Legislature(2017 - 2018)BARNES 124

02/20/2017 03:15 PM House LABOR & COMMERCE

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03:19:19 PM Start
03:19:50 PM HB79
04:20:25 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
[Contains mention of SB 29 and HB 69.]                                                                                          
              HB 79-OMNIBUS WORKERS' COMPENSATION                                                                           
3:19:50 PM                                                                                                                    
CHAIR KITO  announced that  the only 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."                                                                                               
3:21:04 PM                                                                                                                    
HEIDI  DRYGAS,  Commissioner,  Department of  Labor  &  Workforce                                                               
Development (DLWD),  presented HB  79 on  behalf of  the governor                                                               
and thanked the committee for hearing HB 79.  She remarked:                                                                     
     This  bill  will  speed   up  resolution  of  disputes,                                                                    
     improve  delivery  of  benefits to  injured  employees,                                                                    
     deter     workers'    compensation     fraud,    reduce                                                                    
     administrative costs, and  provide adequate funding for                                                                    
     the   administration  of   the  workers'   compensation                                                                    
     system.   The  legislature has  consistently endeavored                                                                    
     to create a workers'  compensation system that delivers                                                                    
     benefits quickly, efficiently,  fairly, and predictably                                                                    
     to injured  workers at a reasonable  cost to employers,                                                                    
     as mandated by statute.                                                                                                    
     The system has not  been significantly reformed in more                                                                    
     than 10 years.   The improvements in  this bill address                                                                    
     rising  costs,  recent   legal  developments,  and  new                                                                    
     approaches  to  improve  the  system's  efficiency  and                                                                    
     fairness.   This  bill focuses  on  efficiencies.   The                                                                    
     department  recognizes  that  benefit  issues  such  as                                                                    
     reemployment  benefits   and  medical  costs   do  need                                                                    
     attention.   The department is committed  to addressing                                                                    
     those issues in another legislative session.                                                                               
3:22:20 PM                                                                                                                    
MARIE   MARX,  Director,   Division  of   Workers'  Compensation,                                                               
Department  of  Labor &  Workforce  Development  (DLWD), gave  an                                                               
overview of the sectional analysis for HB 79.  She remarked:                                                                    
     The   division   administers    the   Alaska   Workers'                                                                    
     Compensation Act.   I want to begin with  the intent of                                                                    
     the  Act  set  out  in   statute,  which  is  also  the                                                                    
     division's mission.  As the  commissioner stated, it is                                                                    
     to ensure  the quick, efficient, fair,  and predictable                                                                    
     delivery   of  benefits   to  injured   workers  at   a                                                                    
     reasonable cost to employers.   Balancing these pillars                                                                    
     guides the division's administration.                                                                                      
MS.  MARX stated  that  HB  79 would  address  all the  statutory                                                               
pillars,  with focus  on fairness,  quickness, and  efficiency in                                                               
the workers'  compensation process.   It  would speed  up dispute                                                               
resolution in various  ways and simplify and  quicken the hearing                                                               
process by letting  the board schedule a hearing  shortly after a                                                               
claim is filed,  instead of waiting for an employee  to request a                                                               
hearing.   Further, HB  79 would end  the practice  of permitting                                                               
non-attorneys,  who are  not bound  by the  rules of  ethical and                                                               
professional  conduct,  from   representing  parties  before  the                                                               
Alaska Workers' Compensation Board.                                                                                             
MS.  MARX clarified  that  a parent,  guardian,  or other  court-                                                               
appointed representative would still  be permitted to represent a                                                               
party  in  board  proceedings.    The  board  would  continue  to                                                               
consider a  company, employer,  or medical  provider to  be self-                                                               
represented  when  acting  through   an  authorized  employee,  a                                                               
member,  partner, or  a corporate  executive officer.   Ms.  Marx                                                               
offered clarification, as follows:                                                                                              
     This change  does not  affect a  party's ability  to be                                                                    
     represented  by an  attorney,  including an  attorney's                                                                    
     ability  to  employ  the  services  of  paralegals  and                                                                    
     delegating functions  to them.  That's  governed by the                                                                    
     Alaska Rules  of Professional Conduct.   ...  We permit                                                                    
     that, we will continue to  permit that.  However, other                                                                    
     non-attorneys  may not  represent  a  party in  matters                                                                    
     before the board.                                                                                                          
MS. MARX  said HB  79 would  streamline settlement  agreements by                                                               
eliminating a  requirement that the  board approve  attorney fees                                                               
as part  of a settlement agreement  when fees are the  only issue                                                               
in the  settlement that would  require board approval.   Further,                                                               
under  HB 79,  the process  of imposing  civil penalties  against                                                               
uninsured  employers   would  be  streamlined  by   allowing  the                                                               
Division of Workers' Compensation  to assess the penalty directly                                                               
rather than petitioning the board to set the penalty.                                                                           
3:25:14 PM                                                                                                                    
REPRESENTATIVE BIRCH  offered his  understanding that  the Alaska                                                               
Chamber  of   Commerce  had  some  concerns   about  the  current                                                               
structure of workers' compensation.   He asked to what extent the                                                               
