SB 323-WORKERS COMPENSATION AND CONTRACTORS    CHAIR CON BUNDE announced SB 323 to be up for consideration. SENATOR RALPH SEEKINS, sponsor, explained that it revises the workers' compensation acts as it applies to contractors and subcontractors. The two principal modifications are really as follows: First, the responsibility for payment of workers' compensation is extended up the chain of contracts to include project owners. Secondly, 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 only has recourse to workers' compensation benefits against his immediate employer and, if the employer is a subcontractor, against the contractor who retained the subcontractor. The proposed legislation allows recourse for 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. Finally, the proposed legislation extends the exclusivity provision set forth in AS 23.30.055 to all parties in the contracting claim chain related to a project. This includes the employer of the injured employee and those parties that are upstream in the chain of contracts from the employer of the injured employee. In other words, if an injured employee works for a subcontractor, then the subcontractor, the contractor and project owner would be free of tort liability so long as the injured employee receives the benefits set forth in the Alaska Workers' Compensation Act. SB 323 will encourage all parties participating in a project to identify and enforce strict safety standards for the benefit of all workers rather than deflecting responsibility through the use of indemnity agreements as is the common practice currently. At the same time, it insures that the injured workers will receive all benefits available under the Alaska Workers Compensation Act. It is intended, Mr. Chairman, to eliminate double dipping, but to make sure that every employee on a project is covered under the act. CHAIR BUNDE explained that this would expand the requirement to carry workers' compensation insurance from the subcontractor and the contractor to the project manager. SENATOR SEEKINS replied that everyone in the up chain must make sure that every worker on the job is covered no matter who they work for. CHAIR BUNDE asked if currently you're a contractor, you need workers' compensation. SENATOR SEEKINS replied yes, for employees. CHAIR BUNDE said that subcontractors might not have the insurance because they might not be covered by the owner's insurance. SENATOR SEEKINS responded that a subcontractor might be a sole proprietorship and might say he doesn't need to buy workers compensation. CHAIR BUNDE wanted to go the other way and asked if the contractor has a policy, does the project manager have to have a policy as well. SENATOR SEEKINS replied that the project manager has the responsibility to make sure that they are covered. If that means they have to carry the policy, I guess they would have to. It's a downstream responsibility to make sure that every worker that's on that project is covered.... We're trying to avoid the situation that does exist where someone is injured and a subcontractor, for example, is saying that he is a sole proprietorship and doesn't need it. Then they're injured and they go and say we were really an employee and goes to the board saying we want coverage. In many cases that happens. [END OF TAPE] TAPE 04-19, SIDE B  [SIDE B IS BLANK. GO ON TO TAPE 04-20, SIDE A] TAPE 04-20, SIDE A  2:25 p.m. SENATOR SEEKINS continued: That means that the project owner, before he can hire that subcontractor or contractor has to make sure that those people are covered or carry that coverage, themselves. CHAIR BUNDE said in all likelihood, the project manager wouldn't hire contractors who don't carry insurance or would require some kind of proof of coverage rather than purchase the insurance, themselves. SENATOR SEEKINS said project managers generally sign an indemnification agreement. They don't care because their negligence can go right back to the contractor. Because of the way courts have ruled in some cases, project owners don't even want to get into whether the contractor is having safety meetings, etc., because then, they are knowingly involved. SENATOR GARY STEVENS asked what kind of proof would be required so a project owner would not have to purchase it. SENATOR SEEKINS replied, "Through certificates of insurance." SENATOR FRENCH asked why people who build a residential home are excluded from the bill. SENATOR SEEKINS answered: I am excluding homeowners who may hire someone to come in to fix their driveway or fix their roof or fix their bathroom leak from being included in the definition of project owner. SENATOR FRENCH asked if they would still have tort liability. SENATOR SEEKINS said they are looking primarily at commercial applications. MS. PAM LABOLLE, President, Alaska State Chamber of Commerce, said this issue was brought forward by her membership. Her personal experience in this area is limited, but she promised to take any questions she couldn't answer to the group. We are in support, obviously, of this legislation.... This has been done in several other states. The risk of injury to employees engaged in work on a project is the same regardless of whether the employer works for a subcontractor, the contractor or the project owner. The immediate employer and other project participants are obligated to an injured employee's workers' compensation benefits regardless of fault in causing the injury. So, all project participants should be free of tort liability. The project participants take an integrated approach to completion of the project; they are a part of it. Therefore, the price of the insurance is worked into the contract when someone contracts to build something for someone.... So the project owner is, in essence, paying part of the workers' compensation insurance. In the event a worker is injured, he or she is