HB 79-OMNIBUS WORKERS' COMPENSATION  4:19:37 PM CHAIR KITO announced that the final order of business would be HOUSE BILL NO. 79, "An Act relating to workers' compensation; repealing the second injury fund upon satisfaction of claims; relating to service fees and civil penalties for the workers' safety programs and the workers' compensation program; relating to the liability of specified officers and members of specified business entities for payment of workers' compensation benefits and civil penalties; relating to civil penalties for underinsuring or failing to insure or provide security for workers' compensation liability; relating to preauthorization and timely payment for medical treatment and services provided to injured employees; relating to incorporation of reference materials in workers' compensation regulations; relating to proceedings before the Workers' Compensation Board; providing for methods of payment for workers' compensation benefits; relating to the workers' compensation benefits guaranty fund authority to claim a lien; excluding independent contractors from workers' compensation coverage; establishing the circumstances under which certain nonemployee executive corporate officers and members of limited liability companies may obtain workers' compensation coverage; relating to the duties of injured employees to report income or work; relating to misclassification of employees and deceptive leasing; defining 'employee'; relating to the Workers' Compensation Board's approval of attorney fees in a settlement agreement; and providing for an effective date." 4:20:00 PM REPRESENTATIVE JOSEPHSON moved to adopt CSHB 79, Version 30- GH1789\O as the working document. There being no objection, Version O was before the committee. 4:20:23 PM REPRESENTATIVE BIRCH referred to the Alaska Truckers Association (ATA) proposed amendments and asked whether they found their way into Version O. CHAIR KITO advised that the department will explain the changes in Version O and will address Representative Birch's question. 4:20:54 PM MARIE MARX, Director, Division of Workers' Compensation, Department of Labor & Workforce Development (DLWD), explained that the changes are from Version D to Version O, and most of it is clean up. Ms. Marx paraphrased from a document entitled, "Summary of Changes ver D to ver O 3.14.17," included in the committee packet as follows: Page 2 and 21-22, Secs. 2, 4, 40, 45, and 46: Deletes sections 2, 4, 40, 45 and 46 relating to second injury fund transition. This allows the legislature to amend the statutes to repeal the second injury fund after it has been notified that all second injury fund claims have been satisfied, rather than having the repeal occur automatically. 4:22:03 PM The committee took a brief at ease. 4:22:30 PM MS. MARX explained that beginning on CSHB 79, page 2, Version O, sections are deleted relating to the second injury fund repeal: Sections 2, 4, 40, 45 in the previous Version D are not in Version O. She reiterated that these sections dealt with second injury fund statutes that would have automatically been repealed when the bill passed. She explained that the Alaska Legislative Council indicated that it was in the best interests of the legislature, to let the legislature decide to repeal once all claims had been paid. She explained that Version O did not changed that, and on July 1, 2018, acceptance of new claims for the second injury fund would end. She further explained that the existing liability would be paid off over time and the fund balance would continue until those claims were paid off. Down the road, after all claims had been paid, the balance would go to the general fund. She noted that most of the claims are permanent total disability and paid through the life of the claimant. It is all tied to the "first amendment" allowing the legislature to amend the statutes that repeal the second injury fund, rather than the appeal occurring automatically. 4:24:22 PM MS. MARX continued paraphrasing as follows: Page 11, Line 4, Sec. 21: Technical correction changing "payment or compensation" to "payment of compensation." Page 11, Lines 25-26, Sec. 22: Inserts "When the employer files a notice of controversion" to the sentence, "The Division shall notify the employee if an employer controverts the employee's right to compensation." Page 12, Lines 13-14, Sec, 23: Deletes "to the person owed or to be reimbursed." Lines 28-31 describe more specifically to whom the additional amount should be paid. Stating it twice in the same subsection may open it to inconsistent interpretations. 