SB 323-WORKERS COMPENSATION AND CONTRACTORS [Contains discussion of HB 311.] CHAIR ANDERSON announced that the next order of business would be CS FOR SENATE BILL NO. 323(JUD) am, "An Act relating to a subcontractor's, contractor's, and project owner's liability for workers' compensation, to sole proprietors and partnerships without employees, and managers or managing members of limited liability companies, and to the exclusiveness of liability for workers' compensation." Number 1768 SENATOR RALPH SEEKINS, Alaska State Legislature, spoke as the sponsor of SB 323. He paraphrased from the following written sponsor statement [original punctuation provided]: Senate Bill 323 revises the Workers' Compensation Act as it applies to subcontractors, contractors and project owners. The two principal modifications are as follows: 1. Responsibility for payment of compensation is extended up the chain of contracts to include project owners; and, 2. Injured parties in receipt of benefits under the Workers' Compensation Act would be barred from "double dipping" via a tort liability claim. Under AS 23.30.045(a), an injured employee has recourse for workers' compensation benefits only against his immediate employer and if the employer is a subcontractor, against the contractor who retained the subcontractor. The proposed legislation allows recourse for the payment of compensation benefits against project owners, as well as contractors and subcontractors. This extension of the rights of injured employees is sensible inasmuch as the project owner is the beneficial user of the work performed by the injured employee. It should be noted that a project owner does not include individuals who have engaged the services of contractors to build or renovate a residential home. Additionally, the proposed legislation extends the exclusivity protection set forth in AS 23.30.055 to all parties in the contracting chain relating to a project. This includes the employer of the injured employee, and those parties, which are upstream in the chain of contracts from the employer of the injured employee. It is important to note that sole proprietors and members of a partnership or Limited Liability Company will not fall within the scope of the Act provided upstream contractors are held harmless, through written agreement, from payment of compensation benefits and claims of tort liability. However, this only applies where these entities have no employees. Senate Bill 323 encourages parties participating in a project to identify and enforce strict safety standards for the benefit of all employees rather than deflecting responsibility through the use of indemnity agreements as is common practice currently. At the same time, it ensures that injured employees receive all benefits available under the Alaska Workers' Compensation Act. SENATOR SEEKINS related an example in which a subcontractor has an injured employee. In this example there was an indemnity agreement in order for the subcontractor to hire the employee. Furthermore, there was an indemnity agreement [between] the project owner and the contractor. Therefore, the sole recourse for an injured employee is workers' compensation insurance and the [employee's] attorney would sue the project owner. Senator Seekins explained, "The indemnification agreement basically said ... now the guy who's the sole remedy acted in their favor ... with the subcontractor now had to defend against a suit that was taken against the project owner and if there was a judgment to pay it. So, they never did have any guarantee of a sole remedy because of the common practice of indemnification agreements." Therefore, this legislation specifies that if project owners are liable in case the contractor or subcontractor didn't have workers' compensation insurance on the employee, then the exclusive remedy extends all the way up the chain. Number 1975 REPRESENTATIVE ROKEBERG turned attention to the definition of "project owner" on page 2, lines 9-11, which he interpreted could refer to a small group of investors. He asked if the sponsor is suggesting that this group of people should have workers' compensation if there are no employees. SENATOR SEEKINS stated that if the project owner hasn't ensured that his or her contractor has workers' compensation insurance, then the project owner still bears the responsibility of payment if the contractor doesn't have workers' compensation insurance. He clarified, "I'm not saying that they have to buy the policy, but they have to secure the payment to the injured employee if, for some reason, that contractor or subcontractor did not have that policy. This is in exchange for their not being able to be sued under the double dipping scenario that I talked about earlier." In further response to Representative Rokeberg, Senator Seekins provided an example. He posed a situation in which British Petroleum (BP) hires a drilling company to drill a well and the drilling company has a subcontractor that works for it. In order to obtain the contract with BP, an indemnification agreement holding [BP] harmless for any claims downstream would have to be signed. In this situation if one of the employees of the subcontractor is hurt, the employee's exclusive remedy is workers' compensation. If for some reason the subcontractor doesn't have the coverage and the contractor hasn't made sure that the subcontractor provided the coverage, the contractor's workers' compensation coverage would provide