proposed changes  have been  reviewed, considered,  and evaluated                                                               
by employers.                                                                                                                   
3:26:11 PM                                                                                                                    
MS. DRYGAS  stated that leading  up to HB 79,  numerous listening                                                               
sessions  across  the   state  took  place  in   order  for  [the                                                               
department] to  learn how to  improve the system.   She explained                                                               
that the  department has received  constant input  throughout the                                                               
the process of  developing HB 79.  She expressed  that there is a                                                               
balance  between the  rights of  injured  workers and  employers'                                                               
rights to reasonable and fair  costs.  She informed the committee                                                               
that the department has had  numerous conversations about ways to                                                               
improve  the process  with insurance  companies, businesses,  and                                                               
complainants'  attorneys.   She stated  that these  conversations                                                               
and the expertise  within the departments have  culminated in the                                                               
proposed  bill.   She  mentioned  that  there are  still  ongoing                                                               
REPRESENTATIVE BIRCH  commented that he  wants to make  sure that                                                               
businesses have  a seat  at the  table and  it's not  a one-sided                                                               
3:28:30 PM                                                                                                                    
MS. MARX  continued her overview of  HB 79.  She  added that with                                                               
the streamlined process of opposing  civil penalties, an employer                                                               
who disputes  the assessed  penalty would  still be  permitted to                                                               
challenge the assessment  before the board.  She  stated that the                                                               
bill would improve the delivery  of medical care by  requiring an                                                               
employer  to  preauthorize  or  deny  medical  treatment  upon  a                                                               
medical provider's  written request within  60 days.   She stated                                                               
that  the  timeframe  was established  to  avoid  litigation  and                                                               
confusion about preauthorization.   One interpretation of current                                                               
statute is that an employer's only  duty is to pay a medical bill                                                               
within 30 days.   A Supreme Court decision has  ruled that paying                                                               
a  medical  bill is  not  "the  extent  of an  employer's  duty,"                                                               
although the  decision didn't detail  other aspects of  the duty.                                                               
She  remarked that  a  doctor doesn't  necessarily  want to  move                                                               
forward with an  expensive surgery before being  sure he/she will                                                               
be paid; an  injured worker doesn't want to move  forward with an                                                               
expensive surgery not knowing who's going to pay for it.                                                                        
MS. MARX noted that currently  medical benefits are paid every 14                                                               
days  with  a  7-day  grace  period.   The  proposed  bill  would                                                               
simplify this by  clarifying that medical benefits  would be paid                                                               
every 21  days with no grace  period.  The bill  would not change                                                               
medical  bills being  paid within  30 days.   She  emphasized the                                                               
division's    commitment    to    addressing   the    issue    of                                                               
misclassification.    She  explained  that  not  doing  so  is  a                                                               
disservice to  workers, who can be  severely injured or die  as a                                                               
result of fraudulent misclassification,  and companies, which can                                                               
be put out of business as a result of uninsured losses.                                                                         
MS. MARX  stated that  HB 79 would  not prevent  true independent                                                               
contractors from  existing and flourishing.   She  explained that                                                               
the  narrow  application  proposed  under  HB  79  would  address                                                               
independent  contractor   status  only  in  regard   to  workers'                                                               
compensation.   She added,  "We must keep  workers safe  and law-                                                               
abiding  employers  should   not  have  to  pay   the  price  for                                                               
3:31:44 PM                                                                                                                    
MS. MARX stated  that in order to strengthen  fraud provisions of                                                               
the Act, HB 79 would  define when an employer's misclassification                                                               
amounts  to fraud.    She stated  that  the proposed  legislation                                                               
would:    impose  an  affirmative  duty  on  employees  receiving                                                               
benefits to report  work and receipt of other  types of wage-loss                                                               
replacement  benefits;  expand  personal liability  for  workers'                                                               
compensation benefits;  and expand civil penalties  to more types                                                               
of businesses for failure to insure.                                                                                            
MS.  MARX explained  that  HB 79  would close  a  loophole:   the                                                               
Workers'  Compensation Act  did  not  include [limited  liability                                                               
companies] (LLCs)  in the corporations  that would be  liable for                                                               
not  carrying insurance.   This  would allow  corporations to  be                                                               
liable for uninsured  compensation.  She stated that  HB 79 would                                                               
define  "independent   contractor"  instead   of  relying   on  a                                                               
convoluted  multi-factor  test  defining "employee."    The  bill                                                               
would grant  the division the ability  to claim a lien  on behalf                                                               
of  the Benefits  Guaranty Fund,  which is  the fund  for injured                                                               
workers.  She  noted that currently an injured  worker could file                                                               
a lien  immediately on  a claim, but  the Benefits  Guaranty Fund                                                               
cannot.   She  stated  that the  bill  would secure  compensation                                                               
benefits paid by the fund and assess civil penalties.                                                                           
MS.  MARX said  HB  79  would expand  the  division's ability  to                                                               
assess a civil penalty to  include employers who are underinsured                                                               
because  they   have  misclassified  workers.     Currently,  the                                                               
division can  assess a  penalty when an  employer fails  to carry                                                               
insurance at  all, but  there is no  recourse to  bring employers                                                               
who are underinsuring into compliance.  She remarked:                                                                           