4:25:41 PM MS. MARX, in response to Representative Birch's question, advised that one of the stakeholder groups raised the issue in Version D, referring to business licenses, permits, and certifications. She opined that after further discussion and reflection, it was decided that the idea is better captured in the current language, which is that an independent contractor is a business that has all of the business, trade, or professional, licenses required by law. She explained that change was made after a discussion with the stakeholder groups. MS. MARX, in response to Representative Birch, agreed that it was the entire section. MS. MARX continued paraphrasing as follows: Page 14, Lines 17-18, Sec. 26: Technical correction reorganizing sentence so "AS 23.30.082" appears after "fund" instead of "guaranty." Page 16, Lines 14-16, Sec. 28: Deletes "has a license, permit, or certification" and inserts, "has all business, trade, or professional licenses." Page 19, Line 26, Sec. 33: Technical correction deleting "the." Page 20, Line 7, Sec. 34 and Page 20, Line 28, Sec. 35: Technical correction deleting "and" and inserting a comma. Page 21, Line 18, Sec. 39: Technical correction changing AS 23.30.080(8) to AS 23.30.080(g). Page 21, Line 19, Sec. 39: Technical correction changing AS 23.30.080(n}-(k) to AS 23 .30.080(h}-(k). Page 21, Line 26, Sec. 39: Inserts "AS 23.30.1 lO(d), as repealed and reenacted by sec. 17 of this Act." This clarifies the new provision relating to representation applies to new claims filed on or after the effective date of the bill. 4:27:26 PM MS. MARX advised that stakeholder groups raised the issue about the representation provision because the previous version of the bill would not permit non-attorneys from representing parties before the board because non-attorneys are not bound by ethical and professional rules. The question was raised as to whether that applies to current ongoing claims, and she clarified that it would apply only to new claims filed after the effective date of this Act. She continued paraphrasing from the above- mentioned document as follows:   Pages 21, Line 31-Page 22, Line 5, Sec. 39: Inserts a new subsection (c) providing the new executive officer and business entity member provisions apply to an insurance policy or contract entered into or renewed on or after the effective date of sec. 29, which August 1, 2018. MS. MARX explained that another concern raised by stakeholder groups was with regard to rules relating to executive officers as employees. Currently, the insurance policies may, or may not, cover the executive officers and the concern was raised whether the executive officers would be employees under HB 79. Stakeholder groups also expressed concern for how insurance policies would be affected if executive officers suddenly became employees when they were not, or became "not employees" when they previously were. She expressed that in order to be certain there was not a lot of litigation or ambiguity created over "what insurance policy these new rules regarding employee status apply to, we made it very clear that, and we checked with the Division of Insurance to make sure there was no concerns there, but to make sure that the rules regarding who was an employee and therefore who needs to be covered under their insurance policy applies at a delayed effective date." She noted that the bill would only apply to new policies and renewals -- not existing ones. The division will give insurance companies one year to update their forms, make sure they get the word out to their new policyholders that says "you may not have needed coverage before, but you need it now. Or, they may tell these executive officers, you had to have coverage before, you do not need it now. And, let them opt in if they want to opt in." MS. MARX continued paraphrasing as follows: Page 22, Lines 8-11, Sec. 40: Deletes "The balance of the second injury fund created by former AS 23.30.040 shall be transferred to the general fund on the effective date of this section" and inserts, "Subject to appropriation, the balance of the second injury fund created under AS 23.30.040 lapses into the general fund when all liability for accepted claims under AS 23.30.205 to the second injury fund and claims ordered to be paid from that fund have been satisfied." Page 22, Line 18, Sec. 43: Provides Sec. 30 takes effect July 1, 2018. 4:30:57 PM MS. MARX referred to page 22, line [19], and said the effective date of July 1, 2018 is for second injury fund questionnaires. She explained that the rest of the statutes were repealed. Except, the only statute tied to this Act that will continue to have an effective date and go into effect at the same time, is the second injury questionnaire an employer gives to an employee for second injury fund claim purposes. She reiterated that on July 1, 2018, no new claims will be accepted. MS. MARX continued paraphrasing as follows: Page 22, Line 20, Sec. 44: Provides Sec. 29 takes effect August 1, 2018. 4:32:29 PM REPRESENTATIVE JOSEPHSON surmised that an element of the second injury fund was designed to incentivize employment of people who were previously injured. He asked why it is acceptable to end the second injury fund. MS. MARX responded that when second injury funds were created, that prior to offering an individual a job, it was permissible to ask whether the individual had a disability. Subsequent to the passage of the Americans with Disabilities Act (ADA), that question became unlawful. Therefore, she said, the incentive to hire people with pre-existing disabilities no longer exists, although they can be asked whether they have any limitations that would keep them from performing the essential functions of the job without accommodations. The purpose of the fund is served by the ADA, and the second injury fund does not now have an ongoing purpose, she explained. 