the coverage or the contractor would have to secure the payment for it. If the contractor doesn't have workers' compensation insurance, then the project owner bears the responsibility. SENATOR SEEKINS posed the following: If, for an example, now ... my employee is hurt. That's the exclusive remedy against me and he decides that's not good enough for me ... he sues British Petroleum for providing an unsafe workplace. In the defense against that you ... are required to indemnify them in that defense and you've required me to indemnify that expense. So, the very person -- I being the one who has an exclusive remedy now carries the expense of the defense. And if there's a judgment, has to pay the judgment because of the indemnification agreements that exist. So, ... [the legislation] says if BP makes sure that you and I have workers' compensation insurance and that covers the employee, they can't be sued farther up because if I didn't have it, you didn't have it, they [BP] would have to provide it. So, there's a trade off up and down the line. SENATOR SEEKINS related that as a result of the [current situation] in which the responsibility moves up stream, project owners don't want to know about the safety procedures of a project because knowledge of it means a higher level of responsibility. Therefore, this legislation will help provide a safer work environment throughout the chain, he opined. Number 2170 CHAIR ANDERSON turned attention to an e-mail from Paul Dillon, which relates the following [original punctuation provided]: 3) The killer aspect of 323 is that it trades away the employees right to sue responsible third parties in exchange for nothing, absolutely nothing because the injured employee is already protected the workers comp (by state law, See 1 above) ... what this bill really is a wolf in sheep's clothing, because it extends to all contractors and the project owner the exclusivity of workers comp to them. Meaning that the employee cannot sue them even though they are at fault! CHAIR ANDERSON surmised that Senator Seekins sponsored this legislation in order to provide clear and concise responsibility for workers' compensation. SENATOR SEEKINS said that Mr. Dillon's interpretation is inaccurate. He further said that there are attorneys around that don't like this legislation because it eliminates the opportunity for double dipping. "In my opinion, when there is an exclusive remedy that makes employer-employee whole ... under state law, ... that person isn't trading anything away when they say now I can go back against somebody else for more money after I have already been taken care of under the provisions of workers' comp," he opined. This legislation merely removes the ability to accept an exclusive remedy and then force additional settlement on someone else. Number 2257 REPRESENTATIVE CRAWFORD opined that this legislation "turns the system on its ear." He related his understanding that if a third party is responsible for negligence and there's a further suit, beyond workers' compensation, there is a payback provision. Therefore, workers' compensation has to be paid back for any other judgment that's awarded. SENATOR SEEKINS said that he wasn't aware of any such provision. REPRESENTATIVE CRAWFORD said he believes the law includes [a payback provision]. SENATOR SEEKINS acknowledged that there are subrogation laws. However, he wasn't aware of a workers' compensation insurer who has pursued a claim against someone up stream, under subrogation. Senator Seekins said that he wasn't aware that a contractor would have to pay back the injuries sustained by a subcontractor unless it could be shown [that it was an injury outside of workers' compensation]. This legislation doesn't exempt any injuries other than those covered under workers' compensation. The legislation doesn't address product liability or extreme negligence. Number 2367 CHAIR ANDERSON highlighted the legislation he and Representative Crawford had sponsored, HB 311, which ensured that a subcontractor secures payment for the compensation payable to the subcontractor's employees. Therefore, if the subcontractor fails to secure payment for the compensation payable to his or her employees, the general contractor would be liable for the payment. Chair Anderson said that he didn't believe HB 311 and SB 323 necessarily cross because he believes that SB 323 takes [HB 311] one step further by extending protection for the workers ... [tape changes mid-sentence]. TAPE 04-48, SIDE B  CHAIR ANDERSON related his understanding that SB 323 would extend exclusivity of liability protection to all the parties in the chain. Those injured parties receiving workers' compensation benefits would be precluded from double dipping via the tort claim liability. Chair Anderson reiterated that he didn't believe HB 311 and SB 323 cross, in fact, he said that he tended to agree with Senator Seekins "that it has to be broader and it has to make sure the double dipping effect isn't there." Number 2346 REPRESENTATIVE CRAWFORD related his personal experience in which his company was hired as a subcontractor to build a barn at the Palmer State Fair. The general contractor also hired a number of employees whom they made obtain a contractor's license and thus became sole proprietor's of a small company. The [general contractor] coerced the aforementioned employees into becoming subcontractors so that [the general contractor] wouldn't have to have workers' compensation