     The  bill changes  the  calculation  and maximum  civil                                                                    
     penalty   for  a   failure  to   insure  for   workers'                                                                    
     compensation liability.  Right  now the maximum penalty                                                                    
     is $1,000 for each  uninsured employee workday and this                                                                    
     has  led to  two  unintended  consequences: ...  first,                                                                    
     it's resulted in astronomically  high penalties that do                                                                    
     not withstand review on appeal,  and that increases the                                                                    
     litigation  costs   ...  and  employer   defaults;  and                                                                    
     second,  uninsured  employers   that  do  not  maintain                                                                    
     accurate records ...  are actually frequently penalized                                                                    
     less  severely than  an employer  who keeps  records as                                                                    
     required by law  ... just because of  the difficulty of                                                                    
     establishing the number  of uninsured employee workdays                                                                    
     ... without those records.   So the bill corrects those                                                                    
3:34:34 PM                                                                                                                    
REPRESENTATIVE  KNOPP asked  for an  explanation of  underinsured                                                               
MS.  MARX responded  that there  are various  ways employers  can                                                               
fraudulently  underinsure  or  misclassify [employees]  to  avoid                                                               
payment  of  workers'  compensation  payments.   She  noted  that                                                               
employers might  pay an  employee "under the  table" or  tell the                                                               
insurance  company  an employee  is  clerical  when he/she  is  a                                                               
roofer, in  order to pay a  lower premium.  Employers  could tell                                                               
an insurance  company that employees  are leased from  a separate                                                               
company  - also  owned in  full  by the  employer -  that has  no                                                               
injury history  and is in  a low-risk  industry.  The  bill would                                                               
ensure a level playing field so workers are properly classified.                                                                
3:35:48 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  asked how  the premium for  the maximum                                                               
civil penalty would be calculated under  HB 79.  He asked how the                                                               
penalty   would  deter   employers  from   fraudulently  claiming                                                               
employees are independent contractors.                                                                                          
MS. MARX  answered that the  penalty would amount to  three times                                                               
the  premium  that   would  have  been  paid   had  the  employer                                                               
maintained  insurance as  required by  law.   The division  would                                                               
investigate and would have to  find substantial evidence that the                                                               
workers  were fraudulently  misclassified.    The division  would                                                               
then  calculate the  penalty  amount as  the  amount an  employer                                                               
would have  paid had all  employees been properly  classified and                                                               
REPRESENTATIVE  JOSEPHSON  asked  for clarification  whether  the                                                               
penalty  amount would  be  based  on the  number  of months  [the                                                               
employer] failed to pay the correct premium.                                                                                    
3:36:57 PM                                                                                                                    
MS. MARX  responded that is  correct.   Under HB 79,  the premium                                                               
would  be based  on the  length of  time the  employer failed  to                                                               
carry  appropriate insurance.    She explained  that the  penalty                                                               
calculation  in  HB  79  would  require  the  employer's  overall                                                               
payroll data  to be  calculated as if  the employer  had properly                                                               
classified its employees at the  Division of Insurance's assigned                                                               
risk rates  for the nature of  the employer's business.   The new                                                               
penalty would  result in a  reasonable deterrent that  takes into                                                               
account the employer's business size,  the nature and risk of the                                                               
employer's  business,   and  the  financial  gain   the  employer                                                               
realized by operating  without paying - in full or  in part - for                                                               
workers' compensation insurance.                                                                                                
MS. MARX continued by saying HB  79 would also clarify that civil                                                               
penalties may  not be suspended.   She offered  her understanding                                                               
that  currently  the  Alaska Workers'  Compensation  Board  often                                                               
suspends  penalties, in  full  or  in part,  in  response to  the                                                               
astronomically high penalties that  have been occurring; however,                                                               
this practice has resulted in  penalties without sideboards.  The                                                               
new  calculation  under  HB  79 would  put  sideboards  on  these                                                               
assessments by tying the penalty  to an employer's size, the type                                                               
of business,  and the financial  gain that the  employer realized                                                               
by not  having workers' compensation  insurance.  The  bill would                                                               
allow an employer  to enter into a payment plan  to pay the civil                                                               
penalty in  installments, which would  ensure an employer  is not                                                               
put out of  business by a civil penalty assessment,  though HB 79                                                               
would require interest  be paid on these plans at  the state rate                                                               
for judgments.                                                                                                                  
MS. MARX  listed ways  HB 79  would reduce  administrative costs:                                                               
the bill  would allow employers  to pay  benefits electronically,                                                               
which  would  deliver benefits  to  workers  faster while  saving                                                               
costs;   the  bill   would  allow   the   Division  of   Workers'                                                               
Compensation to prescribe the filing  format of reports of injury                                                               
and compensation payments - currently,  certain reports require a                                                               
stamped envelope; and  the bill would allow the  division to keep                                                               
up  with technological  changes, including  electronic filing  of                                                               
MS. MARX  explained that the  bill would eliminate  a requirement                                                               
for corporate  executive officers and  LLC members with  at least                                                               
