MINUTES OF MEETING

      ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT

 

      Sixty-seventh Session

      March 9, 1993

 

 

 

The Assembly Committee on Labor and Management was called to order by Chairman Chris Giunchigliani at 3:30 p.m., Tuesday, March 9, 1993, in Room 321 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda, Exhibit B is the Attendance Roster.

 

 

COMMITTEE MEMBERS PRESENT:

 

      Ms. Chris Giunchigliani, Chairman

      Mr. Bernie Anderson, Vice Chairman

      Mr. Douglas A. Bache

      Mr. John C. Bonaventura

      Mr. John Carpenter

      Mr. Tom Collins, Jr.

      Mr. Peter G. Ernaut

      Mr. Lynn Hettrick

      Mrs. Erin Kenny

      Mr. John B. Regan

      Mr. Michael A. Schneider

 

 

COMMITTEE MEMBERS ABSENT:

 

      None 

 

GUEST LEGISLATORS PRESENT:

 

      None

 

STAFF MEMBERS PRESENT:

 

      Mr. Donald O. Williams, LCB Principal Research Analyst   

 

 

OTHERS PRESENT:

 

      Ms. Ande Engleman, Nevada State Press Association, Inc

      Mr. Jim Shell, Senior Research Analyst, Employment Security

            Department

      Ms. Theresa Rankin, Insurance Commissioner, Department of

            Insurance

      Mr. Sam McMullen, Nevada Self-Insured Association

 

 

 

 

 

After calling roll, Ms. Giunchigliani opened testimony on AB 292, noting Speaker Dini, the requestor, was not available.  Ms. Ande Engleman had been asked to make a presentation in his absence.

 

Assembly Bill 292Revises exemption from provisions concerning unemployment compensation for persons who deliver or distribute newspapers or shopping news.

 

Ms. Ande Engleman, Nevada State Press Association, Inc, testified in favor of AB 292.  She explained Mr. Jim Sanford, the Mayor of Yerington and publisher of both the Mason Valley News and Fernley Leader/Dayton Courier, was not able to testify due to official duties.  She noted AB 292 was an attempt to seek clarification of existing legislation.  Adults who had replaced children in the delivery of newspapers were defined as independent contractors who purchased their papers wholesale from newspaper offices and either resold them to delivery people or "bundle haulers."  Ms. Engleman perceived the problem resulted from a recent case where an independent contractor applied for unemployment insurance upon quitting his job.  The Employment Security Department (ESD) reviewed the existing statute noting an exemption existed for those under the age of 18.  Without delving further into the independent contractor question, ESD began assessing the newspaper for past unemployment insurance.  In rebuttal the newspaper prepared to take the issue to court with the backing of the Press Association.  Smaller newspapers which had previously been delivered by mail had more recently converted to hiring carriers, however, until this problem can be resolved those same carriers have again reverted back to mail delivery.

 

Mr. Anderson questioned whether this bill would also exempt newspaper employees supplying newspaper racks. 

 

Ms. Engleman pointed out those individuals were not employees of the newspaper, but actually single-copy delivery people who purchased the papers wholesale.  Prompted by another question, she emphasized all delivery people were independent contractors, none were newspaper employees. 

 

Ms. Engleman determined newspapers did not presently pay unemployment insurance on delivery people because they were all classified as independent contractors.  However, she indicated as a result of a court decision over 30 years ago, companies did pay workers' compensation insurance on these same people.

 

Ms. Giunchigliani noted previous problems had been identified with the definition of independent contractors relative to workers' compensation as well.  A question was presented to the Employment Security Department as to the dollar impact of exempting by age classification.

 

Mr. Jim Shelly, Senior Research Analyst, Employment Security Department, stated the department was basically neutral on AB 292.  Further, he would attempt to provide the dollar impact of this legislation.  In reference to the case Ms. Engleman quoted, he noted the statute specifically included certain newspaper carriers under the age of 18 as a specific exclusion to the law when making a determination.  In addition, these persons might be excluded as independent contractors under Nevada Revised Statute (NRS) 612.085 if all criteria were met.  Further, Mr. Shelly proclaimed all decisions could be refuted through the two appeals levels.

