HB 201 - OVERTIME COMPENSATION COMPUTATION Number 0059 CHAIRMAN ROKEBERG announced the committee's first order of business is HB 201, "An Act relating to the computation of overtime; and providing for an effective date." Number 0075 JANET SEITZ, Legislative Assistant to Representative Norman Rokeberg, Alaska State Legislature, came forward to present HB 201 as aide to the House Labor and Commerce Standing Committee. House Bill 201 was generated by a recent court decision regarding overtime computation [Hallam v. Holland America Line, Inc., d/b/a/ Westours Motor Coaches, Inc.]. The court is approving what is termed "pyramiding." For lack of a better description, Ms. Seitz termed it "paying double for overtime." Ms. Seitz indicated that if a person works 11 hours on Monday and 8 hours each subsequent weekday including Friday, that person would receive 3 hours of overtime pay for those 3 overtime hours on Monday and also an additional 3 hours of overtime pay on Friday for those 3 hours above 40 hours per week. In effect, the person would receive 6 hours in overtime, as Ms. Seitz understands it. House Bill 201 is to make it clear that overtime is for 8 hours a day or 40 hours a week. CHAIRMAN ROKEBERG noted this has been the interpretation of the department since statehood, asking if that was correct. He invited Commissioner-designee Flanagan, Department of Labor, forward. Number 0159 ED FLANAGAN, Commissioner-designee, Department of Labor, came forward to testify in support of HB 201. This legislation corrects an interpretation that goes against the common understanding and interpretation by labor, management, and the Department of Labor since, he thinks, Territorial days before 1959. The Department of Labor strongly supports and will always advocate to retain its overtime provision requiring the payment of overtime over 8 hours in a day, but, in the department's opinion, it is ludicrous to suggest that the employer should not be entitled to receive 40 hours of straight-time [per week]. Under the superior court's interpretation, an employee working six 10-hour days [in a week] would be required to be paid for 32 hours straight-time and 28 hours overtime, rather than the current 40 hours straight-time and 20 hours overtime. COMMISSIONER-DESIGNEE FLANAGAN indicated the additional overtime required by the court's decision results from including both overtime and straight-time hours to determine when the weekly 40-hour mark has been reached. Commissioner-designee Flanagan stated he thinks this is a necessary fix to preserve the state's 8-hour law, and he thinks the court's interpretation creates an incredible, unjustified and unfair liability for the state's employers who are paying according to the department's own instructions and through what has been everyone's understanding for decades. Commissioner-designee Flanagan commented the department will support the bill, as currently written, strongly through the process. He noted the title is rather broad but does not think it will "invite any mischief" because the agreement is that this needs to be done quickly and cleanly. Number 0353 CHAIRMAN ROKEBERG noted there is a proposed committee substitute (CS) the committee will be adopting and also a proposed amendment from the department. COMMISSIONER-DESIGNEE FLANAGAN responded he has reviewed those, commenting he thinks the committee substitute's Section 2 is more clear. Regarding the proposed amendment, Commissioner-designee Flanagan added it was the suggestion of the department's assistant AG [attorney general] that the legislation's findings section should probably cite the specific case to eliminate any doubt. Number 0387 REPRESENTATIVE MURKOWSKI made a motion to adopt Version D as the proposed CS for HB 201. Version D is labeled 1-LS0872\D, Cramer, 4/15/99. There being no objection, Version D was before the committee. Number 0395 REPRESENTATIVE BRICE made a motion to adopt Amendment D.1 offered by the chairman. Amendment D.1, labeled 1-LS0872\D.1, Cramer, 4/20/99, read: Page 1, following line 14: Insert a new paragraph to read: "(2) the intent of this bill is to override the superior court's decision in Hallam v. Holland America Line, Inc., d/b/a/ Westours Motor Coaches, Inc., 1JU-96-1734 CI, concerning the calculation of overtime wages; the court in that case misinterpreted the intent of AS 23.10.060(b);" Renumber the following paragraphs accordingly. Page 2, line 6: Delete "(2)" Insert "(3)" CHAIRMAN ROKEBERG questioned if the committee understood the amendment and if there were any objections. He recognized Representative Harris regarding clarification. REPRESENTATIVE HARRIS asked about the second part of the amendment, page 2, line 6, indicating he thinks it is not correct upon examining that portion of Version D. CHAIRMAN ROKEBERG explained the findings become [subsection] (2) and then it is renumbered according. The chairman commented he had had the same question earlier. With that point clarified, the chairman questioned if there were any objections to "Amendment 1" moved by Representative Brice. Number 0484 REPRESENTATIVE MURKOWSKI spoke to the amendment, commenting she is certainly in support. However, she is questioning the last portion of the amendment which states, "the court in that case misinterpreted the intent". She wonders if it is necessary to go so far as to specifically say that. CHAIRMAN ROKEBERG indicated this was the assistant AG's recommendation and he is willing to accept it in this instance where the legislative