entitled to receive the compensation benefits regardless of fault. This includes situations where no one is at fault and where the injured employee, himself, is exclusively at fault. In exchange for accepting liability payments of workers' compensation benefits regardless of fault, the injured employees need an employer and all other parties who are potentially liable for the payments of workers' compensation benefits should enjoy the immunity from tort claims. Evidently, in Alaska law, project owners were not historically liable for injuries caused by action or inaction of independent contractors they retained. For example, when the State of Alaska retains a qualified contractor as an independent contractor to construct a roadway, the state should not be liable for injuries suffered by the employees of the contractor. In that situation, by contract, the contractor represents that he has the necessary expertise to build the road, that he has the necessary tools and equipment and the experienced workmen to complete the work. Because the contractor, not the state, prosecutes the work, the state should be free of court liability in the event that an employee of the contractor is injured in his course of work. In Alaska, the courts have substantially diminished the independent contractor rule by adoption of what is referred to as the retained control doctrine. Under the doctrine, parties other than an employee's immediate employer can be liable in tort for any injury to an employee of an independent contractor if the party retains any amount of control over the work, including the right to review the contractor's safety practices. That's one of the benefits that this bill would bring about. Right now, the project owner is better to have hands-off control over the contractors, including their safety practices, in order to protect themselves. With the passage of this legislation, the benefit would be that they would have more of a reason and it would be to their benefit to make sure that all safety practices are followed. Secondly, the Alaska Workers' Compensation Act is intended to provide injured workers with reasonable compensation for their work-related injuries without regard or fault. If the levels of compensation benefits are not adequate to fully compensate injured workers, then the amount and type of recoverable benefits should be reviewed. However, an injured worker should not be allowed to recover workers' compensation benefits and then be allowed to assert tort claims for that same work-related injury. Injured employees should be compensated only once for their work-related injuries and the Workers' Compensation system has been set up specifically to do just that. Third, the tort claims based on the retained control doctrine burden the court system by allowing claims under the workers' compensation system and separate claims in state Superior Court based on tort law. The proposed amendment would encourage all parties participating in a project to identify and enforce strict safety standards for the benefit of all workers while at the same time insuring that injured workers will receive all benefits available under the Alaska Workers' Compensation Act. Job safety should be everyone's main concern and the proposed amendment is the best way to meet the goal while at the same time protecting the injured workers. CHAIR BUNDE asked her if she was contending that if this passed, a project owner would demand proof under potential legal liability for loss that their contractor has workers' compensation and then the contractor would have the same demand on subcontractors. He wondered about the double coverage. MS. LABOLLE replied that is her understanding, but she would check. CHAIR BUNDE said if that were true, he thought that project owners should want to have some kind of workers' compensation coverage as well, in the event someone was fraudulent in their representation. SENATOR FRENCH indicated to Ms. LaBolle that he was addressing his remarks to the people who do have expertise. He had some issues with her statement from the State Chamber, especially the part about Alaska law and wanted their response. I'll begin by saying that I read both the cases that the Alaska law section of your report refers to, both the Martinson vs Arco case and the Miloso vs State case. The real issue I have with some of the remarks in here specifically with respect to safety practices is this. The assertion is - in this section - that a project owner can be liable in tort for any injury to an employee of an independent contractor if the party retains any amount of control over the work including the right to review the contractor's safety practices. After I read Martinson and after I read Miloso, I was left with the belief that that's just not true, at least under those two cases. That's absolutely not true. Indeed, the Martinson case says that everybody does have a common law duty to provide a safe worksite to independent contractor employees, if the employer supplies or controls the worksite. That's the retained control. So, if you supply the warehouse and you know there's a vat of poisonous waste inside the worksite, you should probably put a sign on there that says don't weld here, don't drill here, don't get in behind this poisonous vat. The Martinson case goes on to say that there are bright lines of what constitutes retained control. It further says that an employer does not retain control if the employer only reserves the right to inspect the work to see that the contract specifications are met - while the independent contractor controls how and when the work is done. Then it says an employer does retain control if the employer retains the right to direct the manner of the independent contractor's performance or assumes affirmative duties with respect to safety. So, when I read in this synopsis