 

Mr. Shelly related Nevada's exclusion had precedence over Federal law which was broader than Nevada's.  The problem ESD saw with AB 292 was it went beyond the exclusion of the Federal Unemployment Tax Act (FUTA) (Exhibit C).  It would exclude some people from state law who were not excluded under federal law.  As an example, FUTA statute excluded only those individuals who distributed to the ultimate consumer.  Further, those over the age of 18 were excluded only if they were compensated by the difference between the sales price and purchase price of the newspaper.  This, Mr. Shelly stated, was in direct conflict with NRS 612.070, paragraph 2 (Exhibit D), which stated any services required under the federal act were also required under the state act.  Additionally, if services were provided under the federal act, but excluded under the state act the employer would be required to pay the full FUTA 6.2 percent tax.  Therefore, occasions might arise where persons pay the full 6.2 percent FUTA tax with no unemployment coverage.  In conclusion, Mr. Shelly noted it was not a conformity issue, but to avoid potential problems ESD suggested language which paralleled the federal law. 

 

Mr. Bache inquired if newspapers hired carriers as employees, opposed to independent contractors, whether they would be excluded under AB 292.  Mr. Shelly contended carriers were specifically excluded, they could not elect to be employees.

 

Circulation people were specifically exempted under the Business License Tax at present, which Ms. Engleman opined clearly delineated carriers as independent contractors.

 

In response to Chairman Giunchigliani, Ms. Engleman stated only independent contractor's holding a business license with a certain number of employees would be required to pay unemployment taxes.

 

Ms. Engleman explained the question was not one of paying workers' compensation, but related solely to unemployment insurance.  She observed there would not be a financial impact as companies had never paid unemployment insurance on newspaper carriers.  These people were, without a doubt, independent contractors and the purpose of AB 292 was for clarification only.

 

Mr. Shelly contended the other statute which should have been reviewed in the case in question by Ms. Engleman was NRS 612.08, commonly referred to as the "independent contractor status."  It differed, however, from other definitions of independent contractors and was unique to the unemployment insurance program.  Mr. Shelly stressed the mere existence of a contract did not qualify an individual as an independent contractor. 

 

Some examples of the independent contractor parameters for the State Industrial Insurance System (SIIS) were defined by Ms. Giunchigliani.  Mr. Shelly agreed the major component was whether the individual had direction and control over the details of his work.  In addition, NRS 613.085, paragraph 3, claimed the individual had to be independently established in a business. 

 

Mr. Carpenter questioned why the delivery of newspapers should be different than the delivery of any other commodity, such as "cattle."  A discussion ensued on the "contract" which existed between the newspaper company and the person delivering the papers. 

 

Ms. Engleman attested there was not an employer/employee relationship between these individuals.  The delivery person set his own time schedule, provided his own  transportation and racks, and arranged his own contracts for the placement of his papers. 

 

A question was raised on the payment for delivery of newspapers.  Mr. Regan asked if these persons were independent contractors, why did he mail his payment directly to the newspaper's office. 

Ms. Engleman explained it was mainly for convenience.  However, carriers had the option of having payments sent directly to the newspaper, which would in turn deduct the cost of the wholesale papers and issue the carrier a check for the difference. 

 

Mr. Regan interpreted federal regulations were then being met as individuals, who delivered to the ultimate consumer and/or were paid the difference of the cost and sales price, were excluded.  It appeared to him most Nevada newspapers operated in such a mode, thus were independent contractors under both federal and state regulations. 