4:34:39 PM CHAIR KITO opened public testimony on HB 79. 4:35:04 PM CHARLIE YOUNG advised that he is a member of the International Union of Painters and Allied Trades, a 28-year painter and drywall finisher, and a life-long Alaskan. He said he supports CSHB 79, and specifically the section pertaining to misclassified workers and employees who call themselves independent contractors. He said he has never seen the abuse of misclassification so high as currently, and has always worked for painting contractors who played by the rules, paid wages, taxes, and the insurance an employee deserves. When a contractor hires individuals as independent contractors, the contractor is able to avoid paying payroll taxes, workers' compensation insurance, and unemployment insurance on each worker; therefore, the contractor can complete the job for much less money. When projects are bid with this type of practice used, the cheating contractors have the distinct advantage over contractors who follow all of the rules. More often these cheating contractors are winning the bids on projects as he watches the amount of work for himself become less and less every year. He asked the committee to please support CSHB 70 for the honest contractors and employees working in the building trades across this great state. 4:37:01 PM WALTER ROBINSON advised that he is with the International Brotherhood of Electrical Workers Local 1547, and supports CSHB 79 because this bill addresses several problems, and helps streamline the process for the timelines in which an employee receives wage replacement and treatment for an injury. He said he has personally witnessed the stress and hardship workplace injuries put on the family dealing with the current lengthy process, and this bill creates a more efficient process for both the employer and employee. This legislation also addresses the large problem of the misclassification of an employee as an independent contractor and closes the loophole for unethical employers. 4:38:54 PM DOUG TANSY, President, Fairbanks Central Labor Council, advised he is testifying in support of CSHB 79 because it protects workers and employers who comply with the workers compensation laws by clearly defining which workers are legally independent contractors. He commented that employers misclassify workers as independent contractors for financial reasons, while workers are denied their rights under minimum wage, overtime, and other workplace protection such as, increased tax burdens, no overtime pay, and the workers are often ineligible for unemployment insurance and disability compensation. Misclassification also causes federal, state, and local government to suffer revenue losses as employers circumvent their tax obligations. Generally, he said, the workers must "pick up the tab for that" so the cost is shifted from unscrupulous employers to the worker. He asked that the committee pass this legislation. 4:40:35 PM ERNIE EADS advised that he owns a small sawmill and is testifying as to the misclassification of independent contractors. He said he is the product of laws not being enforced or being unenforceable, including workers' compensation "in a big way," and he has a 35-year history of owning above- board businesses, including sawmills. Due to the failed logging and lumber business in the late 1980s in Oregon, he clearly understands the wrath of the Internal Revenue Service (IRS), Oregon Department of Revenue, and workers' compensation. He then discussed the timber industry in the State of Alaska and the effects of unethical employers. In approximately 2000-2001, he said he began asking the Division of Workers' Compensation to come to Prince of Wales Island and assist those who were trying to legally operate a business in Alaska. He was advised that the Division of Workers' Compensation had not been allotted travel dollars and was shorthanded, yet the employees were suffering. He said he was responsible in providing a decent living and protection for his employees and their families for a long time. 4:49:49 PM AVES THOMPSON, Executive Director, Alaska Trucking Association (ATA), said that during his testimony before this committee on February 20, 2017, the Alaska Trucking Association (ATA) was generally in support of the legislation. However, there were concerns about specific provisions dealing with the definition of independent contractors, or "owner/operators." The Alaska Trucking Association (ATA) has been working with the Department of Labor & Workforce Development (DLWD) to resolve these issues, and he apologized to many individuals for the miscommunication of ATA which had occurred. MR. THOMPSON advised that ATA maintains its objections to the following: page 16, lines 1-6, concerning direction and control, and he noted that ATA has proposed language to clarify what constitutes control; page 