of Alaska law that you can be sued in court for simply reviewing the contractor's safety practices, I find the statement almost directly in opposition to that in Martinson. So, I would appreciate it if you can go on to whoever wrote that and come back and say no, no, no, here's a better read on that. So, I guess my question is are there other cases that I'm unaware of besides these two that you've cited that I've gone ahead and read or is it simply the position of the author of this paper that these cases really do stand for what's here in this write up. Thank you. MS. LABOLLE said she would take that back to the author. SENATOR SEEKINS said this bill makes project owners responsible to make sure that any of the workers that are hired either by a contractor or by a subcontractor are covered with workers' compensation insurance regardless of the area of responsibility, because that's a point that can be argued on both sides. I've talked to some of the attorneys on both sides of the issue as well. But in this case, as I read this bill and the way we've put this bill together, it would now require that every employee on that site be covered with workers' compensation [insurance]. Am I correct? MS. LABOLLE replied that is her understanding. SENATOR SEEKINS asked if that is good public policy or bad. MS. LABOLLE replied that she thought that is good public policy. SENATOR SEEKINS continued his thought saying that it protects the employee at whatever level. He has had experience with people who have said they don't want any employees; all their employees were going to be subcontractors with subcontractor agreements - the idea being that they don't want to have to pay workers' compensation insurance. He asked if she had seen that happen. MS. LABOLLE replied yes. SENATOR SEEKINS said this bill absolutely makes that impossible to happen. MS. LABOLLE replied that is her understanding. SENATOR SEEKINS said: That's what we're after. Whether we argue where the line of responsibility is, what we're trying to protect here, Mr. Chairman, is the employer who may be forced into a subcontractor situation because that's the kind of scumbag he might be working for as a contractor. We've all seen it done.... The intent here is to say everyone is covered and you have an exclusive remedy. CHAIR BUNDE said he had personal knowledge of people who have been creative in defining subcontractors to avoid insurance payments. He said there was a question earlier about the relationship of the homeowner contracting to have some repairs or to have a house built; he saw headshaking from the insurance section of the audience. SENATOR SEEKINS responded: Mr. Chairman, I wouldn't have any problem with that as long as the homeowner is willing to make sure that they provide workers' compensation for somebody on the same basis that a project owner would. MR. MIKE LESSMEIER, State Farm Insurance, said he practiced law in this state for almost 25 years and could answer Senator French's question. Right now under the law, if you hire a plumber to come into your house or an electrician or even a general contractor to build your house for you, it's hard for me to see how you would have any liability to someone that was injured on the job. The analysis that you talked about when you reviewed those two cases would probably be the analysis to go through. In other words, you would look to see if the homeowner retains sufficient control over the details of the work that is performed. I've rarely seen that kind of liability; I've rarely even seen the attempt to make homeowners liable under those sorts of circumstances. One of our concerns in looking at this bill was whether it was intended to cover homeowners and people, but it does not. CHAIR BUNDE thanked him and asked if anyone else wanted to testify on SB 323. MR. DAVE DILLARD, 321 Construction, asked, "Why can't we make a homeowner liable for whoever has worked on his house to build that house?" CHAIR BUNDE replied, "I'm not sure why we can't. I'm sure we could. The question might be why would you want to, but." MR. DILLARD replied: Because technically, a homeowner can call up job service and have the people come out and start building the house and if he pays over $600, he's got to hold back federal income tax and stuff, but technically, he doesn't have to cover them under liability workers' compensation. Why wouldn't we want him to cover that person? CHAIR BUNDE answered that he would have to ask the insurance industry again, but he suspected there would be personal liability. SENATOR SEEKINS inserted: I wouldn't have a problem holding homeowners responsible provided - but here again we're getting into a situation where when I hire someone to work on my house, they're a sole proprietorship and under current law, as I understand it, as long as I haven't set a booby trap for them some way or another, they are the expert in what a safe workplace would be and I'm just a homeowner who may not be capable, or should not even be capable of, being able to assess that responsibility. But the professional holding himself out as professional has that additional responsibility.... MR. DILLARD said he could build one house a year as a homeowner and not have to pay any of that. His son and wife could build a house a year, too. He thought everyone should be able to build his own house, but he didn't see why they shouldn't have to take liability for people who were hired to work on it the same way a professional builder has to. CHAIR BUNDE said, "I think if you're going to have a potential homeowner have workers' compensation, well, why would they ever have a general contractor then, because that's just doubling their expense?" CHAIR BUNDE said this bill would be set aside for a future date. There being no further business to come before the committee, he adjourned the meeting at 2:50 p.m.