HB 276-MOTOR VEHICLE DEALER EMPLOYEES  3:48:12 PM CHAIR OLSON announced that the next order of business would be HOUSE BILL NO. 276, "An Act making the Alaska Wage and Hour Act inapplicable to certain employees of motor vehicle dealers; and providing for an effective date." 3:48:20 PM REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature, as sponsor, said this bill would clarify that auto sales staff, auto service writers, and auto finance personnel are exempt from Alaska's minimum wage and hour act. These employees are paid on commission and have never been hourly employees. He explained that HB 276 was drafted in response to confusion caused by the regulation, 8 AAC 15.910 (a) (16), which read, "straight commission" means a fixed percentage of each dollar of sales an employee makes; ...." This regulation became interpreted to mean that the commission must be applied to the gross amount of the sale. While this interpretation might be appropriate for some commission sales, such as real estate, it is not appropriate or customary for auto sales. An auto dealership must pay for the vehicle first from the sale price. Advertising laws prevent an "add on charge" to an advertised sale price to accommodate a commission. Thus, if a net sale is three percent of the gross, the dealer cannot pay a commission of five percent. This bill will clarify the long-standing employment practices of the industry by maintaining a commission based employment system that works well for both employer and employees. The DLWD has been helpful and amended its regulations; however, as a result of litigation it is necessary to seek final clarification in statute. 3:50:59 PM REPRESENTATIVE JOSEPHSON asked for the distinction between auto sales transactions and other industries. He asked whether this requirement should apply to other retail sales' businesses. JANE PIERSON, Staff, Representative Steve Thompson, Alaska State Legislature, said she did not think store sales commissions are supplemented by salaries. For example, it would take a lot of shoes to make a living. She related her understanding that auto sales are one of the few industries in which the dealership is selling a product it purchased from the manufacturer. 3:52:26 PM REPRESENTATIVE JOSEPHSON remarked department stores likely own the goods. He related his understanding that the definition for straight commission applied to gross, but not net cost for the dealership. MS. PIERSON answered yes. REPRESENTATIVE JOSEPHSON asked whether this bill would exempt all auto dealership employees from the wage and hour statutes. MS. PIERSON deferred to Marten Martensen, president of the Alaska Auto Dealers Association to answer. 3:53:22 PM REPRESENTATIVE JOSEPHSON asked whether federal wage and hour regulations would offer protections to auto employees. MS. PIERSON answered no; that this provision falls under AS 23.10.055(a), which pertains to exemptions, compensation of executives, administrators, and professionals. REPRESENTATIVE JOSEPHSON asked whether it was her understanding that federal law would not apply, in instances in which a salesperson did not earn sufficient commissions. MS. PIERSON answered no. 3:54:29 PM REPRESENTATIVE JOSEPHSON said under HB 276, the car sales person would not have a guaranteed minimum wage or straight commission, but would earn a commission on net sales. MS. PIERSON answered yes. REPRESENTATIVE JOSEPHSON asked whether the employee negotiates with the dealer on the definition of net sales. MS. PIERSON understood that the employee would have an idea of the approximate purchase price and adjust the sale accordingly, such as make the decision to take a three percent commission rather than not sell the car. 3:55:49 PM REPRESENTATIVE JOSEPHSON said he was surprised that the service writer who isn't selling anything is also on commission. MS. PIERSON deferred to Mr. Martensen to answer. 3:57:36 PM REPRESENTATIVE REINBOLD asked whether any issues were identified prior to adoption of these regulations. She clarified she was interested in the reason the DLWD adopted the regulations. GREY MITCHELL, Acting Assistant Commissioner, Department of Labor & Workforce Development (DLWD), said the department wanted to change the regulatory definition of straight commission from a very narrow definition to ensure that the explanation the DLWD provides employers and employees pertaining to straight sales matched the regulatory definition. The department said that its application of the narrow definition of straight commission wasn't being used and the regulation changes addressed this. 3:58:55 PM REPRESENTATIVE REINBOLD asked whether the department received any "pushback" during public comment. MR. MITCHELL recalled that the department did not receive a significant number of comments. He suggested that the department may have received approximately five comments, with three in support, with two opposed. REPRESENTATIVE REINBOLD asked whether the DLWD realized that these changes represented significant impacts to the industry. She suggested that the dealerships weigh in to brief the committee on how the regulations impact them. MR. MITCHELL agreed. 