HL&C - 01/30/95 Number 435 HB 115 - DAMAGES AND ATTORNEY FEES FOR UNPAID WAGES CHAIRMAN KOTT then introduced that HB 115 was the next order of business. He then invited Representative Mulder to the table. CHAIRMAN KOTT read the sponsor statement for HB 115. He stated the following: "The Alaska Wage and Hour Act (AWHA) requires the payment of minimum wage and overtime compensation under defined conditions and contains procedures for the enforcement of these requirements. The principal statute addressing remedies is AS 23.10.110(a), which provides that employers who violate AWHA are liable to their employees for the amount of unpaid compensation as well as an equal amount of `liquidated damages.' "Until recently, aggrieved employees seeking to enforce their rights to overtime compensation and minimum wage rates had several avenues to obtain redress. They could settle the matter directly with their employers. They could file a complaint with the Department of Labor and obtain its assistance in effecting a resolution. In addition, employees could sue their employers in Superior Court. "Employees who elected to settle their claims directly with their employers had the option of waiving all or part of the liquidated damages. Similarly, the Department of Labor could negotiate a settlement containing terms waiving all or part of the liquidated damages. This flexibility tended to encourage employers to settle prior to the filing of a lawsuit because if their cases progressed to court full liquidated damages were mandated. "All of this was changed, though, as a result of a decision rendered by the Alaska Supreme Court in McKeown v. Kinney Shoe Company, 820 P.2d 1068 (Alaska 1991), which modified the law in an extremely important respect. Full liquidated damages are now required in all settlements, even when the employer acted reasonably and in good faith. Furthermore, this is the case when a settlement is negotiated by the Department of Labor. "HB 115 acts to cure certain deficiencies in the law as it now stands. First, it grants the court, in actions filed pursuant to AWAH, discretion to award less than full liquidated damages. It also may altogether decline to award liquidated damages. This discretion may be exercised if, but only if, the employer proves both that it acted in good faith and with reasonable grounds. The employer has the burden of proof with respect to these elements before the court can exercise its discretion. However, even assuming both elements are proved, the court retains discretion as to whether or not liquidated damages are awarded. "Second, it permits the Department of Labor to negotiate settlements omitting all or part of the liquidated damages. If employee claimants agree to the terms of such negotiated settlements, they waive their right to further assert their claims for unpaid wages and liquidated damages. "Third, employees may directly settle with their employers, provided that certain procedural safeguards are satisfied. Such safeguards are specifically tailored to apprise employees of their rights and the consequences of their actions. If all procedural safeguards are satisfied, the resulting settlements constitute a waiver of claims for unpaid compensation and liquidated damages. "Fourth, HB 115 changes existing law with respect to the award of attorney fees and costs. As the law now stands, reasonable attorney fees and costs are awarded to prevailing plaintiffs. Defendants, when they prevail, are not entitled to costs and attorney fees. Obviously, this creates a climate whereby those with extremely weak and bogus claims have no financial disincentives to bringing lawsuits. HB 115 takes a different approach. It awards attorney fees and costs to whichever party prevails. Moreover, instead of requiring the payment of "reasonable" attorney fees, this bill specifies that such fees are to be determined according to court rule, thus bringing these types of cases in line with the treatment accorded other civil actions. "It respectfully is submitted that HB 115 constitutes a significant improvement on existing law. As recognized by the Alaska Supreme Court in Kenney, `liquidated damages' in the context of wage and hour cases are in reality a type of punitive damages. That being the case, it makes very little sense to punish those who act reasonably and in good faith the same as those who callously and purposefully violate the law. In that regard, it may be noted that the corresponding federal statute grants discretion to federal courts to award no liquidated damages, or partial liquidated damages, when employers establish that they acted reasonably and in good faith. Thus, this bill acts to bring Alaska law into conformity with federal law. "It is also submitted that according the parties flexibility in negotiating settlements, either directly or through the Department of Labor, is desirable. The preponderant majority of such cases can be settled to the satisfaction of all parties before they enter the judicial system, which would have the effect of relieving an already overburdened court case load. Finally, awarding attorney fees to all prevailing parties, and not just to prevailing plaintiffs, will discourage the filing of bogus lawsuits, thus reducing the drain on Alaska's judicial and economic resources. "Your support is appreciated." Number 617 CHAIRMAN KOTT opened the testimony to the teleconference lines. Number 621 ROBERT BLASCO, Attorney, Robertson, Monagle, and Eastaugh, testified, via teleconference, from Sitka. He reaffirmed that the summary read by the Chair was accurate. He stated that he supports HB 115 because it corrects and improves deficiencies in the law and because of a general philosophy of fairness that applies to all of our civil systems. He stated that the double damage provision is a punitive measure. TAPE 95-3, SIDE A Number 000 MR. BLASCO continued by saying that the change in procedure created by this bill is not dramatic but from a fairness standpoint, the change is very dramatic. He stated that the second portion of the bill is very necessary to eliminate the question of who is liable for attorney fees. KEN LEGACKI testified, via teleconference, from Anchorage. He stated that HB 115 does not address the language set forth in the state case of Webster vs. Bechtel, citation 621 Pacific 2nd 890. Mr. Legacki stated that the Webster case did an analysis of the relationship between the Fair