HB 214-PUNITIVE DAMAGES AGAINST EMPLOYERS  CHAIR SEEKINS announced HB 214 to be up for consideration. REPRESENTATIVE SAMUELS, sponsor of HB 214, explained that there had been discussions of the definitions of management and management agent in a previous meeting and that had been incorporated into a committee substitute. SENATOR THERRIAULT motioned to adopt SCS CSHB 214(JUD), version \Q. There was no objection and it was so ordered. REPRESENTATIVE SAMUELS said the substance of the bill didn't change, but the definitions were put in. He said the language in the bill is from restatements of the national standard, but it's even closer with this version. The definitions out of the VECO v. Rosemont case concerned sexual harassment outside the workplace. SENATOR FRENCH said the Alaska State Supreme Court reversed that saying that you couldn't give punitive damages for harassment outside the workplace. REPRESENTATIVE SAMUELS replied that in this bill "punitive damages may not be awarded unless the employee was employed in a managerial capacity and was acting within the scope of employment", which should include Senator French's concerns. MS. SARA NIELSON, Staff to Representative Samuels, said she talked with the drafter who said it was better to leave the definition broad, which would leave it up to the court. SENATOR FRENCH said he was more concerned with language on line 14 that says, "...was employed in a managerial capacity and was acting within the scope of employment." He thought the previous clause had to do with a renegade employee. CHAIR SEEKINS responded that if they are acting within their scope of employment their employer can be vicariously liable, but any foreman acting outside the scope of his employment and authority should not subject his employer to vicarious liability. SENATOR FRENCH said he thought the committee should keep in mind "that if we think we're adopting one rule when in fact the rule has consistently been interpreted the other way, we'd be wasting our time." In the Laidlaw case where the bus driver was smoking marijuana while she was on the job, you would believe intuitively that that was completely outside the scope of her employment. No one would believe that smoking marijuana would be part of a person's job. Yet, in the Laidlaw case, the court said, and I'll quote it, 'Moreover, the fact that Laidlaw policy explicitly prohibits smoking marijuana does not insulate the company from liability. A wrongful act committed by an employee while acting in his employer's business does not take the employee out of the scope of employment even if the employer has expressly forbidden the act.' That is partly why we are being very careful to limit the liability in this bill to someone other than the lowest level employee - I believe because of that result. And so, what we're doing, we're exempting the burger flipper, we're exempting the bus driver, we're exempting the people from the very lowest rungs of the business from making the employer liable. So, for that reason, within the scope of employment, is part of the battle, but managerial capacity is the other part. No one in their wildest imagination is going to say that the bus driver is a managerial employee, because he or she doesn't direct policy, doesn't make the call, doesn't direct a crew, isn't fulfilling or shaping how the company does business. For that reason I'm concerned about where we set the line in this managerial capacity definition. CHAIR SEEKINS said that the bus driver wasn't even legal to drive at the time and although he didn't want to reargue that case, he thought it was fair to say that in the future, employers should be held responsible for decisions that were made within the scope of authority, not of employment. REPRESENTATIVE SAMUELS said that they have to draw the line somewhere and if they draw it too low, the bill becomes worthless and that puts the entire company at risk again. "That's just not fair, first of all." SENATOR FRENCH said he still had a problem with the definition of managerial agent and wanted to know where in the VECO case this definition came from, because page 10 of the decision, footnote 12, says: A management level employee has been defined as one who has the 'stature and authority of the agent to exercise control, discretion and independent judgment for a certain area of business with some power to set policy for the company.' MS. NIELSON said that language could be used. "It wouldn't change it that much." CHAIR SEEKINS said that "agent" has a totally different definition than "employee." An agent would indicate someone who is not a regular employee, but is under contract or something like that. MS. MARSHA DAVIS, General Council, ERA Aviation, said the agent is a very broad concept in law. Using the term here does not restrict it from applying to employees. She said they didn't want the perception that they were trying to deviate from the restatement in terms of how the clause would be applied. This version uses the structure of section 909 of the restatement almost verbatim. The only difference is they inserted "employer" for "principal" - the only substantive difference with the attempt to define the concept of what is a manager agent. She also noted where the restatement sets out the general principal of law, there is a section called "comments" that adds examples for clarification. She said the fourth category is the one that hangs the employer out the most. It says if the employee who did the wrongdoing was at a high enough level, they are liable no matter how innocent the employer may be. For that reason in the comment section it says it's to deter an employer from hiring [questionable characters] for important positions. You assume the employer is acting within the scope and that the employer is vicarious. "That is a strict liability for the employers." But, when you step back to the next level, do they want to allow the punitive damages to be hooked to the employer? The Alaska Supreme Court has said no and it would only impose punitive damages on the employer if they met one of the four criteria. The restatement sets the standard quite high for strict liability for punitive damages. SENATOR FRENCH asked if she thought the VECO definition of a management level employee was adequate. MS. DAVIS replied it didn't give her too much heartburn. The independent judgment is the critical piece in the definition. CHAIR SEEKINS asked her, as an attorney who represents an employer, if she was comfortable with