4:00:04 PM CHAIR OLSON asked whether other industries were impacted by the regulation changes. MR. MITCHELL offered his belief that the bill has a definition for "motor vehicle dealers' under AS [08.66.350], which involves more than just cars, for example, boats. He deferred to the sponsor to answer. CHAIR OLSON remarked boats are a form of transportation. REPRESENTATIVE JOSEPHSON pointed out that the definition in proposed Sec. 2 of the bill refers to a separate definition for motor vehicles. He clarified that this section refers to AS 45. MR. MITCHELL agreed that proposed Sec. 2, referred to AS [45.25.990] and the definition under [AS 08.66.350]. In response to a question, he said he was not certain of the nuances in paragraph (3) of proposed Sec. 2. 4:02:13 PM REPRESENTATIVE JOSEPHSON said he wanted to grasp the concept of commissions. He expressed interest that the auto dealership's financing staff is also on commission since that job is more administrative in nature. MR. MITCHELL answered that the questions pertain more to industry question since the DLWD hasn't done a study on car dealership employees. He assumed employees fell under a variety of salary payment methods, which might be the reason for the attempt to exempt the employees. For example, if the employees were paid on a straight commission, they would be excluded from overtime. Thus, changing the law and excluding this specific group would mean it wouldn't matter if the employees were paid a straight commission or an hourly rate. 4:04:20 PM MARTEN MARTENSEN, President, Alaska Auto Dealers Association (AADA), offered to provide in layman's terms the reason the AADA supports HB 276. He said that two years ago, an AADA member came to the board and explained the business was being sued for not paying their commission sales staff overtime. He said that car dealers don't pay sales associates overtime since they are exempt under AS 23.10.055, and earn a straight commission. The plaintiff's attorney argued that the employees are not paid on straight commission since the employees do not receive a commission based on the fixed percentage of each sales dollar as defined in regulations 8 AAC 15.910. At this point, the AADA met with DLWD's Commissioner Bishop and Mr. Mitchell to express concern over 8AAC 15.910. The AADA explained the standard industry practice of dealerships is to pay sales associates based on the net sales value or "profit." 4:06:40 PM MR. MARTENSEN related a scenario in which in which the dealer has an on the lot vehicle for sale at $20,000, after having paid $18,000. The Continental Motors would pay its sales associates 25 percent of the $2,000 profit, or $500. The department considered this and later agreed to change the regulation, which was accomplished in September 2012. MR. MARTENSEN said that with the regulation change the dealership thought it was finally paying its sales staff within the law, but the plaintiff's attorney argued that federal law 29 CFR 779.413 [pertaining to straight salary or hourly rates] defines straight commission as Alaska's law. Since the regulations help to clarify the law, the judge agreed with the plaintiff's attorney so the auto dealers still have problems. Therefore, the AADA supports HB 276 to change the statutes. Finally, a federal law, 29 USC 213 (b) (10) (a), exempts car sales associates from overtime, but Alaska statutes does not. 4:08:37 PM REPRESENTATIVE JOSEPHSON said he was amazed that this has recently arisen. He asked whether in the past 20 years anyone has raised the issue and asked for clarification of the federal statutes. MR. MARTENSEN answered no; the issue has never been raised, and it caught the industry off guard. He explained that, by law, dealers must have written pay plans. He said his dealership has been in business for 45 years and has had written pay plans that clearly identify the salary provisions. Employees sign pay plan agreements that specify straight commission. Unfortunately, this seems to represent a loophole and the judge agreed that his dealership is not abiding by law. 4:10:03 PM REPRESENTATIVE REINBOLD summarized that the lawsuit ensued, that the state sided with plaintiff and overturned the traditional practices. She asked if she understood the issue correctly. MR. MARTENSEN answered yes. 4:10:33 PM REPRESENTATIVE JOSEPHSON remarked that his sense of this is different; the state tried to support clarification of regulations helpful to the industry, but the court system did not support the practice. MS. PIERSEN, in response to an earlier question, said that motor vehicles fall under AS 28.10, which is where the definition exists. The DLWD worked "hand-in-hand" with the auto dealership to change the regulation, which was not recognized by federal law. This bill would place the regulation into statute. She did not think this bill would impact industry pay practices since its payment practices haven't changed; in fact, this is how the system has worked. REPRESENTATIVE JOSEPHSON remarked that he was glad to hear about the written pay plan. CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 276. 4:12:45 PM REPRESENTATIVE REINBOLD moved to report HB [276] out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 276 was reported from the House Labor and Commerce Standing Committee.