Labor Standards Act and The Alaska Wage and Hour Act. Mr. Legacki quoted the Webster case that states on page 897, "The state statute is void to the extent that it actually conflicts with the valid federal statutes. A conflict will be found where compliance with both federal and state regulations is difficult in possibility or the state law stands (Indecif)... "At page 900 which it states, we must include that the Alaska Act can only be "void" to the extent that it actually conflicts with the valid federal statues. Mr. Legacki stated that this past Monday, January 30, 1995, the United States Supreme Court reiterated the importance of the mandatory awarding of attorney fees. HB 115 that would adopt our ruling too, it is specifically prohibited by the Fair Labor Standards Act. Mr. Legacki cited a case McEnnon v. Nashville Banner Publishing Co., and said the violation of that case was Section 29 USC 626 which stops remedial provisions of the Fair Labor Standards Act regarding attorney fees. On the other provision of this bill the court stresses the importance of adding full mandatory attorney fees to employees. Mr. Legacki furthered that the private settlement provision of HB 115 is prohibited by the FLSA, Brooklyn Savings Bank v. O'Neil the U.S. Supreme Court stated that "private settlements are void as against public policy", Mr. Legacki related that you cannot have them under the Fair Labor Standards Act. Another case that reiterated that position was Lynn's Food Stores Inc. v. the United States, that citation 679 F.2d 1350 (Eleventhth Cir.) 1982. It again reiterates that private settlements are prohibited. Mr. Legacki felt HB 115 would not survive judicial scrutiny. He further stated that it didn't address the reasons behind the Wage and Hour Act., which is to protect employees from overreaching employers. He explained that the court has had to jump in because the employee is economically dependent on the employer. He detailed that if the employer tells the employee, take this settlement or you're out of a job, the employee has no choice. Mr. Legacki asked that this bill be re-thought, analyzed to see how it helps the employee for which the policy of the act is mandated. Number 160 CHAIRMAN KOTT asked if there were any more questions. Number 165 REPRESENTATIVE BRIAN PORTER asked Mr. Legacki to fax the citations stated. Number 180 CHAIRMAN KOTT asked for testimony from Juneau. ED FLANAGAN, Deputy Commissioner, Department of Labor, gave his initial concern with HB 115, regarding its inflexibility with settlements short of court. Mr. Flanagan believes department's supervision is important so employees don't get coerced into anything. Mr. Flanagan offered to work with committee on that portion of HB 115. Mr. Flanagan stated that he had serious concerns dealing with the change in attorney fees from the plaintiff to the prevailing party. He mentioned that there was a more recent case than that cited by Mr. Legacki, interpreting the FSLA, that says plaintiffs can recover damages from defendants. Mr. Legacki stated that it doesn't say either and that this has been ruled by the Sixth Circuit Court of Appeals in D.C., to be invalid. He further stated that this was an attempt to get damages from the plaintiff. The issue is often minimum wage, and they often can't find an attorney to take the case if they're faced with prospect of a long drawn out case with the employer that has many more resources at their command. This would eliminate a large number of cases. Mr. Flanagan also had a concern with the good-faith exception, and feels it would have to be much more stringent than what was in the bill. If the exception is too loose, ignorance of the law being permitted as defense, basically then no employer has an incentive to obey the law. Mr. Flanagan commented that all's he's going to pay in court is basically what he should have paid in the first place. That is why the punitive damages are in there. Also another concern of Mr. Flanagans was Section 4, that states letter A section E, applies to agreements entered into on or after the effective date of the act. Section B F. 2310 110F applies to written agreement into on or after the effective date. Letter C, except as provided in A and B of this section both constitutionally permitted, this act applies to actions commenced on or before the effective date of this act. In the sectional analysis, what concerned Mr. Flanagan was that under section 4C, to the extent constitutionally permitted the rest of the act applies to actions in which a final judgment has not been entered on the date the act takes effect. If this is to give retroactivity to any actions that have been undertaken to try and recover wages, he feels that it would be blatantly unfair to the workers involved. Mr. Flanagan does not support this bill in the present form but would work with the committee for changes. Number 266 REPRESENTATIVE ELTON asked how long this hearing was to last. Are we carrying this hearing over? Number 275 CHAIRMAN KOTT stated there was another committee scheduled for 5:00 p.m., so they would continue questions with current witness, then adjourn and hold the bill until Wednesday, at which point they could bring the bill back. Number 284 REPRESENTATIVE PORTER asked if HB 115 wouldn't be unfair to future employees, then why is it unfair to present employees? MR. FLANAGAN replied that because the present employees already have actions going, they've engaged attorneys, exposed themselves to retaliation and it seems it would be unfair to change the rules after something is in effective. Mr. Flanagan also stated that he had only seen this bill this morning. Number 297 REPRESENTATIVE ELTON stated that he had made an assumption after reading the sectional that maybe the provision in HB 115 changed under Section 4, but the sectional may have been brought up from last year and maybe they didn't change that provision in the sectional. He further stated that this act would only apply to actions that commence on or after the effective date and there would not be any retroactivity. CHAIRMAN KOTT stated that was also his understanding. MR. FLANAGAN replied that he had last years bill, and that would more accurately describe the last Section 4C of that bill, than the current version. CHAIRMAN KOTT asked if there were further questions or comments? Seeing none, we will hold this bill over to the next committee meeting of Wednesday.