16, lines 7-9, responsibility for expenses, and ATA has proposed language to clarify that responsibility; page 16, lines 17-27, tax payments responsibility, and ATA has proposed language clarifying that the independent contractor is responsible pursuant to the contract; page 17, lines 1-3, business location, and ATA has proposed language clarifying the definition of a business location; and page 17, lines 4-6, advertising (coughing), and ATA has proposed language clarifying this responsibility. He advised that more detail can be found within the package he forwarded to the committee earlier last week. The proposed amendments are not set in stone, he described, and ATA is willing and able to continue discussions on compromise positions. He said that while ATA is supportive of the bill, it maintains its objections and hopes to find a workable solution. The ATA has received assurances from the DLWD that it is willing to work with ATA in the next committee of referral to resolve its concerns. It is ATA's intent is to help develop definitions that can be used within the Divisions of Workers' Compensation, Wage and Hour, and Unemployment Insurance. 4:52:44 PM CHAIR KITO commented that the committee is trying to figure out how to move the bills in the House Labor and Commerce Standing Committee from committee and make their way to the Senate. The intent, he said, is to keep this bill moving and not hold it over the summer. 4:53:35 PM MR. THOMPSON stressed that ATA does not intend to slow down the bill because DLWD agreed to work with ATA in the next committee of referral. He said, ATA has no objection to moving the bill out of the House Labor and Commerce Standing Committee. 4:54:15 PM CHRIS NETTELS, President, Geotech Alaska, advised that he is testifying on behalf of his company and the National Federation of Independent Businesses (NFIB). Currently, NFIB cannot support this legislation, specifically the definition of contract worker and employee. He opined that as an employer it is too detailed for the purposes of geophysical and geological consulting, and he is afraid some these requirements could negatively impact the ability to hire consultants and/or professional contractors. In particular, he said that he reviewed the Alaska Trucking Association (ATA) proposed changes and language, and said there is the danger of unintended consequences in the language. He referred to the testimonies which said, "these criminals and these crooks are doing this and that, and hiring people and calling them contractors," and he asked what rules these people are breaking. He said they are breaking federal IRS rules, and those federal IRS rules have "common law rules" based on three parts: behavioral, financial, and type of relationship. Currently, the way the language is written in this legislation, the regulations are all over the place. He asked to put the regulations in the same sort of categories as the IRS regulations. MR. NETTELS referenced the IRS' policy as to how to decide whether someone is a contractor or employee, and he explained as follows: Behavioral. Does the company control or have the right to control what the worker does and how the worker does his or her job? I believe there is language like that in this house bill right now. Financial. Are the business aspects of the worker's job controlled by the payer? These include things like how the worker is paid, whether expenses are reimbursed, who provides tools, supplies, et cetra. Again, I believe that language is in this bill. Type of relationship. Are there written contracts or employee type benefits, i.e., pension plan, insurance, vacation pay, et cetra? Will the relationship continue? And, is the work performed the key aspect of the business? Again, I think there is similar language in this bill. They at least ... be organized the same categories for people that are trying to make this decision for not only the purposes of the IRS, but now, if we are going to have this bill for the purpose of this bill. 4:57:18 PM MR. NETTELS expressed irritation and asked why there is an exclusion for the real estate folks if the real estate folks can meet these requirements. There are some problems about this bill he said he just does not understand, and thinks that "we're trying to make a lot more specific with the high danger of creating problems for the sorts of folks in his same business. 