the CS. MS. DAVIS replied that she was extremely comfortable. SENATOR FRENCH said he would be interested in drafting a definition of managerial agent and management level employee to comport with what they just discussed coming out of the VECO decision. CHAIR SEEKINS noted that Senator Ogan had some concerns and he would hold the bill for him to comment. REPRESENTATIVE SAMUELS suggested after "employee" on page 2, line 1, inserting the definition that is in VECO and eliminate the rest of the sentence. It would read: ...means a management level employee with the stature and authority of the agent to exercise control, discretion and independent judgment over a certain area of the business with some power to set policy of the company. He said that language comes straight out of the footnote. SENATOR FRENCH and Ms. Davis agreed with that. CHAIR SEEKINS said they would hold that in abeyance until Senator Ogan could ask his questions. HB 214-PUNITIVE DAMAGES AGAINST EMPLOYERS  CHAIR SEEKINS announced that HB 214 was back before the committee. SENATOR OGAN said he was concerned with the vicarious liability issue and that past tort reform limited liability so juries couldn't award ridiculously high amounts in punitive damages. TAPE 03-41, SIDE B  SENATOR OGAN asked for the liability to the employer to be explained using an experience he had this morning where a restaurant employee wasn't dressed appropriately and it raised a question in his mind about whether or not the employee washed his hands. MS. DAVIS responded that under this bill: ...the employer is strictly liable for the medical bills for all damages that flow from a patron because he's sick. This does not change any of the underlying [indisc.] of damages. Essentially, the public is protected from harm and the employer is the deep pocket no matter what those employees do - unless that employee were outside the scope of employment - that is not in a restaurant.... CHAIR SEEKINS said that in effect this isolates the company from having to pay the punitive damages for the outrageous behavior that was not authorized by the company of the employee who performed the outrageous behavior. MS. DAVIS added you would never see punitive damages come out of the type of situation Senator Ogan described, but, if the person was sick with typhoid and had intent to spread it, if the employer saw the employee not washing his hands and didn't do anything about it, he would be liable for punitive damages as well. SENATOR OGAN wanted to know the definition for managerial agent. MS. DAVIS replied it matches the restatement section 909 of tort. They are trying to capture someone who sets policy. She explained the use of comments in the law. MR. MIKE FORD, Attorney, Division of Legal Services, said he thought the important thing was to be clear on how precisely they want to define this and using the VECO definition would be fine. SENATOR OGAN referred to an incident where a helicopter pilot employee didn't follow company training policy and got in an accident to ask whether the company would be held harmless for anything other than the strict liability under this bill. MR. FORD replied that he wasn't sure that it would change anything, because they are trying to draw a line between someone who has the actual authority to create or modify the employer's policies and he didn't think the pilot did have that authority. CHAIR SEEKINS said the pilot didn't have the authority to change company policy and they are strictly liable for the actions, but they would not have to pay punitive damages against the pilot. MR. FORD added that's assuming the pilot is just the pilot. CHAIR SEEKINS said he likes to make the employee responsible for his own bad behavior. SENATOR OGAN said he struggles with that, because it relieves some of the employer's responsibility to monitor what goes on. CHAIR SEEKINS interrupted to say that they are strictly liable, but not for the punitive damages. SENATOR OGAN replied they have insurance for strict liability and they don't always have insurance for punitive damages. CHAIR SEEKINS said you couldn't insure against punitive damages. SENATOR THERRIAULT asked Mr. Ford whether an employer could be responsible for punitive damages if they had a set of procedures but training was inadequate. MR. FORD replied that the question would be whether this person has the power to set policy. If not, he would not be a managerial agent. SENATOR OGAN asked if, under this bill, the only way they could be sued for punitive damages is if their policies are not right. MR. FORD replied no, the question would be who did the wrongdoing and what kind of employee were they. Did they carry out policy or did they set policy? Every case rests on a specific set of facts and trying to come up with a rule that addresses all the cases is hard to understand. This reduces the facts to answer that. CHAIR SEEKINS asked if they were plowing new ground here as far as restatement of torts and other state laws. MR. FORD replied Alaska has some case law that is out of the main stream and by adopting the restatement of torts; we're not setting new law. CHAIR SEEKINS thought that they were bringing Alaska into the main stream of law with this bill and wanted to know if they were eviscerating anyone's rights. MR. FORD replied this bill does not set out in a bold new direction. SENATOR OGAN asked how many other states deal with vicarious liability. MR. FORD said he didn't know off hand, but he would find out. He understands that 25 - 26 states do follow the restatements point on this issue. REPRESENTATIVE SAMUELS commented this doesn't deal with just strict liability for compensatory damages, but if a company is found directly liable, you're still on the hook for everything, including punitive damages. This is only for vicarious liability where you're not found directly liable. SENATOR THERRIAULT asked if there had been an attempt to make the employer strictly liable and the court made a ruling that they are not. REPRESENTATIVE SAMUELS nodded yes. SENATOR FRENCH thanked Representative Samuels for saying "vicarious liability" as that is the correct term. SENATOR OGAN said he was worried that this change in law would cause an employer to be less than judicious about making sure their employees are behaving within the scope of their responsibilities. CHAIR SEEKINS pointed out that it only concerned punitive damages for an employee outside the scope of employment. He said he would hold the bill as a courtesy to Senator Ogan.