Legislature(2005 - 2006)SENATE FINANCE 532

04/15/2005 09:00 AM Senate FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee 4/14
Moved Out of Committee 4/14
Moved Out of Committee 4/11
Moved CSSB 131(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSSSB 16(TRA) Out of Committee
Moved SB 88 Out of Committee
Heard & Held
Moved SB 158 Out of Committee
Scheduled But Not Heard
     CS FOR SENATE BILL NO. 131(L&C)                                                                                            
     "An Act amending the  Alaska Wage and Hour Act as it relates to                                                            
     the employment of  a person acting in a supervisory capacity or                                                            
     in  an administrative,  executive,  or  professional  capacity;                                                            
     relating to definitions  under the Alaska Wage and Hour Act and                                                            
     providing  definitions for persons employed in  administrative,                                                            
     executive, and professional  capacities, for persons working in                                                            
     the  capacity of an  outside salesman,  for persons working  in                                                            
     the capacity  of a salesman employed  on a straight  commission                                                            
     basis,   and   for  persons   that  perform   computer-related                                                             
     occupations; and providing for an effective date."                                                                         
This was the first hearing for this bill in the Senate Finance                                                                  
JANE ALBERTS, Staff to Senator Con Bunde, the bill's sponsor, read                                                              
from the sponsor statement as follows.                                                                                          
     Alaska's   Wage  and  Hour  Act  (AS  23.10.050   -  23.10.150)                                                            
     establishes  the  provisions   for overtime   compensation.  AS                                                            
     23.10.055  sets forth exemptions to the Wage  and Hour Act. One                                                            
     of these  exemptions is "an individual employed  in a bona fide                                                            
     executive,  administrative or  professional capacity  or in the                                                            
     capacity  of an outside salesman or a salesman  who is employed                                                            
     on a straight commission basis".                                                                                           
     As   currently  defined   in  our   administrative  code,   the                                                            
     definitions    of   "executive    capacity,"   "administrative                                                             
     capacity,"  and  "professional   capacity"  are  confusing  and                                                            
     difficult to interpret.  In order to determine if someone is an                                                            
     executive,  administrative or  professional employee,  you have                                                            
     to  use  what is  known  as the  "long  test." In  addition  to                                                            
     numerous  other factors, the  long test includes a calculation                                                             
     of the  employee's time spent  on "non-exempt work"  (i.e. work                                                            
     that is not  executive, administrative or professional).  If an                                                            
     employee  spends more than 20 percent (40 percent  in retail or                                                            
     service establishments)  of their time on non-exempt work, they                                                            
     become  subject to the  Wage and Hour  Act and can qualify  for                                                            
     overtime.  The ambiguity within the definitions,  including the                                                            
     implementation  of the  80/20 test, has  lead to numerous  wage                                                            
     and  hour lawsuits,  causing  great  expense to  employers  and                                                            
     HB 182 deletes the  80/20 test and sets forth definitions which                                                            
     are much  more understandable.  The simplicity provided  by the                                                            
     new  definitions  will  lead  to greater  compliance  with  the                                                            
     statute.  It is in the best interests of both  the employer and                                                            
     employee  that the statutes are straightforward,  practical and                                                            
     easy to follow.                                                                                                            
     HB 182  also clarifies  another area of  confusion in  the Wage                                                            
     and  Hour   provisions.  Currently,   a  person  acting   in  a                                                            
     "supervisory capacity"  is exempt from payment of overtime, but                                                            
     not exempt  from the full Wage and Hour Act.  The definition of                                                            
     "supervisory  capacity"  in the regulations  is also  ambiguous                                                            
     and difficult to interpret.  HB 182 removes this exemption from                                                            
     statute.  There are two reasons for deletion  of the provision.                                                            
     The   first  reason   is  that  due   to  the  uncertainty   in                                                            
     interpretation  of  the  definition,  the statue  is  currently                                                            
     unworkable.   Secondly,  the  new  definitions   of  "executive                                                            
     capacity" and "administrative  capacity" would subsume a person                                                            
     working in a supervisory  capacity. Therefore, there is no need                                                            
     to have a separate provision.                                                                                              
     Enacting  this bill  will eliminate  ambiguities, align  Alaska                                                            
     more  closely  with  other  states  and reduce  the  number  of                                                            
     frivolous   lawsuits,  while  protecting  workers'   rights  to                                                            
     receive overtime.                                                                                                          
     [NOTE: References  to HB 182 should be correctly interpreted as                                                            
     references SB 131]                                                                                                         
Ms. Alberts informed the Committee that a forthcoming amendment                                                                 
would address the application of the proposed law.                                                                              