4:57:56 PM MIKE McGUIRE said he has been in the trades since the late 1970s, and his father was a sub-contractor/independent contractor who paid taxes, hired employees, and paid benefits. He advised that the legislature is allowing the impossibility for honest contractors to compete with "these people." He stated that in the construction trade misclassification has been bad. He referenced a press release from DLWD which disclosed details of the death of a worker who did not have the required protections of a normal job. He remarked, "You people are not protecting the worker, and the other businessmen and ultimately this will lead to the loss of protection of the property owner." He referred to the construction trade and the mess with the independent contractor owner/operator and said, "I don't see why they don't have to pay the taxes like everybody else." 4:59:53 PM BRONSON FRYE advised that he is with the Painters Union Local 1959, and noted that, unfortunately, a business model had taken root in this state in the construction industry whereby certain employers are requiring, as a condition of employment, that their workers get business licenses and self-perform as "so- called owner/operators or independent sub-contractors." In doing so, it creates an unfair playing field in the bidding process due to the cost factor. Essentially, he explained, all of the factors are approximately the same for everyone with the only exception being the cost of labor, and the person who can cut their labor costs down the most, will typically be the low bidder and will ultimately be awarded the contract for the work. When a company misclassifies its employees as independent sub- contractors rather than employees, it avoids paying workers' compensation premiums, payroll taxes, unemployment, social security, and so forth. Thereby, he pointed out, cutting up to 30 percent of their labor costs off of the top with a tremendous and thoroughly unfair advantage over honest, law abiding employers whose workforce is made up of properly classified and insured employees. This legislation creates a clear definition of an independent contractor and misclassification with no ambiguity, allowing everyone bidding the project through a fair and equitable system. He referred to previous testimony regarding the IRS and said if the IRS rules were sufficient, then "we wouldn't have a problem." He remarked that any rule or law is only as good as the ability of the governing body to enforce it, so obviously the IRS rules are not sufficient, which is why it is important to pass CSHB 79. 5:03:51 PM REPRESENTATIVE BIRCH noted that he does not perform mechanic work on his own vehicle, and a mechanic shop advises as to the amount of time the work would take, and he pays that amount. Except, what if the person performing the work finishes it in two hours, he asked whether there is an opportunity to reward the person who completes a job more expeditiously. He said he understands there is a "per hour rate," but does that stymie competition by limiting the hourly rate, and if an independent contractor can do it twice as fast, maybe they actually end up getting paid more. MR. FRYE responded that the reward comes in securing the contract for the work, and if a construction company has a crew of employees that works more efficiently and bids the project fairly, it is rewarded by securing the contract. He reminded the committee that currently there is a system where people employing an unscrupulous business model are rewarded by cutting their labor costs and misclassifying all of their workers. He stressed that everyone can remain competitive in an industry and still have that industry operate in a fair manner. 5:06:24 PM BRANDON McGUIRE, Representative, UA Local 367 Plumbers & Steamfitters, said he is speaking on behalf of the membership of the UA Local 367 Plumbers & Steamfitters. It supports CSHB 79 because it impacts contractors looking to skirt the edges of ethics by calling a clear employee an independent contractor. Across the country this has been a way for contractors to take advantage of workers and this bill lessens the current penalty burden on the contractor. He said that dropping the penalty amount has a great impact when considering (coughing) current penalties can be an astronomical amount, and when contested, the penalties do not withstand review on appeal. This bill sets three times what workers' compensation insurance would have cost, and this amount would not just be determined by the amount of money, but also by considering the employer's size, nature of the employer's business, and financial gain the employer realized by failing to make the proper payments. He said this directly impacts the membership of the UA because its contractors are bound by the bidding process that is supposed to be fair. He advised that when it comes to bidding, the real difference in bids is almost always the manpower, which typically accounts for 40 percent or more of the costs on a job, and cutting labor costs makes the bidding process completely unfair. Often, that cost difference means the difference between being awarded the contract, and not being awarded the contract. In the end, he said it is the worker who suffers because most of these young kids do not have a clue about workers' compensation, "they just want to show up and do a good day's work and get paid for it." Overall, he remarked that CSHB 79 is fairer to all parties involved because it lessens the penalty on constructors while at the time strengthening the enforcement of the penalty to a degree in which it can actually be assessed as a damage to a contractor who is gambling on workers not being injured. 