insurance. Therefore, these employees were "much cheaper" than other companies were able to do. Had SB 323 been in effect, he predicted that these individuals would've been coerced into signing a waiver eliminating any liability [on the part of the general contractor]. This legislation is leaving a large loophole. He said that with HB 311 he had hoped to level the playing field and close the loophole so that all subcontractors are responsible for having workers' compensation. SENATOR SEEKINS emphasized that those who commit fraud should be handled per the statutes. He said that [with this legislation] he's not talking about an ironworker, but rather a window washer, in which he or she is the only employee, who chooses not to cover himself or herself with workers' compensation. However, by law if the aforementioned window washer hires another window washer, workers' compensation must be carried. Currently, by law a contractor must ensure that workers' compensation is provided for the subcontractor's employees and this legislation is extended to the project owner. Senator Seekins noted that he has 120 employees of which 119 are covered by workers' compensation, the one not covered is himself who has the exclusive remedy against himself. With regard to fraud, he noted that his workers' compensation insurance company audits him annually. There are some checks and balances in the industry to avoid [fraud]. Number 2104 REPRESENTATIVE CRAWFORD explained that the type of coercion to which he was referring is one in which employees are being told by an [employer] that he or she can't afford to hire them unless the individual obtains a business license. The aforementioned happens quite often. He agreed that once someone is hurt, the workers' compensation claim requires the [general contractor] to go back and pay the premiums for that individual who was really an employee, although referred to as a subcontractor. The loophole needs to be closed, and SB 323 is the place to do it. SENATOR SEEKINS clarified that the intent of SB 323 is to ensure that those on the job are covered by workers' compensation while continuing the current law allowing sole proprietors to exempt themselves and any waiving of that would be done in writing. REPRESENTATIVE CRAWFORD commented that as long as the loophole allowing the sole proprietors to waive having workers' compensation insurance exists, it will be used to get a job done cheaper. It's wrong to take [sole proprietors] out of the liability chain, he said. REPRESENTATIVE ROKEBERG referred to Section 4, which clarifies the responsibility of limited liability companies (LLCs), and asked if this legislation places LLCs on the same level of enforcement as a sole proprietor, member of a partnership, or members of a partnership. Therefore, would an LLC not have to have workers' compensation if the LLC doesn't have any employees, he asked. SENATOR SEEKINS replied yes, if one is actually a member of the LLC. Number 1931 JOHN BITNEY, Lobbyist, Alaska State Homebuilders Association, reminded the committee that the association was in favor of HB 311, which addressed sole proprietors such that a sole proprietor could be retroactively charged a premium for risk incurred during the period in which workers' compensation insurance wasn't carried. The preferred solution is to have sole proprietors carry workers' compensation insurance. However, there seem to be some drafting problems with the way in which HB 311 approached it. Mr. Bitney related, "We are in support of ... SB 323 as a step in the right direction ... it doesn't go as far as we would like it to go ...." The question is how the carriers will view this legislation and the extent to which the carriers believe this will alleviate some risk on their part when a claim is filed. REPRESENTATIVE CRAWFORD inquired as to how the Alaska State Homebuilders Association views the ability to waive one's right to workers' compensation. MR. BITNEY clarified that this is a matter of how the courts will view this when the claim is filed. Until the courts make a ruling, he wasn't sure whether the carriers would feel that this legislation alleviates any risk. REPRESENTATIVE ROKEBERG related his understanding that an individual hiring a homebuilder can't be held responsible [for workers' compensation]. MR. BITNEY related his understanding that a project owner is shielded from a general liability claim after a workers' compensation claim has been filed. However, he didn't believe the legislation shields a project owner from workers' compensation issues any more than current law. Mr. Bitney agreed with Representative Rokeberg that when one builds a house, the project owner is the contractor not the people who hire the contractor. Number 1731 REPRESENTATIVE GUTTENBERG asked whether that's always the case because often in residential development, there wouldn't be an owner until the home is built. Many homes are built under contract of a homeowner, and therefore he questioned whether the homeowner would be liable for later claims. MR. BITNEY said that he didn't know how this legislation would address a project owner on a residential project. SENATOR SEEKINS directed attention to the definitions of the legislation, which don't include "homeowner". Currently, no law holds a homeowner responsible for workers' compensation. JACK MILLER, Attorney, State Chamber of Commerce, stated that a residential homeowner, not as a business, who hires an