 

Mr. Shelly disagreed.  He maintained the individual must meet all criteria of NRS 612.085 pertaining to "independent contractors."  The federal statute which excluded individuals under 18 who delivered to the ultimate consumer, not including delivery to drop-off points, were excluded no matter how they were paid.  The second federal exclusion was anybody, regardless of age, who delivered to the ultimate consumer and who was compensated the difference between purchase and selling price.  Mr. Shelly indicated ESD was totally neutral in following the federal guidelines regarding those two points, however, the current language of AB 292 excluded everybody who distributed newspapers, even if they were paid an hourly wage.  He deemed the proposed language would even exclude newspaper employees who delivered newspapers.

 

Ms. Engleman claimed it was not the intent of this legislation to exclude actual employees of the newspaper. 

 

Ms. Giunchigliani contended the payment of workers' compensation by the newspaper office established some sort of employer/employee relationship.  It was also her opinion the newspaper's circulation department determined subscription delivery.  She, therefore, asked Ms. Engleman to provide the committee a flowchart of how distribution occured.  She surmised AB 292 would be heard again at a later date and suggested the federal act and a copy of the workers' compensation court order of 30 years ago be provided for review.

 

Mr. Ernaut questioned if Mr. Shelly believed the carriers over 18 were presently in violation of the federal law. 

 

In reply, Mr. Shelly determined each case would have to be reviewed individually.  If the carrier was over the age of 18 and did not meet the provisions of "independent contractors" found in NRS 612.085, they would be in violation of the law. 

 

Mr. Shelly, responding to another question by Mr. Ernaut, opined those companies who were found to be in violation would retro-actively be assessed back a period of three years.  He could not provide an opinion on whether the assessment could be waived.

 

Mr. Hettrick pointed out the current language of AB 292 would also exempt employees of independent contractors who delivered newspapers. 

 

Ms. Engleman posed no objection to clarification of this concern.

 

Vice Chairman Anderson maintained additional information was needed on this legislation before action could be taken.  He reminded Ms. Engleman and Mr. Shelly of the requested items and closed the hearing on AB 292 as no others wished to testify before the committee.

 

Assembly Bill 287Prohibits temporarily commissioner of insurance from certifying employers as self-insured employers.

 

Testimony on AB 287 was opened by Vice Chairman Anderson.  Attention was called to Exhibit E, the amended language proposed by Chairman Giunchigliani with the help of Mr. Regan.

 

Mr. Regan reviewed Section 4, page 3, line 10 of the amendment directing attention to the net worth requirement of "$5 million."  He presented another concept for consideration of this figure.  It was suggested the actual percentage of increase in medical costs from 1981 through 1983 be applied to the existing $2.5 million requirement.  

 

Ms. Giunchigliani maintained the State Industrial Insurance System (SIIS) had been asked to provide this figure referred to  by Mr. Regan.  However, the question would have to be broached later as nobody from SIIS was in the room at the time.

 

Referencing the amendment of Section 4, Ms. Giunchigliani theorized the Consumer Product Index (CPI) had different components which needed to be reviewed.  She noted the language attempted to deal with "grandfathering" of companies currently self-insured.  Further, she explained those companies' net worth requirement would be adjusted during their next annual reporting period or one year, whichever was later.  The second paragraph of the amendment of Section 4 dealt with revoking of the self-insured certificate for actual insolvency, not merely for material noncompliance.  The amendment of Section 6, as explained by the Chair, would provide a six to nine month window before expiration of the moratorium.  

 

Chairman Giunchigliani indicated she was willing to hear response to the proposed amendment.  Her intent, the committee willing, was to ask for a motion to amend and rerefer this bill to committee to provide a clean document to work with.  She asked the Commissioner of Insurance, Ms. Rankin, to come forward with the proposed amendment offered by the Department of Insurance.

 

Ms. Theresa Rankin, Insurance Commissioner, reviewed her proposed amendments which would affect those under current application and out-of-state companies entering Nevada (Exhibit F).