and executive branches are in agreement, and this is the interpretation which has been in existence since before statehood. The chairman noted he appreciated Representative Murkowski's comment as a member of the legal profession. There being no further objection, Amendment 1 [Amendment D.1] was adopted. Number 0575 REPRESENTATIVE SANDERS asked for confirmation that this would still mean that if a person works three 10-hour days, the person would receive 24 regular hours and 6 overtime hours. COMMISSIONER-DESIGNEE FLANAGAN replied that was correct. REPRESENTATIVE MURKOWSKI questioned if there would be any negative effects to taking the retroactivity back to May 4, 1959. She asked if someone who felt he/she had an erroneously determined wage claim in the 1970s could use this retroactivity to say the employer owes that person all these dollars in overtime pay. COMMISSIONER-DESIGNEE FLANAGAN answered that is exactly what the retroactivity is attempting to avoid. He noted there is a two-year statute of limitations for most wage claims. The department's assistant AG had had a question about the retroactivity upon first examination of the bill which she checked out with Deborah Behr [Assistant Attorney General, Legislation and Regulations Section, Civil Division (Juneau), Department of Law] who saw no problem with that. Number 0671 REPRESENTATIVE MURKOWSKI noted, then, it was being taken all the way back to avoid any opportunity for anyone to bring claim. COMMISSIONER-DESIGNEE FLANAGAN replied that is his understanding. He believes the chairman came up with the 1959 date, but the department does not see any problem with it. Commissioner-designee Flanagan indicated the department does not interpret this as a change in the existing wage and hour law; if this legislation is not passed, the state is changing the rules on the employers in a very deleterious manner. Commissioner-designee Flanagan thinks they need to be fully retroactive and the department supports that. CHAIRMAN ROKEBERG noted the committee had received a letter in support of the legislation from Lynden Transport [Lynden, Inc.; April 20, 1999]. The chairman questioned if there were any witnesses. Number 0766 DON ETHERIDGE, Alaska State District Council of Laborers, came forward to testify in support of HB 201. He said Commissioner-designee Flanagan has convinced them it is a good idea. Number 0809 THYES SHAUB, Lobbyist for the National Federation of Independent Business (NFIB), came forward to testify in support of HB 201. She indicated they are in full support of the legislation and would be providing a written statement of support. CHAIRMAN ROKEBERG asked Ms. Shaub if she had any idea what the ramifications would be to small businesses around the state. MS. SHAUB replied this would be a huge impact on small business, especially for many tourism businesses that have a lot of overtime hours during the summer. Number 0858 PAM LaBOLLE, President, Alaska State Chamber of Commerce, came forward to testify in support of HB 201. She indicated the Alaska State Chamber of Commerce feels this to be a misinterpretation of what everyone has understood overtime to be, and it would be a tremendous impact on business should the court's interpretation be allowed to stand. CHAIRMAN ROKEBERG asked if anyone has any idea of what the failure to pass this legislation would be. He wondered if any attempted calculations of the impact had been made. MS. LaBOLLE responded that no one has provided her with any calculations they might have done. CHAIRMAN ROKEBERG indicated this would be requested from the Department of Labor. He asked her if she could narratively indicate the impacts on business. MS. LaBOLLE said it essentially has the potential of being twice the overtime impact that they have had in their business. She believes businesses make strong efforts to keep overtime costs down. Ms. LaBolle added, "Considering they're already paying half again what the regular wage is and then through this it's three times what the regular wage is." She is sure that would be a very significant impact. Number 0944 CHAIRMAN ROKEBERG stated the committee would be asking the department shortly to do some analysis, but he indicated something from the Alaska State Chamber of Commerce would be helpful. He noted, "Even a broad conceptual idea of the impacts on business, business failures, and the totality on the economy ...." MS. LaBOLLE responded she could send out a quick call for survey information regarding the possible impact of this to their membership. CHAIRMAN ROKEBERG indicated he would also appreciate the notification of other chambers of commerce throughout the state so that they are aware of the situation. Number 1031 BOB DINDINGER, Vice President of Government Relations, Alaska Visitors Association (AVA), came forward to testify in support of HB 201. He is pleased there is this corrective legislation; he believes it is a misinterpretation or certainly an unanticipated interpretation of Alaska labor law. Mr. Dindinger noted his business, Alaska Travel Adventures, has approximately 200 employees in the summertime. If they are typical of tourism businesses, labor makes up about of 70 percent of their costs. Their average employee receives between 15 and 20 percent of his/her hours at overtime rates. It is pretty typical for his employees to receive 8 to 10 hours of overtime a week. Mr. Dindinger indicated the short-term punitive effect of this new overtime interpretation would be borne by the employer