10  percent  ownership to  seek  the  division's approval  before                                                               
opting  out of  workers'  compensation  coverage for  themselves:                                                               
they are not employees of the  business and therefore do not need                                                               
workers'  compensation coverage.    She stated  that the  current                                                               
application  process [to  opt  out of  coverage]  is lengthy  and                                                               
takes the  department an enormous  amount of time to  review, but                                                               
[ownership] is easily verifiable through other means.                                                                           
3:40:10 PM                                                                                                                    
MS. MARX  noted that HB  79 would reduce administrative  costs by                                                               
adding  some  medical  publications  to   a  list  the  DLWD  may                                                               
incorporate  into its  fee  schedule  and regulations,  including                                                               
future amended  versions.  The  bill would provide a  penalty for                                                               
insurers and employers  that fail to submit proof  of coverage in                                                               
a timely manner.  She stated  that there is currently no deadline                                                               
for reporting insurance renewals to  the division and HB 79 would                                                               
reduce  the  division's   wasted  efforts  investigating  insured                                                               
employers  that neglected  to  report  their insurance  coverage.                                                               
The proposed legislation would phase  out the Second Injury Fund,                                                               
saving  the department  administrative costs  and reducing  costs                                                               
for employers  who are required to  contribute to the fund.   She                                                               
explained  that  the  fund's  current  purpose  is  to  encourage                                                               
employers  to  hire  or  retain  individuals  with  disabilities;                                                               
however the fund  is no longer necessary with the  passage of the                                                               
Americans with Disability Act and  other laws that bar employment                                                               
discrimination.  She remarked:                                                                                                  
     Under the  bill, the fund  would not accept  new claims                                                                    
     and  ... would  be  phased out  as  current claims  are                                                                    
     paid.   So  employers'  required  contributions to  the                                                                    
     fund would  gradually drop  to zero  as the  claims are                                                                    
     paid.  So far, about half  the states, 19 of them, have                                                                    
     phased  out  these types  of  funds.   Finally,  HB  79                                                                    
     ensures adequate funding for  the ... administration of                                                                    
     the   Workers'   Compensation   Safety   Administrative                                                                    
     Account, we call this WCSAA.                                                                                               
MS.  MARX  informed  the  committee that  the  WCSAA  balance  is                                                               
rapidly declining.   In 2005, the  Alaska Legislature established                                                               
programs such  as the  Workers' Compensation  Fraud Unit  and the                                                               
Medical  Services Review  Committee, which  are funded  by WSCAA.                                                               
She explained  that there  was no increase  in the  WSCAA service                                                               
fee  rate  to account  for  the  costs  needed to  operate  these                                                               
programs.   She stated that  the bill would allow  the department                                                               
to receive a  greater percentage of the annual  service fees that                                                               
insurers pay.   She noted that more money would  not be collected                                                               
from insurers, but  a greater percentage of  the money collected,                                                               
which would otherwise go to  the general fund, would be allocated                                                               
to the division.                                                                                                                
3:42:56 PM                                                                                                                    
REPRESENTATIVE  BIRCH  asked  what the  percentage  change  would                                                               
generate in funding.                                                                                                            
MS. MARX responded that based on  fiscal year 2016 (FY 16), a .67                                                               
percent change would equate to 1.8 million dollars annually.                                                                    
3:43:49 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON asked  if the  amount employers  pay to                                                               
provide workers'  compensation would drop  as the pool  of people                                                               
paying for workers' compensation grows.                                                                                         
MS.  MARX   responded  that  she  doesn't   have  official  data.                                                               
Nevertheless,   she   stated  that   Representative   Josephson's                                                               
assumption  is  correct:   When  more  people  purchase  workers'                                                               
compensation [insurance]  and cover their employees,  the risk is                                                               
spread  out;  workers'  compensation  is an  allocation  of  risk                                                               
spread throughout all employers.                                                                                                
3:44:42 PM                                                                                                                    
REPRESENTATIVE KNOPP  asked if the  savings of up to  two million                                                               
dollars by  2023 shown on  the fiscal  notes is from  sharing the                                                               
costs between more employers.                                                                                                   
MS.  MARX answered  no.   She responded  that the  administrative                                                               
savings would  result from switching  to electronic filing.   She                                                               
stated that the  cost of providing more coverage  and sharing the                                                               
burden  is negligible.   The  Division  of Workers'  Compensation                                                               
does  not pay  the cost  of the  second injury  fund; rather  the                                                               
division  collects   the  funds  from  employers   and  insurance                                                               
companies and reimburses  them.  The fiscal note  shows the money                                                               
categorized differently over  the years.  She  explained that the                                                               
division  would have  no fiscal  impact under  HB 79  other than,                                                               
hopefully,   down   the   road,   the   department   would   save                                                               
administrative expenses.  She remarked:                                                                                         
     Most  Second Injury  Fund  claims  are permanent  total                                                                    
     disability,  which means  we generally  pay it  for the                                                                    
     life of  the claimant.  So  if we start phasing  it out                                                                    
     now,  ...  down   the  road  we  hope   to  save  those                                                                    