individual to do renovations in his or her home retains no liability under the current law or this proposed legislation. Number 1596 STEVE CONSTANTINO, Attorney at Law, noted that he has been a hearing officer for the Alaska Workers' Compensation Board, although he currently practices workers' compensation law representing injured workers. Mr. Constantino spoke in opposition to SB 323 which is based on the rationale of protecting employers from double dipping employees, which doesn't occur. In an example in which a worker is injured by the negligence or fault of a third party, in addition to workers' compensation benefits, that employee or his or her insurer have the right to file suit against the wrongdoer. However, should the injured worker or his or her workers' compensation insurer file suit against the wrongdoer, there is a lien by the workers' compensation insurer for the full amount of all benefits paid to the injured worker. In other words, the workers' compensation insurer is repaid all the benefits by the wrongdoer before the injured worker receives any damages from the wrongdoer, the project owner or general contractor. He specified that the aforementioned is found in AS 23.30.015, which has been part of the workers' compensation statute since 1955. He reiterated that there is no possibility for double dipping. This legislation provides a special exemption for project owners and prime contractors in order to protect them against their own negligence. By extending the exclusive remedy provision, the project owners and prime contractors would only be liable for the minimal damages allowed under the Alaska Workers' Compensation Act. Therefore, the injured worker would receive nothing for pain and suffering or future loss of benefits. MR. CONSTANTINO said the notion that SB 323 would encourage safety on the part of project owners or prime contractors is fallacious. Under the Workers' Compensation Act there is no deterrent for an employer who violates safety standards or is negligent. Drawing from his time practicing in the workers' compensation area, he opined that workers' compensation is protection against liability and paying damages, while safety is encouraged due to the imposition of damages and the risks entailed. Mr. Constantino highlighted that in the Alaska State Chamber of Commerce's support for SB 322, the Moloso case, a 1982 Alaska Supreme Court case, is cited. In that case, the state wanted a highway constructed that required dangerous excavation. The state retained many experts to advise it how to do this construction safely and responsibly. After the project was bid, the prime contractor presented a change order saying that the prime contractor had its own experts who said that the project could be done quicker and cheaper if the project wasn't as elaborate or safe. The state agreed to the change order and took one half of the savings predicted. Mr. Moloso, a CAT driver, was the first one on the site and the slope subsided, as the state's experts predicted, and Mr. Moloso was killed. Were this proposed legislation in effect back in 1982, Mr. Moloso's widow and children wouldn't be allowed to sue the contractor or the project owner and would only be limited to workers' compensation. Therefore, the widow would have received a maximum of 12 years of compensation benefits for her husband's wrongful death. Mr. Constantino opined that the aforementioned isn't fair nor a good public policy. Those who, through their own negligence, injure others should be held responsible for a reasonable amount of damages, not the limited amount of damages provided under workers' compensation, which is the product of a political compromise between employers and employees. REPRESENTATIVE GUTTENBERG pointed out that this legislation allows the subcontractor to waive workers' compensation by a written agreement. If the aforementioned is the case and an accident occurs, would there be any recourse, he asked. MR. CONSTANTINO said that it isn't his understanding of the legislation. He related that it's against public policy and the law to waive workers' compensation. Every employer, save sole proprietors, general partnerships, and some LLCs, of workers must have workers' compensation and it can't be waived. Mr. Constantino recalled that the sponsor discussed the need for this legislation in terms of indemnification agreements between contractors, subcontractors, and project owners. Indemnification agreements shift the risks as they exist in the law. Mr. Constantino said, "I think it is inappropriate for our legislature to be distorting public policy and the general law to accommodate the private agreements between the parties that the law has indicated should be responsible for the consequences of their own actions." Number 1213 PAUL DILLON, Attorney at Law, Dillon & Findley, PC, characterized Mr. Constantino's testimony as correct legal analysis. He highlighted AS 23.30.015 and AS 09.17.080. He said that Senator Seekins' statement that SB 323 could affect the livelihood of attorneys is inappropriate. This legislation waives a fundamental right of those who work in any of the building trades, construction, or work on the North Slope. Mr. Dillon stated that there are indications that the insurance industry through the Alaska Chamber of Commerce is driving this legislation. This legislation, he opined, is an effort to cloak business with the exclusivity provisions of workers' compensation and doesn't