because the summer season is so near and most of the recruitment has already occurred. MR. DINDINGER believes, however, that over the long term, if he is paying for hours not worked - which is the net effect of this - his company will just hire more employees. Ultimately, those college students and seasonal employees currently collecting those overtime wages will be replaced with more full-time employees working fewer hours. He thinks that would be a detrimental effect, and would be considered a detrimental effect to much of his company's labor base. Because what they sell in the tourism business is labor, increasing the labor costs of small businesses by this percentage over the short-term could lead many small businesses to the brink of bankruptcy. Mr. Dindinger added that if there were class action suits going back two years to recover these wages, that would almost certainly bankrupt many small businesses; he emphasized having a retroactive effect for the legislation is extremely important. Number 1149 REPRESENTATIVE MURKOWSKI observed she thinks Mr. Dindinger is going into dangerous ground if he suggests possible impact of Judge Weeks' decision is that Mr. Dindinger might be forced to hire more full-time employees because they might view this as an opportunity at the expense of those businesses. She agrees that it would be to the ultimate detriment of those businesses to do it, but she doesn't want anyone to get the wrong impression that this might be a way to employ more Alaskans. MR. DINDINGER noted the burden of paying those employees would come from the existing employees. Instead of the existing employees receiving the overtime rate on a significant portion of their payroll, they will receive fewer hours to pay the additional employees. He commented that would be the only way his business could afford to deal with it over the long term. He added Representative Murkowski's point is well-taken. CHAIRMAN ROKEBERG commented he had intended to make the same point. The chairman is concerned about Mr. Dindinger's statement because he wondered if it was possible to have straight-time employees picking up those portions of overtime that Mr. Dindinger's employees performed. The chairman questioned whether Mr. Dindinger could manage that that precisely, and if that is entirely conceivable. Additionally, the chairman questioned if Mr. Dindinger didn't want to have a certain overtime premium to hire better quality people. He asked how that works. Number 1227 MR. DINDINGER answered the more a person can make during the summer season, the more attractive the job is in total to the person. However, if the difference is the entire company profit, it is just not an allowable expense. He noted his company has enough employees - instead of having five people doing the job and working six days a week, which is pretty typical in their business - they would have their employees working five days a week, hiring seven employees and rotating them through. It certainly might have a downward effect of the quality of employees the company is able to attract. CHAIRMAN ROKEBERG noted on this point the idea of overtime is a penalty to employers so they don't overwork their employees; therefore, they need to take due care. Number 1289 KIM ROSS, Executive Director, Alaska Air Carriers Association (AACA), came forward to testify in support of HB 201. The association represents about 180 airlines in Alaska and associated aviation businesses. She offered AACA's support to HB 201 and informed the committee this will be an issue addressed by the association's board at its next meeting. Ms. Ross noted the board could come up with a resolution if the committee desired. CHAIRMAN ROKEBERG indicated that would be appreciated. The chairman invited Mr. Perkins forward. Number 1336 DWIGHT PERKINS, Deputy Commissioner, Department of Labor, came forward. CHAIRMAN ROKEBERG requested Mr. Perkins ask the department's statisticians to make some very rough estimates of the costs and ramifications to employment levels and the businesses of the state, were this case law not to be repealed by this legislation. MR. PERKINS indicated he will discuss this with the department's research and analysis section to see what can be quickly provided. CHAIRMAN ROKEBERG asked if the department has a contingency plan regarding inquiries made. The chairman questioned if businesses were going to be "enforced" to calculate [overtime] according to the court's interpretation until this legislation is passed and signed by the governor. The chairman asked if any emergency regulations had been made. MR. PERKINS answered they have not. CHAIRMAN ROKEBERG asked if the department was going to check with the Attorney General. MR. PERKINS indicated the department would be checking with its assistant attorney general, but it has not been advised to do so as of yet. Mr. Perkins commented on part of the urgency expressed by Commissioner-designee Flanagan about this legislation passing through. CHAIRMAN ROKEBERG asked Mr. Perkins to look into that and then report back. The chairman confirmed there were no further questions or suggestions for Mr. Perkins. Chairman Rokeberg confirmed no one else wished to testify on HB 201. Number 1429 REPRESENTATIVE MURKOWSKI made a motion to move the CS for HB 201 [Version D], as amended, out of committee with individual recommendations and the attached zero fiscal note. There being no objection, CSHB 201(L&C) moved out of the House Labor and Commerce Standing Committee.