     administration expenses.                                                                                                   
3:46:31 PM                                                                                                                    
MS.  DRYGAS  stated  that the  administrative  services  director                                                               
could better speak to the details of the fiscal notes.                                                                          
3:47:36 PM                                                                                                                    
CHAIR KITO opened public testimony on HB 79.                                                                                    
3:47:57 PM                                                                                                                    
AVES THOMPSON,  Executive Director, Alaska  Trucking Association,                                                               
testified on  HB 79.   He stated that the  association represents                                                               
the  interests of  nearly  200 member  companies  statewide.   He                                                               
commented that  freight movement is  a large portion  of Alaska's                                                               
economy  and  affects  all  Alaskans.    He  expressed  that  the                                                               
association   has   concerns   regarding  the   changes   to   AS                                                               
23.30.230(a)(11)  proposed  in  HB   79,  which  would  determine                                                               
whether a  person is an  independent contractor for  the purposes                                                               
of workers' compensation coverage.  He remarked:                                                                                
     The independent  contractor or  owner/operator business                                                                    
     model  has played  an important  role  in the  trucking                                                                    
     industry for  decades.  Owner/operators serve  a valued                                                                    
     function within the trucking industry.   They are small                                                                    
     business  owners who  rely  on  their prudent  decision                                                                    
     making  and hard  work to  earn  a living  and build  a                                                                    
     business.   They  offer professionally  staffed hauling                                                                    
     and  delivery capabilities  to motor  carriers.   Their                                                                    
     revenues and  profits are directly tied  to their level                                                                    
     of effort  and business  judgements, that  is: choosing                                                                    
     the  right  truck  -  such  as  the  make,  model,  and                                                                    
     condition - for their  operations; deciding how to best                                                                    
     finance that truck;  select[ing] repair and maintenance                                                                    
     vendors;  and  deciding  whether  to  hire  drivers  or                                                                    
     substitute drivers.   Those initial decisions  are only                                                                    
     the tip of the iceberg.                                                                                                    
     Ongoing  business  decisions  must  be  made  regarding                                                                    
     fueling times;  vendor software use,  including routing                                                                    
     programs; insurance  coverages; and  a wide  variety of                                                                    
     other needed  products and services.   One of  the most                                                                    
     critical  decisions  that  an owner/operator  makes  is                                                                    
     their selection of a motor  carrier partner.  They must                                                                    
     select a  carrier whose  operations and  procedures fit                                                                    
     the contractor's business plan.   Then, as the business                                                                    
     grows, the  owner/operator must  decide the  utility of                                                                    
     acquiring  additional trucks  and  hiring more  drivers                                                                    
     and decide  whether to partner with  multiple carriers.                                                                    
     Motor  carriers   can  rely  on   the  owner/operators'                                                                    
     independent  motivation  and  business  skills  without                                                                    
     having  to  apply  the constant  and  detailed  control                                                                    
     necessary with carrier/employee drivers.                                                                                   
     The basic bargain the  owner/operator strikes with each                                                                    
     of its  motor carrier customers turns  on the potential                                                                    
     for mutual  profit.  If  the owner/operator  works hard                                                                    
     and  makes smart  decisions, he  or she  profits.   The                                                                    
     motor  carrier  profits  by professional,  timely,  and                                                                    
     efficient  delivery of  freight by  this self-motivated                                                                    
     independent  contractor.   The  motor  carrier can  ...                                                                    
     conserve its management resources  for other key tasks,                                                                    
     such  as  business  generation, customer  service,  and                                                                    
     financial   management.      Owner/operators   are   an                                                                    
     effective method  for the  industry to  quickly respond                                                                    
     to  changing customer  or  market  demands by  allowing                                                                    
     expansion and contraction of the workforce.                                                                                
MR.  THOMPSON noted  that  equipment and  driver  leasing in  the                                                               
trucking business  is heavily regulated  by both  federal statute                                                               
in 49  U.S. § Code  14102, and U.S. Department  of Transportation                                                               
(DOT) regulation in 49 CFR Part 376.                                                                                            
3:51:22 PM                                                                                                                    
MR. THOMPSON  stated that  the proposed  changes to  the workers'                                                               
compensation   statute   essentially    preclude   the   use   of                                                               
owner/operators in  the trucking  business in  a number  of ways.                                                               
First, the  determining factors proposed  under HB  79, paragraph                                                               
(11),  subparagraph   (A),  on   page  16   would  rule   out  an                                                               
owner/operator  who  works  primarily   for  one  motor  carrier.                                                               
Second,  paragraph (11),  subparagraph (E),  would leave  an open                                                               
interpretation  of the  direction  of the  motor  carrier to  the                                                               
contractor  or  owner/operator.    He  said  the  bill  does  not                                                               
demonstrate that directions are  often given to an owner/operator                                                               
as a  result of customer  demands or legal requirements.   Third,                                                               
paragraph (11), subparagraph (F),  would prohibit a motor carrier                                                               
from hiring  an owner/operator  to haul  a load  of freight.   He                                                               
