what he wants to avoid.  A ludicrous example is when a                
 restaurant owner tries to apply it to waiters and waitresses.                 
 Number 258                                                                    
 CHAIR JAMES said she recognized the exemptions are abused, and                
 this occurs because the rules and regulations regarding employees             
 make it impossible for many people to work and they have created              
 a depressed economy in the country.                                           
 Number 267                                                                    
 MR. FLANAGAN responded the statutes and regulations are "pretty               
 basic stuff" such as minimum wage, time and a half for overtime,              
 unemployment insurance, and workers compensation.  He did not see             
 these "basic protections" as creating excessive costs.                        
 Number 280                                                                    
 CHAIR JAMES gave an example of a sales person who works ten hours             
 a day and sells nothing for three days, then on the fourth day                
 makes a sale.  If that person is an employee for those three                  
 days, he is on minimum wage plus overtime, and his employer has               
 to pay that.  That is a deterrent.  There are a lot of products               
 that can be sold by direct sale, other than Kirbys, and those                 
 direct sellers should not be treated as employees.  We have been              
 putting dampers on employment opportunities, in a depressed                   
 economic situation, and including direct sellers under the                    
 federal law might solve the problem.                                          
 Number 320                                                                    
 MR. FLANAGAN replied the language the Department of Labor                     
 supports would accomplish the same goal, if a seller is truly an              
 independent contractor.                                                       
 CHAIR JAMES responded she has done federal audits, and they are               
 just as stringent as the state, and they are not likely to allow              
 restaurant workers.                                                           
 Number 335                                                                    
 REPRESENTATIVE OGAN reminded the Chair there was a CS on the                  
 CHAIR JAMES said the discussion was about whether to accept the               
 CS as a working document.                                                     
 REPRESENTATIVE GREEN requested the maker of the motion to                     
 withdraw it, because he was not ready to vote.                                
 REPRESENTATIVE OGAN withdrew his motion to accept the CS as the               
 working document.                                                             
 Number 350                                                                    
 REPRESENTATIVE GREEN disclosed his wife had been a dental                     
 hygienist and had worked as an independent contractor.  When her              
 boss realized the criteria was whether she had to work at the                 
 direction and discretion of someone else, it became apparent to               
 the dentist that she did not qualify as an independent contractor             
 but was actually an employee.  Representative Green asked if this             
 would be a criteria in the case of network marketing                          
 organizations such as Shaklee: do the organizations exercise any              
 direct authority or instruction over their network people, or are             
 they completely independent in their marketing.                               
 Number 374                                                                    
 REPRESENTATIVE OGAN said his wife used to sell Shaklee, and she               
 was a completely independent business person, setting her own                 
 hours.  He added the language in the federal law is pretty clear              
 on this issue.                                                                
 Number 391                                                                    
 REPRESENTATIVE ROBINSON noted sales people for companies like                 
 Avon and Amway are already exempt.                                            
 CHAIR JAMES agreed, adding the Department of Labor said they                  
 never audit them because they do not have retail establishments               
 and have no employees.                                                        
 REPRESENTATIVE ROBINSON referred to Merle Norman make-up sales                
 people, for example, who can either sell independently or set up              
 a retail business.  She believes that once a person sets up a                 
 retail business, all the laws should be followed.                             
 Number 412                                                                    
 MR. MARIANO agreed, adding the reason the federal government                  
 exempted people in his industry was because it was clear no                   
 controls were imposed on the sellers.  He would like to see the               
 committee substitute passed to include all who should be included             
 in the exemption.                                                             
 Number 455                                                                    
 REPRESENTATIVE GREEN asked Mr. Flanagan if the independent                    
 sellers excluded would later be subject to unemployment                       
 MR. FLANAGAN said they are not subject to it now and would not be             
 under the proposed bill.  He referred to the "ABC test" for                   
 employees:  A. The individual is free of control and direction in             
 the performance of service; B. The service is performed outside               
 the places of business; and C. The individual is engaged in an                
 independently established business of the same nature.                        
 MR. FLANAGAN said sellers for Avon, Shaklee, and the others, meet             
 this test now and had no problems in the first place.                         
 Number 495                                                                    
 REPRESENTATIVE ROBINSON noted the bill has a referral to the                  
 Labor and Commerce Committee.  She believes it is in the state's              
 interest to address the problem and would recommend moving HB 238             
 as written and let the next committee decide the best direction               
 to go.                                                                        
 Number 514                                                                    
 MR. DOZIER said he believed Representative Kott would not have a              
 problem with passing it on to Labor and Commerce, which he                    
 CHAIR JAMES listed the committee's options:  They could move the              
 original bill without the CS, or they could move the CS, or they              
 could do a conceptual amendment similar to SB 122 in accordance               
 with the Department of Labor's wishes.  Her personal opinion was,             
 in an effort to put more people to work and allow businesses to               
 profit, and to lessen rules and regulations which strangle                    
 employment opportunities, a change needed to be made and the CS               
 needed to be adopted.                                                         
 Number 551                                                                    
 REPRESENTATIVE OGAN commented people in direct sales are one of               
 "the last of a dying breed of true capitalists in this country,"              
 where everyone is regulated by government intervention in all                 
 aspects of life.  He moved the committee substitute for HB 238.               
 Number 567                                                                    
 REPRESENTATIVE GREEN said, after hearing all the debate, he                   
 tended to learn toward the CS.  He observed that a large number               
 of the direct sellers affected were women with children at home,              
 and he was in favor of the motion.                                            
 Number 580                                                                    
 REPRESENTATIVE WILLIS said he agreed with the Department of Labor             
 and favored the Senate version of the bill because it addressed               
 the specific concerns of Alaska as opposed to the federal law.                
 He did not want to see Alaska tied to regulations and laws at the             
 federal level.                                                                
 Number 604                                                                    
 CHAIR JAMES said there already is a direct tie to the federal                 
 law, because all income is reported to the federal government.                
 So it is imperative we define employees the same way the federal              
 government does in order to avoid penalties.                                  
 Number 625                                                                    
 REPRESENTATIVE ROBINSON observed SB 122 is already in Rules, so               
 the House will probably be seeing that version soon anyway and it             
 will probably be the vehicle.                                                 
 Number 630                                                                    
 CHAIR JAMES repeated the motion, to use the CS as the working                 
 document.  There were objections.  A roll call vote was taken.                
 Representatives Ogan, Green, and James voted yes. Representatives             
 Robinson and Willis voted no.  The motion passed 3 to 2.                      
 REPRESENTATIVE OGAN made a motion to move the CS from committee               
 with individual recommendations and zero fiscal note.  Hearing no             
 objection, CSHB 238(STA) passed out of committee.                             

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