 

Ms. Giunchigliani indicated under her new proposal, the date of July 1, 1996 in Ms. Rankin's amendment, Section 6, would have to be changed to December 31, 1993.

 

Additional requested information pertaining to the quarterly number of self-insurance applications (Exhibit G) and a list of self-insured casinos (Exhibit H) was provided by Ms. Rankin.

 

In response to a question from the Chair, Ms. Rankin claimed affiliated companies with a parent holding company could either qualify for self-insurance on their own or under the parent company. 

 

Mr. Hettrick inquired if the $2.5 million net worth requirement would have to be met by each affiliate under the umbrella of the parent company.

 

Ms. Rankin explained if separate certificates were requested then each must qualify separately, however, they could be covered under the parent company's certificate as a group.  In the second instance only one net worth requirement would be necessary.

 

Concern was noted by Mr. Hettrick in cases where separate certificates were held within one parent company.  He determined the net worth requirement increase to $5 million for each affiliate would seriously impact those companies. 

 

Ms. Rankin ascertained the proposed amendment stated "an employer" which was defined in regulation as a business entity. Therefore, she proposed the $5 million would still apply to the parent company as presently stated in regulation, unless the definition of business entity was changed by statute. 

 

Mr. Regan asked Ms. Rankin to provide information regarding the legality of a "grandfathering" clause should the net worth requirement be increased to $10 or $12 million.  His concern was those companies might believe the intent was to force them back into the state's system.

 

Under the amendment proposed by Ms. Giunchigliani, Ms. Rankin indicated 14 current self-insured companies would not qualify for the $5 million net worth requirement.  Further, of those 14, 4 were currently being monitored as they were on the borderline of meeting the current requirement of $2.5 million.

 

Ms. Giunchigliani asked if the Department of Insurance could use a net worth figure based on gross, or size of company, rather than a set figure.

 

Ms. Rankin explained how the tangible net worth requirement was calculated.  She referenced NRS 616 which listed types of items to be deleted from a company's balance sheet.  These items were not readily convertible to cash or cash equivalence for payment of workers' compensation claims.  The company must be able to withstand all those deletions and still maintain a net worth of $2.5 million and be considered a "going concern" under the same statute. 

 

Mr. Collins asked if casino cash committed to cages was part of their net worth. 

 

Ms. Rankin surmised it would be listed as restricted cash on the balance sheet which was deducted from tangible net worth.  If there was a question or problem she indicated the Department of Insurance would contact the Gaming Board to request restrictions be applied to the company in question.

 

Mr. Collins asked if Ms. Rankin felt the date of December 31, 1993 would be adequate time for the moratorium. 

 

In reply Ms. Rankin indicated the committee would have to make such a determination.

 

For clarification, Mr. Bache referenced Section 6, subsection 2, which stated "the Commissioner may certify an employer as self-insured if the application and the fees are received by the Commissioner on, or before, the effective date of this act."  He inquired if the fees were due upon receipt or request of the application. 

 

Ms. Rankin related the fees were due when returning the completed application for insurance.

 

An exchange resulted pertaining to the wording of Section 6, subparagraphs 1 and 2.  Mr. Hettrick opined the entire act would expire by limitation on July 1, 1996.  The technical point was clarified by determining the "provisions of the act" rather than "the act" would expire on the suggested date.

 

Another technical point raised by Ms. Giunchigliani concerned Section 2, line 5, of the Department of Insurance amendment.  She related perhaps a time certain ought to be provided.

 

Ms. Rankin stated in order to become an insurance company in the state of Nevada a minimum financial standard of $1.5 million in capital and surplus was currently necessary.  She stated a bill draft request had been submitted for review to address issues relating to insurance company solvency. 

 

In reply to a question from Ms. Giunchigliani, Ms. Rankin described the National Council of Compensation Insurers (NCCI) as a rate filing organization which set compensatory standards for insurance companies.

 

Ms. Giunchigliani questioned what the "105 percent" was in reference to on Page 3, line 2. 