Co-Chair Green noted that Senator Bunde, although absent, has                                                                   
provided the forthcoming amendment.                                                                                             
Senator  Hoffman asked for  further information  about which  states                                                            
Alaska would be aligned were this legislation adopted.                                                                          
Ms. Alberts deferred to  Mr. John Sedor of the Anchorage Society for                                                            
Human Resource Management.                                                                                                      
JOHN SEDOR, Anchorage Society  for Human Resource Management (ACHRM)                                                            
testified via teleconference  from an offnet site and noted that the                                                            
ACHRM,  which  represents  200  business  members,  as well  as  the                                                            
Society  for Human Resource  Management Alaska  State Council,  with                                                            
approximately  250 business  members, support  this legislation.  In                                                            
response  to Senator Hoffman's  question, he  stated that this  bill                                                            
would,  foremost,  align  Alaska  with  federal  system guidelines.                                                             
Currently, Alaskan private  employers and employees must comply with                                                            
two  sets  of  overtime  standards:  federal   standards  and  State                                                            
standards.  This bill  would  move Alaska  toward  a single  unified                                                            
system  for  overtime,  consistent   with  the  federal  Fair  Labor                                                            
Standards Act  (FLSA). Thirty-two of the fifty-one  jurisdictions in                                                            
the nation, including the  District of Columbia, defer solely to the                                                            
federal  standard. Eight  others defer  to a standard  known  as the                                                            
"short  test"  rather than  "the  80/20  test"  that is  applied  in                                                            
Alaska.  In effect,  were  this legislation  adopted,  Alaska  would                                                            
mirror or  be consistent  with 40 of the  51 jurisdictions.  Alaskan                                                            
employers  and employees would  benefit by  not having to apply  two                                                            
different   standards  to  exempt   executive,  administrative   and                                                            
professional employees' hours each week.                                                                                        
Co-Chair  Green understood  that  this  information  is included  in                                                            
Members' packets.                                                                                                               
Mr. Sedor affirmed  that this information  is included in  a handout                                                            
titled "State  by State Overtime Comparison, completed  Spring, 2004                                                            
By: John M. Sedor" [copy on file].                                                                                              
Co-Chair  Green  stated that  a  breakout  of states'  standards  is                                                            
included in the handout.                                                                                                        
Senator  Dyson surmised  that the  onus of adhering  to the  current                                                            
standard has  "more impact" on small  enterprises than larger  ones.                                                            
Mr. Sedor replied that  currently, any business "regardless of size"                                                            
that has  exempt employees  and desires to  conduct business  in the                                                            
State, must  comply with two sets  of standards. To that  point, any                                                            
business operating  in Alaska as well  as in other jurisdictions  is                                                            
required  to establish a  separate process  for addressing  Alaska's                                                            
set  of   exempt  employees   standards.   Smaller  businesses   are                                                            
"especially  impacted because the  increased cost of administration                                                             
is  more  difficult  to bear  on  a small  business  than  a  larger                                                            
Senator Dyson  acknowledged the administrative impacts  mentioned by                                                            
Mr.  Sedor, and  further questioned  this  issue's  impact on  small                                                            
businesses'  manpower allocations  in  that an employee  of a  small                                                            
business might be required  to work in a "supervisory and leadership                                                            
role" in addition  to conducting "routine  and manual labor  duties"                                                            
due to  a limited  employee base.  Applying the  exempt standard  in                                                            
this scenario is difficult.                                                                                                     
Mr.  Sedor  concurred  that  the  existing  statutory   language  is                                                            
especially  impacting to small businesses.  People who are  employed                                                            
at an executive,  administrative or  professional exempt  level "are                                                            
hired to accomplish duties  … and complete tasks". The time it might                                                            
take to do  something should be "irrelevant  in the actual  business                                                            
model". The  current law forces both  sides into either maintaining                                                             
"journals or requiring  time entries that say" that the person spent                                                            
six minutes  making a pot of coffee,  twelve minutes driving  to the                                                            
store; eight  minutes reviewing  people's work  for the day;  or two                                                            
minutes opening  the door. This legislation would  move the existing                                                            
mode  of  interpreting   the  exempt   status  "from  a   time-based                                                            
unmanageable system"  toward a system of a "primary  or duties-based                                                            
test where  people are employed  to do duties  and that is  what the                                                            
courts  would  consider  in  determining  whether  or not  they  are                                                            
Senator Dyson acknowledged the response.                                                                                        
Senator Olson asked whether  this legislation would align with FLSA.                                                            