5:09:17 PM PAT FALON said he represents himself, and described that CSHB 79 is pro-business, and it updates workers' compensation laws. Many Alaskans are true independent contractors, except more outside businesses are coming to Alaska and breaking the laws and misclassifying workers. Defining independent contractor is a common-sense reform that will reduce the influence of misclassification, and this legislation contains other provisions modernizing workers' compensation as well. He said that he appreciates Governor Bill Walker for introducing this legislation thereby supporting Alaskan businesses and Alaskan workers, and asked that the committee pass the legislation out of committee. 5:10:51 PM RODNEY HESSON, President, Juneau Building Trades, offered support for CSHB 79, and in particular for the section defining the terms independent contractor and misclassification. He noted the committee understands previous testimonies as to the unfair bidding process by misclassification. Basically, he noted, the bill clearly defines independent contractor and misclassification which will help put an end to the unsafe practice of workers not being covered, and makes the employer vulnerable to lawsuits for a possible catastrophic injury. Overall, he noted, the bill is good and will protect and provide coverage for more Alaskan workers in the coming years. 5:12:37 PM REPRESENTATIVE BIRCH said he met with folks from the Alaska Surgery Center with concerns regarding Sec. 17, and asked how Sec. 17 was addressed in Version O. 5:13:34 PM MS. MARX referred to Version O, Sec. 15, page 8, beginning line 10, and advised it discusses the question at issue. The concern raised by stakeholder groups was actually on page 9, lines 15- 16, where the section references an Ambulatory Surgical Center Payment System produced by federal Centers for Medicare and Medicaid Services. The amendments, she explained, are adding onto the list of reference material that arose from HB 316 [passed in the Twenty-Eighth Alaska State Legislature], which changed the methodology, the way in which Alaska's medical fee schedule is calculated. House Bill 316 used reference material already out there from the American Medical Association as a base. For example, page 8, line 14, references the Current Procedural Terminology Codes produced by the American Medical Association and relative values set by the Centers for Medicaid and Medicare Services of which there are many. That legislation re-established the Medical Services Review Committee (MSRC) and told it to look at the fee schedule every year and update it. The American Medical Association updates the list of materials every year, the Centers for Medicaid and Medicare Services come up with its values every year and usually January 1 is the effective date. MS. MARX advised that the division preferred automatically incorporating them as each amended version came up, "just to say, okay we're using the new version January 1, 2018, the new version January 2019." The division was told it had to have legislative permission to incorporate future amended versions through that process, so the legislature granted permission for the numbers in the section (1) through (9), and after using the fee schedule for one year realized some were left off the list. She explained that the decision as to whether to use these materials or how they are used has been set by the legislature, and that is how the MSRC makes the recommendations. It then takes the recommendation to the Workers' Compensation Board and if the board and the MSRC are in agreement, they go through the regulatory process and are adopted. Again, she said, every year there will be a January 1 fee schedule in effect every year. In response to the stakeholder's concerns, she advised that this is just a list of reference material the MSRC and board may incorporate by reference for future amended versions as they become available from "these entities." 5:17:04 PM REPRESENTATIVE BIRCH surmised that this is not necessarily a prescription of what has to be used, it is basically only a reference. MS. MARX responded, "Absolutely," and affirmed that that is stated on page 8, lines 10-11, "the department may incorporate future amended versions of a document or reference material incorporated by reference." 5:17:35 PM CHAIR KITO, in response to Representative Knopp, advised that when the bill is next before the committee there will opportunities for discussion and having the department available. REPRESENTATIVE KNOPP requested that someone from the Division of Wage & Hour attend the next meeting. MS. MARX asked for a little more information so the folks could be prepared to answer questions. REPRESENTATIVE KNOPP said he would have his office call Ms. Marx regarding the information he is requesting. Representative Knopp then referred to Chair Kato's desire to move the bill out of committee for the sake of getting it moving, and said that this is the committee to fix these bills, it still warrants a lot of discussion, and he is not eager to move the bill until the discussions are finalized. He said, for the record, this is the place to fix the bill, and to not pass it on to the next committee to fix the bill. [HB 79 was held over.]