protect employees. The existing law protects employees to the extent that workers' compensation protection is required. He posed an example in which his son worked in a subcontractor arrangement on the North Slope and BP is the owner. As the result of the negligence of an employee of BP, his son is injured, the workers' compensation remedy wouldn't be satisfactory. With regard to the double dipping claim, Mr. Dillon emphasized that the law is clear and has been interpreted on numerous occasions by the Alaska Supreme Court. Furthermore, it's settled law. REPRESENTATIVE ROKEBERG surmised that Mr. Dillon was saying that it isn't within the legislature's purview to look at the public policy of whether workers' compensation exclusivity remedies should be a barrier to any tort causes of action for the same injury event. However, he indicated that the aforementioned is the fundamental reason for workers' compensation benefits: to limit those liabilities and ensure that the worker is compensated and cared for due to a specific accident. MR. DILLON clarified that workers' compensation is an exclusive remedy between the employer and the employee and it doesn't impact the remedies of the employee with regard to a third party. For example, assuming a situation in which there was negligence on the part of a BP employee who injured an employee of a subcontractor of BP, workers' compensation wouldn't come into play with the rights and remedies [of the subcontractor's employee] in suing BP. REPRESENTATIVE ROKEBERG questioned whether the indemnification and subrogation provisions of contracts typically make the claims fall back on the level of the contracting chain under which [the employee] is. MR. DILLON reiterated that there would be no double dipping with regard to the injured employee. The workers' compensation carrier is paid in full. Furthermore, the apportionment of damages is divided on the basis of fault. If the parties privately contract to exchange or indemnify each other, that's a matter of contracting. In further response to Representative Rokeberg, he agreed that the aforementioned is common practice in most of the construction fields. Number 0796 PAMELA LaBOLLE, President, Alaska State Chamber of Commerce, announced the Alaska State Chamber of Commerce's support of SB 323, the issue of which was brought to the chamber's attention by its members. Members are concerned that the very idea of the workers' compensation system is that an employee has the ability to have his or her injuries covered and can [also seek remedy] with those connected with the project who weren't responsible for the injury or the project's safety. JACK MILLER, Attorney at Law (of counsel), Eide, Miller & Pate, PC, representing the Alaska State Chamber of Commerce, turned to the comment that this legislation addresses a public policy that the legislature shouldn't address and said such sentiment is patently wrong. The current public policy specifies that an injured employee's exclusive remedy against his or her employer is workers' compensation benefits. This legislation extends the aforementioned public policy to enhance the guarantee that injured workers have of collecting workers' compensation benefits all the way up the line to the project owner and extends the exclusivity protection against tort claims through the project owner. Therefore, the guarantee of recovering workers' compensation benefits now goes beyond the direct employer, the contactor, and all the way up to the project owners. [This legislation] enhances the guarantee that injured workers will recover workers' compensation benefits. The entire workers' compensation (indisc.) the acknowledgement are entitled to reasonable compensation for their injuries and the entire workers' compensation benefits system is geared toward making the individual whole based on the injury. Furthermore, workers' compensation treats work-related injuries as compensable, which goes all the way up the contracting chain under SB 323, regardless of anyone's negligence or fault in causing the injury along with the enhanced financial guarantee. MR. MILLER turned to the Moloso case. He said that because of the Moloso case and other similar cases, the only defense for project owners and contractors in the state to a tort claim for a work-related injury is that the contractor or subcontractor is an independent contractor. However, to establish that independent contractor defense, a project owner and contractor can't retain control of any part of the work, which is based on the last 20 years of Alaska Supreme Court decisions. The aforementioned potential tort liability has resulted in companies refusing to become involved in efforts to integrate safety programs. Therefore, Mr. Miller opined that passage of SB 323 would allow project owners and contractors to integrate and coordinate their safety programs. Mr. Miller concluded by specifying that SB 323 is the most important legislation that the legislature could pass in an effort to enhance safety in Alaska's workplace and greatly reduce the number work-related injuries. Furthermore, SB 323 will enhance the guarantee that workers injured on the job will be able to recover the full benefits of the Workers' Compensation Act. Number 0314 REPRESENTATIVE CRAWFORD inquired as to Mr. Miller's view of a subcontractor's ability, under SB 323, to claim he or she is a sole proprietor and opt out of workers' compensation by signing a waiver that he