Mr.  Sedor  replied  that  certain  aspects   of Alaska's   overtime                                                            
standards differ from the  federal standard. The federal standard is                                                            
40 hours a week whereas  the Alaska standard is eight hours a day or                                                            
40 hours a  week. This legislation  would substantially move  Alaska                                                            
closer  to the  FLSA exempt  definitional  standards  in regards  to                                                            
executive,  administrative,  and professional  employees.  Employers                                                            
would only be  required "to apply one test rather  than two and that                                                            
test is a duties based  test". The State however would not be one of                                                            
the  32 states  that  defers  entirely  to the  federal  FLSA.  This                                                            
legislation would provide  an answer to the question "what is unique                                                            
about overtime  in Alaska?" The answer, in his perspective,  is that                                                            
Alaska pays higher wages  than the rest of the nation. Therefore, to                                                            
qualify  for an exemption,  Alaskan  businesses  must compensate  an                                                            
exempt administrative,  executive  or professional  employee  with a                                                            
rate that  is "two  times the  minimum" wage.  Therefore, an  exempt                                                            
employee's salary in Alaska  would be higher than the federal exempt                                                            
wage requirement.                                                                                                               
Senator  Olson asked whether  the business  community supports  that                                                            
salary requirement.                                                                                                             
Mr. Sedor responded  that members of both the Anchorage  Society for                                                            
Human  Resource  Management  and  the  Society  for  Human  Resource                                                            
Management Alaska State Council support this legislation.                                                                       
In response to  a question from Co-Chair Green, Mr.  Sedor specified                                                            
that he had concluded  his remarks and would be available  to answer                                                            
any further questions.                                                                                                          
Amendment  #1:  This amendment  inserts  new  language  in the  bill                                                            
title, following  the word "occupations;" on page  one, beginning on                                                            
line seven, as follows.                                                                                                         
     directing  retrospective application of the provisions  of this                                                            
     Act  to work performed  before the effective  date of  this Act                                                            
     for purposes of claims  filed on or after the effective date of                                                            
     this  Act,  and  disallowing   retrospective  application   for                                                            
     purposes  of claims  for that  work that are  filed before  the                                                            
     effective date of this Act;                                                                                                
In addition, a new bill  section is inserted on page five, following                                                            
line 30 as follows.                                                                                                             
     Sec. 6.  The uncodified law of  the State of Alaska  is amended                                                            
     by adding a new section to read:                                                                                           
          APPLICATION AS TO WORK PERFORMED BEFORE THE EFFECTIVE                                                                 
     DATE OF THIS ACT.  (a) This Act applies retrospectively to work                                                            
     performed  before the effective  date of this Act for  purposes                                                            
     of any  claim or proceeding based  on AS 23.10.050 -  23.10.150                                                            
     (Alaska  Wage  and Hour  Act) that  is  filed on  or after  the                                                            
     effective date of this Act.                                                                                                
          (b) This Act does not apply to work performed before the                                                              
     effective  date  of  this Act  for  purposes  of any  claim  or                                                            
     proceeding  based  on AS 23.10.050  - 23.10.150  that is  filed                                                            
     before the effective date of this Act.                                                                                     
Co-Chair  Wilken  moved  on  behalf   of  Senator  Bunde,  to  adopt                                                            
Amendment #1.                                                                                                                   
Co-Chair Green objected for explanation                                                                                         
Ms.  Alberts  explained  that  this  amendment   would  provide  the                                                            
effective  date for the  application of the  new primary  duty-based                                                            
standards. The current  80/20 State standard would be applied to any                                                            
claim  brought before  that date  and the new  primary duties-based                                                             
standard  would  be  applied  to  any  claim   submitted  after  the                                                            
effective date.                                                                                                                 
9:20:22 AM                                                                                                                    
Mr. Sedor affirmed  Ms. Alberts' remarks. A two-year  "rolling week-                                                            
by-week" statute  of limitations applies to overtime  lawsuits. This                                                            
amendment  specifies  that,  after  the effective  date,  the  rules                                                            
specified in SB 131 would  be applied to the entire claim for events                                                            
up to  two-years. This  would allow  one rule to  be applied  to the                                                            
claim rather than having  a debate about which weeks would be argued                                                            
under the current  standards and which  weeks would be argued  under                                                            
the new standards. This  is "an extremely practical approach to this                                                            
