Legislature(2009 - 2010)BELTZ 105 (TSBldg)
04/01/2010 01:30 PM Senate LABOR & COMMERCE
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* first hearing in first committee of referral
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SB 303-WORKERS' COMPENSATION AND CONTRACTORS 3:04:13 PM CHAIR PASKVAN announced SB 303 to be up for consideration. He recapped that SB 303 was originally addressed a week ago and he hoped the committee members had the opportunity to review the bill that is "just an undo of what was done a number of years ago." The state had a system that adequately operated from statehood for approximately 45 years and then the system was changed in what he thought was an improper manner. He said he thought SB 303 was the right policy for the State of Alaska. He noted a Legal Services memo that indicated the extent of the injustice - even if someone operated with a gross deviation from the standard of care they would be immune from responsibility or accountability for their conduct as the law is now written. Generally, when people hear that someone could be criminally negligent in their conduct and not be accountable for it they are troubled. 3:06:31 PM TRENA HEIKES, Director, Division of Workers' Compensation, Department of Labor and Workforce Development (DOLWD), said she would answered questions. SENATOR MEYER said he still couldn't remember why it got changed and asked if there was some concern and does this bill rectify double dipping by a victim. In other words, can an injured party sue the subcontractor who they are working for and the general who hired the sub-contractor? MS. HEIKES replied that they could never sue their employer. "The exclusiveness of liability for an employer is still in effect under this bill as it has been since workers' compensation systems were first developed at the turn of the century." There would be no double-dipping vis-a-vis the employer and employee, and if they sued the general their recovery would be offset under AS 23.30.015 by the employer's lien, a lien that is equal to the amount of workers' compensation benefits that the employer has paid less the employer's pro-rata share of attorney's fees, per a Supreme Court decision. SENATOR MEYER apologized for being so dense, but asked again hypothetically if Senator Paskvan is the general contractor and hires him as the subcontractor, and he was delinquent in providing a safe working environment and an employee that is working for him gets injured, can the employee come back to both him and Senator Paskvan or just to him as the sub-contractor. MS. HEIKES answered: If you're insured for workers' compensation your insurance carrier would provide benefits to that injured worker. If you were uninsured, then under that statute as it now reads and as it would read, with [SB] 303, the general contractor would be liable for the workers' compensation benefits. As the statute now reads, if the general contractor was the tort 'feeser,' you couldn't sue the general contractor or the project owner. And you can never sue your employer, period - unless they are uninsured. If they are uninsured for workers' compensation, then you lose, understandably, the benefits of workers' compensation which is the exclusive liability. SENATOR MEYER asked why a general contractor would hire a sub that didn't have insurance. MS. HEIKES said that was a good question. As the law now reads, and as it will read if SB 303 were passed, it makes the contractor responsible for making sure subs are carrying workers' compensation, because otherwise their carrier will be on the hook. SENATOR MEYER said he understood that in the past the sub was able to do the work cheaper because they didn't have the insurance. MS. HEIKIS answered that was correct. If a subcontractor is not carrying workers' compensation insurance they are at an advantage in a bidding situation because of its expense. 3:10:45 PM KEITH MONTGOMERY, Alaska Regional Council of Carpenters (ARCC), Anchorage, said he supported SB 303. He said that this bill is a start to solving a bigger problem that affects the construction industry as a whole. Last year he said he testified on HB 22, and both bills have a piece of puzzle correct, but with many holes and missing puzzle pieces such as independent subcontractors and tier subcontractors. He said the real issue is to close the loophole that will level the playing field and protect the construction industry and Alaskan workers and stop labor brokers that refuse to take personal responsibility for workers that get hurt on jobs. MR. MONTGOMERY said that he recently spoke to a contractor working on a state construction project who said the reason he tier subcontracted is that they have many levels where these workers don't provide workers' compensation. Why would a contractor hire these guys? It's because they can come in 30 percent lower on the bid and get the job. So, you have a sub of a sub of a sub that has no workers' compensation; he directs the work and employees of the subcontractor, but each person carries a business license. This contractor said the reason he tier subcontracts in the State of Alaska is because he can get away with it; that Alaska laws are real weak. 3:13:31 PM SCOTT HANSEN, Alaska Regional Council of Carpenters (ARCC) Local 1281, Anchorage, said in the construction industry the use of subcontracting, independent contracting and tier contracting as become totally out of control. They receive information on a daily basis on tier contracting 3-4 levels deep where the "employees" are not under a workers' compensation policy anywhere past the general contractor or the first level of subcontractor. This is very detrimental to legitimate subcontractors and gives a huge advantage to the subcontractor who in turn hires the independent tier contractors. A high percentage of these independent contractors work as subs to the subs to the subs, but they are truly working within every definition as an employee. They are required to show up and work certain hours and work off of other contractor's equipment, but do not supply any materials and have no risk for loss. General contractors should be scared to death of the possibility of independent contractors working on their jobs. He said that SB 303 is a start in controlling this situation and will help protect legitimate contractors. It will help the abuse of 1099 issues in the non reporting problem in the prevailing wage reporting, as well. 3:14:47 PM CHRIS GREGG, Business Manager, Painters and Allied Trades, said he supported SB 303. He said this issue affects his contractors immensely. They have a 2-25 percent bigger disadvantage for providing workers' compensation for their employees. It has become common business practice to subcontract all work to avoid workers' compensation, social security and unemployment insurance. While this bill is not the complete answer, it is a start. If you don't get action on this bill "You can kiss legitimate contracts goodbye they can't compete with this loophole available to unscrupulous business owners who misclassify their employees as owner-operators." CHAIR PASKVAN thanked them for their comments; he closed public testimony and asked for discussion. He said there is "absolutely no double dipping." If there is a recovery workers' compensation is reimbursed and it's allocation according to fault. SENATOR THOMAS stated he didn't remember the genesis of the bill, but he did remember that some people were killed on a particular job. He wasn't sure that the subcontractor had workers' compensation or not. It almost sounds like if they did, that would have been the only recovery. He thought something else allowed the owner to be sued because they had been negligent in performance of their duties in preparing the workplace as they had the authority to do. But today, it appears that some subs don't purchase workers' compensation and the generals don't require them to do what they are supposed to which is post the proof of their workers' compensation or at least give them a copy of their binder. So, therefore, in an attempt to make sure that people are protected, including the generals, one of the ways to do it is to implement a law that allows them to be responsible if they are not going to hold their subcontractors responsible for having workers' compensation. 3:18:33 PM SENATOR THOMAS moved to report SB 303 from committee with individual recommendations and attached zero fiscal note(s). There were no objections and it was so ordered. Finding no further business to come before the committee, he adjourned the meeting at 3:20.