or she has no right to recover from any part of the chain. He questioned why such a loophole would be left in the system. MR. MILLER characterized this as a policy decision. He related that under current law a disreputable company that forced individuals to obtain contracting licenses and work for a company without workers' compensation benefits can't avoid existing employment laws. If an individual is hired and given the tools to do his or her work and directed in his or her work, that individual is an employee not a contractor. In such a situation the company can't ignore its obligations as an employer. Therefore, existing laws protect individuals and provide a remedy against disreputable or dishonest employers. MR. MILLER highlighted that there are a number of sole proprietors that work in the home building association. For example, one individual does a specific job, such as build a deck or lay tile. If those members of ABC - Alaska have to obtain workers' compensation for themselves, they won't remain competitive and won't be able to continue to work. The aforementioned is why sole proprietors offered the option to sign a waiver. Mr. Miller opined that the current law protects both the sole proprietor that has to go out and obtain a contracting license as well as [tape ends midspeech]. TAPE 04-49, SIDE A  MR. MILLER opined that this legislation also recognizes that honest sole proprietors without employees should be able to continue working and be competitive in Alaska industry. Number 0046 REPRESENTATIVE CRAWFORD inquired as to the type of coercion in which two virtually identical contractors bid on the same job. One contractor bids $15,000 for the job and another bids $20,000 for the job. One of the contractors has workers' compensation and the other doesn't. The aforementioned, not having workers' compensation [and its associated costs], is a way to undercut the market. "As long as you ... leave this loophole in there for people to ... not have workers' comp, then it keeps the playing field unlevel," he remarked. MR. MILLER said that he isn't aware that such coercion is a major issue, and this is after discussing the matter with hundreds of businesses throughout the state. Under the current law, company owners, including sole proprietors, partners, and owner/shareholders of corporations, are considered employers under the Alaska Workers' Compensation Act unless they opt out of coverage under the Act. Therefore, he didn't see a need to overhaul that entire system because he didn't see a major problem. Again, if there is coercion, fraud, or an actual employment relationship, the current law provides good remedies. This legislation doesn't impact the aforementioned in any way. MR. CRAWFORD interjected that the Associated General Contractors (AGC) views this [coercion, fraud, or an actual employment relationship] as a huge problem. For the last four years, the AGC has been trying to pass legislation to require all subcontractors to have workers' compensation insurance. MR. MILLER, in response to Chair Anderson, related his belief that SB 323 was introduced early in the session. In further response, he said he wasn't aware of any letter from AGC. He noted that the Alaska State Chamber of Commerce, ABC-Alaska, and the Alaska Miners Association have all supported this legislation. Number 0285 REPRESENTATIVE ROKEBERG returned to the definition of "project owner" found in Section 3. He expressed concern "with the entrepreneurialism in the ... various different types of business organizations that real estate developers and builders that hire contractors to build commercial real estate would be included in this." Unless the aforementioned organizations are a corporation and an active development company, they don't have any employees. Representative Rokeberg related his understanding that under SB 323 that a group of people organized as an LLC or partnership would have to have a policy of workers' compensation when there were no employees. He asked if a workers' compensation policy is available for those without employees. Furthermore, he asked if the intention is for those [LLCs and partnerships] to have workers' compensation insurance. MR. MILLER replied no, this legislation doesn't require the procurement of a workers' compensation policy when a group of people, say an investment group, organize without any employees. However, when a building contractor is hired a certificate of insurance would need to be obtained in order to ensure that the contractor has a workers' compensation policy and can secure payments to injured workers. If the contractor didn't have a workers' compensation policy, the contractor still has the independent obligation to secure the workers' compensation benefit payments to its injured workers. If all of the aforementioned fails, the project owner would have liability for the workers' compensation payments and simultaneously couldn't be the subject of a tort remedy, which is currently available under the law. REPRESENTATIVE ROKEBERG surmised then that the investment group dealing with the general contractor would have an agreement. Therefore, if the general contractor failed or went bankrupt and become judgment proof, would a workers' compensation claim still look to the project owner or would this legislation change that, he asked. MR. MILLER specified that under the existing law the project owner wouldn't have liability for workers' compensation payments, but would