Legislature(2017 - 2018)BARNES 124

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

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

Document Name Date/Time Subjects
HJR014 Supporting Documents Index 3.17.17.pdf HL&C 3/20/2017 3:15:00 PM
HJR 14
HJR014 Supporting Documents-Support Letters 3.17.17.pdf HL&C 3/20/2017 3:15:00 PM
HJR 14
HJR014 Supporting Documents-Universal Service Disbursements 2015 3.20.17.pdf HL&C 3/20/2017 3:15:00 PM
HJR 14
HJR014 Supporting Documents-Universal Services Fact Sheet 3.17.17.pdf HL&C 3/20/2017 3:15:00 PM
HJR 14