 

Ms. Rankin explained several of the requirements to become self-insured.  Each company must have a tangible net worth, provide a security deposit and contribute yearly to the insolvency fund. The deposit was reviewed annually and based on the individual company's claims loss runs for the last three years of coverage with the State Industrial Insurance System.  The required deposit was not less than 105 percent of that figure, or not less than $100,000.

 

Information was requested of Ms. Rankin pertaining to the number of governmental entities which were self-insured versus the potential number who could go self-insured.  Ms. Giunchigliani noted the requirements differed for governmental agencies.

 

Ms. Rankin explained the group of government entities would be unlimited if improvement districts, school districts, etc., were included.  As to the standards or requirements, she noted it would be difficult for governmental entities to show a $2.5 million net worth.  Additionally, they used a different governmental accounting standard.  She stressed, however, in addition to the required deposit and insolvency fund contribution, these entities must also show a reserve fund for workers' compensation.  Other self-insureds were not required to show this reserve fund on their books, but government agencies must maintain it at all times.

 

The concern voiced by Ms. Giunchigliani was governmental agencies had one of the highest incident rates of injuries, thus she was worried about the potential liability on the taxpayer.

 

Ms. Rankin maintained the third party administrators had actively emphasized safety programs.  Also, she postulated the excess coverage they were required to purchase would also help. 

Ms. Giunchigliani asked Ms. Rankin to provide details of how the Department of Insurance determined governmental entities qualifyed for self-insured.

 

Mr. Carpenter asked why the fines had been increased from $1,000 to $2,500 in the amendment.

 

Ms. Giunchigliani projected one of the other committees had suggested raising all fines for commissions and boards.  Further, she maintained the language was progressive allowing fines up to the $2,500 figure.

 

      ASSEMBLYMAN REGAN MOTIONED TO AMEND WITH ALL THE ABOVE AMENDMENTS AND REREFER AB 287 BACK TO COMMITTEE.

 

      ASSEMBLYMAN COLLINS SECONDED THE MOTION.

 

Mr. Ernaut realized the bill was being amended and rereferred for further consideration, but wanted the record to indicate he still had two main concerns which had not been clarified.  Additionally, he did not want it misconstrued he was in support of this bill.  He requested the Insurance Commissioner provide details of the possible impact of potential companies leaving SIIS to become self-insured during the period in question.  With the facts and figures available he believed a more accurate decision could be made. 

 

Chairman Giunchigliani indicated she would state on the floor this was not an intent, but an exception of this legislation.  She noted the amended document would provide a clean piece for the committee to work with.

 

Mr. Hettrick opined the committee should do either "the Commissioner shall not certify" or raise the net worth requirement to $5 million, not both.

 

Mr. Sam McMullen, representing the Nevada Self-Insured Association, raised some concerns.  If out-of-state companies were allowed to self-insure, he opined existing Nevada businesses would be put at a disadvantage.  He also believed the technical question of acquisitions or change in business name ought be addressed.  Finally, he questioned the intent of this legislation as a whole.

 

Ms. Giunchigliani stated the intent was not to entirely stop companies from going self-insured, but was the first of many radical steps necessary to help rectify the current crisis of the State Industrial Insurance System.  It was to provide a base, or floor to measure accountability against.   Additionally, the cost of the crisis would be borne with the smaller employers left within the system.

 

In conclusion, Mr. McMullen remarked perhaps the key issue was to allow employers to become self-insured, but ensure those companies were adequately reserved and protected against insolvency.  

 

      THE MOTION CARRIED UNANIMOUSLY BY ALL PRESENT.

 

      * * *

 

 

There being no further business to come before committee, the meeting was adjourned at 5:15 p.m.

 

      RESPECTFULLY SUBMITTED:

 

 

                             

      BARBARA DOKE

      Committee Secretary

 

 

 

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Assembly Committee on Labor and Management

March 9, 1993

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