have tort liability. This legislation limits the individual's recovery against the project owner. In the event of bankruptcy and no workers' compensation policy by the contractor, the remedy against the project owner would be for workers' compensation benefits. There couldn't be a claim in tort against the investors or the project owner. Number 0603 REPRESENTATIVE GUTTENBERG surmised that under this legislation an injured worker's only recourse under any scenario is workers' compensation. No longer is there any liability for negligence or anything else, he further surmised. MR. MILLER replied yes, "so long as he receives his workers' compensation benefits," REPRESENTATIVE GUTTENBERG inquired as to what would happen in a situation in which a subcontractor is negligent on a project. MR. MILLER clarified that SB 323 only relates to parties under the legislation that have liability for workers' compensation benefits payments to an injured worker. Therefore, if the injured worker works for a subcontractor, that employee would have a financial guarantee of workers' compensation from his employer [the subcontractor], the contractor that hired [the subcontractor], and the project owner that hired the contractor. If there's another subcontractor, contractor, defective equipment, or third party who crosses a road barrier for road construction, all those parties would be free of potential liability for workers' compensation benefits. However, those groups wouldn't have protection against a tort claim. "This bill tracks liability for workers' compensation benefits and protection against tort claims. And again the purpose is to allow companies involved in a project to integrate their safety program," he said. REPRESENTATIVE GUTTENBERG inquired as to any scenario by which a worker would have the right for compensation under any tort. MR. MILLER said that the Alaska Supreme Court has made it clear that a reckless or intentional act resulting in injury isn't currently protected under the exclusivity doctrine. The Alaska Supreme Court has said that in situations in which it's clear there is an intent to injure someone, the Workers' Compensation Act doesn't apply and that injured individual could even sue his or her direct employer. Number 0805 REPRESENTATIVE GUTTENBERG noted his 30 years in construction and the discussion regarding a level playing field. Representative Guttenberg said he was amazed that a small contractor with five or so employees bidding on a contract that required only sending one person for the job would be considered a level playing field under a bidding process in which one [bidder] was able to avoid liability. "It amazes me that small contractors wouldn't have a problem with this. And yet we hear from the Chamber that nobody has said anything," he commented. CHAIR ANDERSON opined that there's going to be disagreement in terms of the coverage, the definition of the responsible party, and the parameter upon which an injured party can seek redress. MS. LaBOLLE added that SB 323 extends coverage and workers safety beyond its current level by moving the responsibility up the chain. Furthermore, tort is still available when the courts deem [an action] to be negligible to the point of a tort claim. She opined that SB 323 is an improvement over the current law. Number 0973 REPRESENTATIVE DAHLSTROM related her belief that the Alaska State Chamber of Commerce represents some 700 [businesses in the state]. Of that 700, she inquired as to how many are professional businesses versus worker [organizations]. MS. LaBOLLE answered that the Alaska State Chamber of Commerce represents businesses who employ approximately 70,000 Alaskans, and therefore are all employers or sole proprietors. She noted that there has been no word from the AGC that it has any problem with SB 323. CHAIR ANDERSON interjected that he hasn't heard any vehement opposition to SB 323 from labor organizations. MS. LaBOLLE agreed. She noted that after Mr. Miller spoke with the homebuilders and AGC regarding the difficulty with HB 311 the sole proprietor aspect of HB 311 was incorporated into SB 323. REPRESENTATIVE DAHLSTROM asked if when the Alaska State Chamber of Commerce does surveys, it does so for management only or the entire work force. MS. LaBOLLE answered that it's the management side of issues that the Alaska State Chamber of Commerce supports. Ms. LaBolle noted that SB 323 has had many hearings, and throughout there has been no word from the labor community. CHAIR ANDERSON related his belief that the lack of any comment from the labor community seems to illustrate a lack of any vehement opposition to this legislation. REPRESENTATIVE CRAWFORD said that he knew that some labor representatives wanted to be present today, but couldn't because of other legislation being presented that they had to address. Furthermore, there are others who didn't know that this legislation was up for consideration today. REPRESENTATIVE ROKEBERG stated a point of order pointing out that SB 323 followed the rules of notice for hearings. REPRESENTATIVE CRAWFORD agreed that the legislation had been properly noticed. However, he was told earlier that SB 323 was going to be heard Wednesday, which resulted in him misinforming [labor representatives]. CHAIR ANDERSON reiterated that at this point he isn't aware of any opposition from the labor community, which can be involved throughout the remaining process. REPRESENTATIVE GUTTENBERG highlighted