Co-Chair Green  removed her objection and noted that  this amendment                                                            
would incur a title change.                                                                                                     
There being no other objection, Amendment #1 was ADOPTED.                                                                       
9:22:43 AM                                                                                                                    
KAREN  ROGINA,  President   &  CEO,  Alaska  Hospitality   Alliance,                                                            
testified  via  teleconference  from an  offnet  site  to voice  the                                                            
Alliance industry's support  of this legislation. She asked that the                                                            
Committee also support  the bill. Not only is this an important bill                                                            
for the hospitality industry,  it is important to all employers with                                                            
exempt  employees, as  it would  apply  a single  set of  standards,                                                            
which would  be easier to  understand and  comply with. Because  the                                                            
current  Alaska  exemption  status  is  time-based,   an  employee's                                                            
eligibility  is determined  by how the employee  spends their  time.                                                            
This bill would change  the definition of exempt status to one based                                                            
on primary  duties. This would better  reflect "real life  workplace                                                            
roles".  Business owners  and operators  should be  able to rely  on                                                            
exempt  workers  to  deliver  results  without  being  required  "to                                                            
micromanage"  exactly  those  employees  are  spending  their  time.                                                            
Oftentimes,  a business  owner or operator  is not  on site  and is,                                                            
therefore,  "unable  to  ascertain  just what  their  employees  are                                                            
doing.  Instead  they  must  manage  by  results  achieved."   Labor                                                            
attorneys  would support  the fact  that "this  is one  of the  most                                                            
litigated areas of wage and hour law".                                                                                          
Ms. Rogina  shared  an example  of a  wage and  hour dispute,  which                                                            
involved  a  prominent  Kenai  Peninsula  hotel  and  its  food  and                                                            
beverage director who "was  considered exempt". The director oversaw                                                            
a $750,000 budget and was  responsible for hiring, firing, staffing,                                                            
and the  overall food,  beverage, and catering  responsibilities  of                                                            
the hotel.  Upon that  person's  termination, she  produced a  "log"                                                            
that detailed  "by the minute how she spent her time  each day". Due                                                            
to  a combination  of  "the  seasonality  changes" inherent  to  the                                                            
hospitality  industry and  the employer's  desire  to provide  year-                                                            
round  employment,  there  are  times  during  the  year  when  that                                                            
employee  could have bused  a table or seated  guests. However,  her                                                            
primary  duties,  for  the  most  part,  were  those  of  an  exempt                                                            
employee. This  lawsuit cost the employer  thousands of dollars  and                                                            
almost put  the hotel  out of business.  The hotel  was "at  a total                                                            
loss of being  able to prove otherwise" as it had  not kept track of                                                            
how the person  had spent her time  "by the minute" since  she was a                                                            
salaried employee.  As a consequence of that lawsuit,  the hotel now                                                            
hires  only hourly  employees.  That is  the impact  of the  current                                                            
standard on  the industry. It is detrimental  to employees  as well,                                                            
as, absent "a  clearer definition of who is exempt  and who is not",                                                            
employers are denying their  executive, professional, and management                                                            
staff  access to such  things as  better health  insurance  benefits                                                            
that could  otherwise  be offered to  them because  "they are  not a                                                            
segregated   group  that  could  be   classified  differently".   In                                                            
conclusion,  this  legislation  would  benefit  both  employees  and                                                            
9:25:42 AM                                                                                                                    
JACK  AMON, Co-Owner,  Marx  Brothers Café  and Marx  Brothers  Café                                                            
Catering,  and Member, Alaska  Hospitality  Alliance, testified  via                                                            
teleconference  from  an offnet  site in  support of  the bill.  The                                                            
proposed changes  regarding the exempt employee definition  would be                                                            
"a great  step forward in  modernizing Alaska's  labor laws  to more                                                            
accurately reflect  the current workplace"; specifically  in regards                                                            
to exempt employees  in the hospitality and food service  industries                                                            
and in small  businesses where both  the employer and the  employees                                                            
"wear  many hats".  Alaska's  80/20 definition  "is  so onerous  and                                                            
restrictive  that   it  has  forced  most  operators   to  keep  all                                                            
employees,  including  those  who  head  departments   or  supervise                                                            
others,  hourly.  This  results  in negative  impacts  to  both  the                                                            
employer  and the employee"  who might  be the  highest skilled  and                                                            
highest paid worker. As  benefit costs increase, employers have been                                                            
required  to  change their  benefit  plans  to  the effect  that  an                                                            
employee must be salaried in order to qualify.                                                                                  
Mr. Amon  noted that two  of his twelve  restaurant employees  would                                                            