recommended  that the  bill  should provide  an  exemption in  AS                                                               
23.30.230(a) that would exempt truck  drivers from the provisions                                                               
of  HB 79.    This  exemption would  establish  the truck  driver                                                               
owner/operator   business  model   in  Alaska   law.     He  also                                                               
recommended the  adoption of a distinct  truck driver/independent                                                               
contractor/owner/operator  definition  and  set  of  tests.    He                                                               
stated  that  the  association   has  provided  language  to  the                                                               
commissioner of  DLWD to accomplish the  recommendations, and has                                                               
provided other  proposed changes  to the language  in HB  79 that                                                               
would  address the  association's other  concerns.   He remarked,                                                               
"We  are happy  to  work with  the proposers  of  the changes  to                                                               
assist in clarifying the issues."                                                                                               
3:54:14 PM                                                                                                                    
SHELLY ERICKSON  testified on HB 79.   She stated that  the small                                                               
business  she   owns  received  a  claim   against  its  workers'                                                               
compensation policy.  She remarked:                                                                                             
     It has been  frustrating that the State  of Alaska laws                                                                    
     in this area  appear to be in favor of  the employee no                                                                    
     matter  what the  situation, and  I believe  that these                                                                    
     issues need  to be  addressed also when  you're dealing                                                                    
     with fraud.                                                                                                                
MS.  ERICKSON expressed  that laws  are needed  to protect  small                                                               
businesses  from the  abuse of  employees that  don't follow  the                                                               
safety  policies  or  [use  safety]  gear  as  instructed.    She                                                               
analyzed that current law assumes  the business is irresponsible.                                                               
She  suggested that  all newly  hired employees  need to  release                                                               
their   workers'   compensation  records,   because   specialized                                                               
businesses need  to know beforehand  whether an  employee "should                                                               
not have been  there in the first place."   She stated her belief                                                               
that  current  law  assumes  boat  owners  negligent  even  if  a                                                               
deckhand was in  the wrong.  She stated that  the biggest expense                                                               
of her  small business's workers' compensation  insurance rate is                                                               
fraud.   She  offered  her opinion  that there  need  to be  fair                                                               
consequences to employers  and employees; right now it  is a one-                                                               
sided system working  against the employers.   She expressed that                                                               
currently people  are desperate  in their  private lives  and are                                                               
looking  for  ways  to  get  money by  getting  around  the  law,                                                               
including through  fraudulent workers'  compensation cases.   She                                                               
remarked, "If  the law cannot be  written so these issues  can be                                                               
fixed within the ... insurance  industry, then the state needs to                                                               
provide a  place for the abuse  that is happening within  the law                                                               
to be addressed and make it fair for both sides."                                                                               
3:56:49 PM                                                                                                                    
REPRESENTATIVE BIRCH thanked Ms. Erickson  for her testimony.  He                                                               
stated that he has heard similar  concerns.  He asked whether her                                                               
suggested modifications  to HB  79 have  been addressed  with any                                                               
local or elected officials.                                                                                                     
MS. ERICKSON  responded that she  has not  been able to  get very                                                               
far.   She  stated that  her insurance  agency has  also come  up                                                               
against a wall  when addressing employee fraud.   She offered her                                                               
understanding  that no  one  is willing  to deal  with  it.   She                                                               
stated that  she has sent  a letter regarding  SB 29, HB  69, and                                                               
[HB 79], but  her efforts to talk to individuals  about the issue                                                               
have been unsuccessful.   She opined that this  is because nobody                                                               
thinks an employee could be fraudulent.                                                                                         
REPRESENTATIVE  BIRCH  asked  Mr.  Scott Jordan  if  there  is  a                                                               
mechanism that effectively deals  with fraud in small businesses.                                                               
He noted that  there are a lot of independent  business owners in                                                               
the state that are unable to  join the conversation in the middle                                                               
of  the  work  week.    He  asked Mr.  Jordan  how  he  draws  in                                                               
commentary from small business owners  to make sure the community                                                               
and government are responsive.                                                                                                  
4:00:28 PM                                                                                                                    
SCOTT JORDAN,  Director, Division of Risk  Management, Department                                                               
of  Administration,  responded that  he  might  not be  the  best                                                               
person to answer the question.   He explained that [the division]                                                               
serves as a  self-insurer for workers' compensation  for State of                                                               
Alaska employees.                                                                                                               
REPRESENTATIVE  BIRCH  commented  that   there  is  a  reasonable                                                               
framework  in  place to  deal  with  worker's compensation.    He                                                               
acknowledged that  Mr. Jordan deals  mostly with State  of Alaska                                                               
employees, but  asked for a  larger context for  small businesses                                                               
and trade  associations.  He asked  what the magnitude is  of the                                                               
state's risk:   How many employees are involved  and what benefit                                                               
costs are associated with workers' compensation?                                                                                
MR.  JORDAN answered  that there  are approximately  17,000 full-                                                               
time  employees,   excluding  University  of   Alaska  employees,                                                               
railroad  employees, and  some  smaller corporations'  employees.                                                               
He stated that  the division pays out $26 -  $30 million per year                                                               