Representative Crawford's opposition to this legislation. CHAIR ANDERSON closed public testimony. Number 1321 REPRESENTATIVE CRAWFORD moved that the committee adopt Amendment 1, which read [original punctuation provided]: Page 1, Line 6-Page 3, Line 15; Delete all language and replace with: *Section 1. AS 23.30.045(a) is amended to read: (a) An employer is liable for and shall secure [THE] payment [TO EMPLOYEES] of the compensation payable to employees under AS 23.30.041, 23.20.050, 23.30.095, 23.30.145, and 23.30.180 - 23.30.215. If the employer is a subcontractor, the  subcontractor shall secure payment of the compensation  payable to the subcontractor's employees, and the  coverage must include securing payment of the  compensation payable to the subcontractor. If the  employer is a contractor, the [THE] contractor is responsible for securing compliance with this  subsection by the contractor's own subcontractors [LIABLE FOR AND SHALL SECURE THE PAYMENT OF THE COMPENSATION TO EMPLOYEES OF THE SUBCONTRACTOR UNLESS THE SUBCONTRACTOR SECURES THE PAYMENT]. CHAIR ANDERSON objected. REPRESENTATIVE CRAWFORD opined that SB 323 changes the liability to the project owner, which he didn't believe should be part of the liability chain with workers' compensation. The project owner shouldn't be the one who has to ensure that each and every subcontractor has the proper workers' compensation insurance. The aforementioned should fall under the responsibility of the general contractor. Furthermore, the law should specify that everyone working as a subcontractor should have workers' compensation. Representative Crawford specified that Amendment 1 doesn't change that a sole proprietor can opt out of workers' compensation insurance. CHAIR ANDERSON related his belief that the sponsor would be adverse to Amendment 1 because it seems to change the direction of the legislation. REPRESENTATIVE ROKEBERG spoke in opposition to Amendment 1. He surmised that Representative Crawford wants a subcontractor, even if a sole proprietor, to be responsible for workers' compensation. Representative Rokeberg related that he wasn't sure Representative Crawford would be entirely satisfied unless every sole proprietor, partnership, and LLC without employees had to have workers' compensation insurance. He opined that Amendment 1 would ultimately do the aforementioned. Number 1549 REPRESENTATIVE CRAWFORD acknowledged that some folks did want every sole proprietor to be covered, but that's not the intent with [Amendment 1]. Amendment 1 speaks to [requiring workers' compensation insurance] when a subcontractor is working for a general contractor, so that the liability isn't misplaced. However, a sole proprietor isn't required to have workers' compensation insurance unless working as a subcontractor for a general contractor. REPRESENTATIVE DAHLSTROM inquired as to the meaning of the following portion of Amendment 1: "the subcontractor shall  secure payment of the compensation payable to the  subcontractor's employees,". REPRESENTATIVE CRAWFORD explained that the language means that the subcontractor will pay the premiums to the workers' compensation carrier. REPRESENTATIVE DAHLSTROM inquired as to how it would work with a subcontractor who doesn't have year round business to keep a full crew. REPRESENTATIVE CRAWFORD clarified that with workers' compensation insurance, premiums are paid based only on the hours worked. REPRESENTATIVE DAHLSTROM asked if [the subcontractor] would pay the premiums after the hours are worked or would the payments be made on the assumption of the hours that would be worked. REPRESENTATIVE CRAWFORD said that he couldn't answer that. A roll call vote was taken. Representatives Crawford and Guttenberg voted in favor of Amendment 1. Representatives Gatto, Dahlstrom, Lynn, Rokeberg, and Anderson voted against it. Therefore, Amendment 1 failed by a vote of 2-5. Number 1799 REPRESENTATIVE DAHLSTROM moved to report CSSB 323(JUD)am out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE CRAWFORD objected. He opined that this legislation is far worse than having no legislation at all because it leaves workers less than protected than the current situation. "I think that this is a travesty," he said. REPRESENTATIVE GUTTENBERG spoke against the legislation because some of the assumptions made about it don't hold up to any test, such as the assumption that the legislation would provide better integration of safety programs. Representative Guttenberg opined that under this legislation workers will receive fewer rights and actually be denied rights, which is concerning. CHAIR ANDERSON said that it can be argued that this legislation is an expansion of worker protection. He noted his support of the tort aspect that prevents double dipping. Therefore, Chair Anderson noted his support the legislation. REPRESENTATIVE ROKEBERG supported the legislation and found the arguments that it doesn't provide greater protection of workers noncompelling. Representative Rokeberg highlighted that the testimony provided that private investment groups without employees aren't intended to be covered by this legislation. Number 2008 A roll call vote was taken. Representatives Gatto, Dahlstrom, Lynn, Rokeberg, and Anderson voted in favor of reporting CSSB 323(JUD)am from committee. Representatives Guttenberg and Crawford voted against it. Therefore, CSSB 323(JUD)am was reported out of the House Labor and Commerce Standing Committee by a vote of 5-2.