qualify as salaried  employees as opposed to hourly  employees under                                                            
the  new  standards  proposed  in  this bill.  In  his  opinion,  an                                                            
employee with the authority  to hire and fire and who is responsible                                                            
for the work of  others should be considered managers  regardless of                                                            
whether they  work from behind a stove  or behind a desk.  He warned                                                            
that  this   legislation  might  be   interpreted  by  some   as  an                                                            
opportunity  through   which  employers  could  "cheat  hardworking                                                             
employees  out of  legitimate overtime;  however,  nothing could  be                                                            
further from the  truth. In order to run a successful  business, "it                                                            
is essential"  that quality employees  are properly compensated  for                                                            
their skills.  Such employees know  that their skills are  in demand                                                            
and  would  not  remain with  an  employer  who  attempted  to  take                                                            
advantage  of them. "The  flexibility" offered  by this legislation                                                             
would allow "compensation  arrangements" that would be beneficial to                                                            
both the employee and the employer.                                                                                             
9:28:37 AM                                                                                                                    
GREY  MITCHELL, Director,  Division  of  Labor Standards  &  Safety,                                                            
Department  of Labor and Workforce  Development spoke in  support of                                                            
the bill, as  it "would streamline  the complex set of criteria  for                                                            
establishing  overtime exemptions".  One example  of the  80-percent                                                            
test is  that under  the current  regulations, there  is a  fallback                                                            
test, which requires only  a 60-percent test when applied to service                                                            
and  retail   establishments.  However,   there  is  a  provisional                                                             
requirement  that the employee earn  at least two times the  federal                                                            
minimal  wage for  the first  40 weekly  work hours.  Thus, while  a                                                            
minimal salary  provision currently exists, it only  pertains to the                                                            
service  and retail  industries  and only  when applied  to the  60-                                                            
percent  rather  than 80-percent   test. The  Division's  staff  has                                                            
occasionally experienced  difficulty in explaining this to employers                                                            
and employees.  The proposed legislation  would assist the  Division                                                            
in  alleviating  the often  difficult  "burden"  of  explaining  the                                                            
existing 80/20  Exempt Status Test to both employees  and employers.                                                            
Senator Stedman  understood that this  is a complex issue  that even                                                            
larger  employers have  trouble  deciphering.  Currently,  employers                                                            
could be  subject to litigation  involving  "a revolving  multi-year                                                            
Mr.  Mitchell affirmed  that  this issue  "has  caused litigation".                                                             
Years could pass  before an employer might "find themselves  at odds                                                            
with the  requirements".  Sometimes,  employees know  the rules  and                                                            
start spending more than  20-percent of their time making coffee and                                                            
other non-managerial  duties and deliberately  "put their  employers                                                            
in a  difficult position,  based on  the complexity  of the  current                                                            
Co-Chair Green  asked whether this  legislation would also  simplify                                                            
Mr. Mitchell  replied that the legislation  would remove  the burden                                                            
of issuing  regulations because  it would  allow the Department  "to                                                            
simply adopt the federal regulatory definitions".                                                                               
Senator Olson,  observing that no  one has spoken against  the bill,                                                            
asked the reason that "it took so long" for it to be presented.                                                                 
Mr. Mitchell  replied that  he could not provide  the answer  to the                                                            
Senator Olson  noted that  he had experience  in the retail  service                                                            
area, and  to that point,  asked the reason  that the 60/40  percent                                                            
standard  rather  than  the  80/20   standard  is  applied  to  that                                                            
industry. Furthermore,  he inquired whether this is addressed in the                                                            
Mr. Mitchell responded  that the 40-percent test was  established as                                                            
a fall-back  from the 80-percent  standard  as a result of  concerns                                                            
raised  by those  affected  industries.  The concerns  being  voiced                                                            
today echo those earlier  concerns. It is difficult to adhere to the                                                            
current standards in those  businesses where you need the manager to                                                            
jump in and perform production  related tasks in order to manage the                                                            
In response to a question  from Co-Chair Green, Senator Olson stated                                                            
that he is in support of the legislation.                                                                                       
Co-Chair Green voiced support for it as well.                                                                                   
Co-Chair Wilken  moved to report SB 131, as amended,  from Committee                                                            
with individual recommendations and accompanying fiscal notes.                                                                  
There  being  no  objection,  CS SB  131  (FIN)  was  REPORTED  from                                                            
Committee with  previous zero Fiscal  Note #1, dated March  14, 2005                                                            
from the Department of Labor and Workforce Development.                                                                         

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