in benefits; of that, 65 percent is medical, the rest is time-                                                                  
loss benefits.                                                                                                                  
REPRESENTATIVE BIRCH asked how many  of the 17,000 employees that                                                               
MR. JORDAN  answered it's  about 1,200 employees  per year.   For                                                               
the last 15 years, about  1,200 employees have turned in workers'                                                               
compensation claims.                                                                                                            
REPRESENTATIVE  BIRCH asked  how that  compares to  the [private]                                                               
MR. JORDAN stated that he can't answer that.                                                                                    
4:03:21 PM                                                                                                                    
CHAIR  KITO  asked  Ms.  Marx   how  the  independent  contractor                                                               
language identified in HB 79 on  page 17, beginning on line 9 was                                                               
MS. MARX stated  that it has been an ongoing  process.  She noted                                                               
that there is a misclassification  work-group to combat the fraud                                                               
issue, as  many states have  done, which  brings in all  types of                                                               
state  agencies to  work together.   She  remarked, "I'd  say the                                                               
last  10 years,  this has  been a  hot issue  nationwide."   Most                                                               
states  have  tried  to get  away  from  convoluted  multi-factor                                                               
balancing tests  and get to  a clearer definition  of independent                                                               
contractor.   She explained that  the division has looked  at all                                                               
50  states' tests,  all of  which are  a little  different.   She                                                               
stated that  the Internal Revenue  Service (IRS) has  a 20-factor                                                               
balancing test, which  is not the same as the  language in HB 79.                                                               
The IRS's goal  is to collect tax payments,  whereas the Division                                                               
of  Workers'  Compensation's  goal   is  narrower:    to  prevent                                                               
workplace injuries  and protect employers from  uninsured losses.                                                               
She  said  the  department  and  drafters  of  HB  79  considered                                                               
language from all  states and came up with a  list of things that                                                               
help identify what is a separate business.                                                                                      
CHAIR  KITO  asked  if applying  this  language  would  determine                                                               
whether the individual  or the employer would  be responsible for                                                               
getting a workers' compensation policy.                                                                                         
MS. MARX  answered yes.   The  definition sets  forth what  is an                                                               
independent   contractor.     She   explained  that   independent                                                               
contractors  are not  employees  and  workers' compensation  only                                                               
applies  to  employees.   She  noted  that most  individuals  are                                                               
considered  either  an  employee or  an  independent  contractor,                                                               
although   individuals   could   be  considered   volunteers   or                                                               
trespassers.    If an  individual  is  considered an  independent                                                               
contractor, he/she would not have  to carry workers' compensation                                                               
coverage  for himself/herself.   She  stated that  the department                                                               
encourages people  to get coverage  because uninsured  losses can                                                               
financially devastate an employer.                                                                                              
4:07:06 PM                                                                                                                    
REPRESENTATIVE  BIRCH asked  if the  Alaska Trucking  Association                                                               
was involved in the department's outreach.                                                                                      
MS. MARX responded that the process  has been going on for years;                                                               
during that  time, comments were provided  at listening sessions,                                                               
at board meetings, and through  personal phone calls.  She stated                                                               
that a  bill with similar  language last  year was passed  by the                                                               
House,  and the  department received  a lot  of feedback  in that                                                               
process.  She  noted that the department has met  with the Alaska                                                               
Trucking  Association  and  other  groups  and  is  refining  the                                                               
definition  based  on  comments   and  feedback  received.    She                                                               
remarked,   "We  do   not  want   to  prevent   true  independent                                                               
contractors from  operating.  We want  them to operate.   We just                                                               
want to make sure that those  employers who are following the law                                                               
operate on the same level playing field as those that do not."                                                                  
REPRESENTATIVE  BIRCH encouraged  Ms. Marx  to reach  out to  the                                                               
organizations  and  businesses that  have  a  lot of  independent                                                               
contractors because  those organizations  and businesses  will be                                                               
impacted  the  most.    He reflected  on  Mr.  Jordan's  previous                                                               
statement that 1,200  out of 17,000 employees - 7  percent - have                                                               
filed claims amounting  to $26 - $30 million per  year.  He asked                                                               
how that  compares to the  broad employee base, and  he expressed                                                               
that 7 percent seems large to him.                                                                                              
MS.  MARX  responded that  among  the  hundreds of  thousands  of                                                               
employees  in   Alaska,  about  20,000  workplace   injuries  are                                                               
reported:    of those,  1,200  end  up  having claims  filed  and                                                               
4:10:35 PM                                                                                                                    
REPRESENTATIVE  BIRCH asked  if the  aforementioned 1,200  claims                                                               
come from state  employees alone or from the  entire workforce in                                                               
MS. MARX commented  that the terms are confusing.   She explained                                                               
that insurance companies consider  injuries claims; however, when                                                               
she  refers to  the 1,200  claims, she  means an  application for                                                               
benefits  because   something  was  unpaid.     She  offered  her                                                               
understanding that  Mr. Jordan was  referring to an  injury where                                                               
[the Division  of Risk Management]  pays benefits, not  an injury                                                               
with disputed benefits.                                                                                                         
REPRESENTATIVE BIRCH  asked for an  "apples-to-apples" comparison                                                               
of  State of  Alaska's employee  injuries and  its safety  in the                                                               
work  environment.   He noted  that there  is a  proliferation of                                                               
chiropractors in Anchorage.   He stated his  desire to understand                                                               
whether the  State of  Alaska provides a  safe workplace  for its                                                               
employees.   He  reiterated  that 7  percent  of employees  seems                                                               
large.  He asked  to see how the State of  Alaska compares to the                                                               
state-wide industry as a whole.                                                                                                 
MS. MARX stated that injury  claim statistics would come from the                                                               
Division of  Risk Management; the  Research &  Analysis [section]                                                               
within DLWD  keeps track of  the comparison data and  injury data                                                               
in  conjunction  with  the U.S.  Department  of  Labor  Statistic                                                               
Bureau.     She  explained  that   the  Department   of  Workers'                                                               
Compensation administers reports of injuries and claims.                                                                        
4:13:33 PM                                                                                                                    
REPRESENTATIVE KNOPP commented that  the legislation would mostly                                                               
affect the private sector.                                                                                                      
MS. MARX agreed.                                                                                                                
REPRESENTATIVE  KNOPP suggested  that statute  should define  the                                                               
minimum requirement for any employee injury to be reported.                                                                     
MS. MARX responded  that the statute requires all  injuries to be                                                               
reported.   She conveyed that an  injured worker got a  small cut                                                               
on his thumb, put a Band-Aid on  it, and went on his way.  Later,                                                               
the wound  became infected and  needed significant  medical care.                                                               
Because  of such  circumstances, all  injuries -  whether or  not                                                               
they require medical  care - need to be reported.   She concluded                                                               
that this leads to the high number of reports of injury.                                                                        
REPRESENTATIVE KNOPP  expressed that  HB 79 would  have a  lot of                                                               
effect  on labor.    He  explained that  if  a  leased truck  was                                                               
getting $130  per hour  and switched to  a prevailing  wage, then                                                               
the  owner/operator  would no  longer  have  to pay  himself  the                                                               
prevailing wage rate or carry  workers' compensation for himself,                                                               
which could increase  the expenses to $170 per hour.   He offered                                                               
his understanding that those in  the trucking industry share this                                                               
concern.  He stated that  there may be unforeseen consequences of                                                               
defining  the employee/employer  relationship.   He asked  if the                                                               
practice of using  professional term employees (PTE)  is still in                                                               
the marketplace today.                                                                                                          
4:16:59 PM                                                                                                                    
MS. DRYGAS stated  she is not familiar with PTEs.   She addressed                                                               
Mr.  Thompsons's  concerns  by  stating that  the  department  is                                                               
hearing from  the industry.   She expressed that  tackling worker                                                               
misclassification  is  very  difficult.     She  remarked,  "It's                                                               
important, it's  necessary, but we want  to make sure we  ... are                                                               
casting  the net  ... only  as wide  as ...  is necessary."   She                                                               
noted  that  the  department  has  talked  to  Mr.  Thompson  and                                                               
reviewed  his proposals,  and the  department has  met with  [the                                                               
National  Federation  of  Independent   Business]  (NFIB)  and  a                                                               
homebuilders' association and is  addressing their concerns.  She                                                               
acknowledged that there is more refinement to do.                                                                               
4:18:01 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON commented that  HB 79 only addresses one                                                               
sliver  of the  problem of  misclassification.   He  told that  a                                                               
legislator cut her  hand and needed stitches.  He  asked that the                                                               
data requested  from the  Division of  Risk Management  has clear                                                               
definitions.   He offered his  understanding that  the legislator                                                               
didn't have  a loss of  time.   He commented that  state workers'                                                               
are  not  clumsier, but  they  may  take  comfort in  being  more                                                               
organized and  knowing that  a report of  injury would  not cause                                                               
any tension in the workplace.                                                                                                   
4:19:20 PM                                                                                                                    
MS.  MARX   stated  that   she  doesn't   know  how   to  address                                                               
Representative  Josephson's comments,  but she  offered that  the                                                               
bill would  aim to  make the process  more efficient  for injured                                                               
workers'  and  employers.    She  noted  that  HB  79  would  fix                                                               
longstanding  problems  and  gaps  which  would  benefit  injured                                                               
workers' and employers.                                                                                                         
4:19:49 PM                                                                                                                    
MS. DRYGAS  added her  opinion that  [state employees  have] less                                                               
fear  of retaliation.   She  acknowledged  that retaliation  does                                                               
happen, although  it is unlawful under  the Workers' Compensation                                                               
Act.  She offered her belief  that when a profession is organized                                                               
there is less  fear of losing jobs because  of protections within                                                               
the  profession's collective  bargaining agreement.   She  stated                                                               
that she does not have statistics to show that.                                                                                 
4:20:16 PM                                                                                                                    
CHAIR KITO announced that HB 79 was held over.                                                                                  

Document Name Date/Time Subjects
HB079 Fiscal Note DOLWD-SIF 1.30.2017.pdf HL&C 2/20/2017 3:15:00 PM
HB 79
HB079 Sectional Analysis 2.17.2017.pdf HL&C 2/20/2017 3:15:00 PM
HB 79
HB079 Fiscal Note DOLWD-WC 1.30.2017.pdf HL&C 2/20/2017 3:15:00 PM
HB 79
HB079 Supporting Documents-Presentation DOLWD 2.17.17.pdf HL&C 2/20/2017 3:15:00 PM
HB 79
HB079 Transmittal Letter 1.24.17.pdf HL&C 2/20/2017 3:15:00 PM
HB 79