The 1st meeting of the Interim Joint Committee on Labor and Industry was held on Thursday, June 19, 2008, at 10:00 AM, in Room 131 of the Capitol Annex. Representative Mary Lou Marzian, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Mary Lou Marzian, Chair; Senators Julian M. Carroll, Julie Denton, Denise Harper Angel, Ray S. Jones II, Jerry P. Rhoads, Katie Stine, and Jack Westwood; Representatives Will Coursey, C. B. Embry Jr., Tim Firkins, Richard Henderson, Charlie Hoffman, Joni L. Jenkins, Adam Koenig, Charles Miller, Russ Mobley, Rick G. Nelson, Tom Riner, and Brent Yonts.
Guests: Dwight Lovan, Commissioner, Department of Workers' Claims; Secretary J. R. Gray, Kentucky Labor Cabinet (KLC); Mark Brown, Deputy Secretary, KLC; Kembra Taylor, General Counsel, KLC; Mike Sparrow, former KLC employee and reorganization consultant; and Dan Egbers, Executive Director, Office of Legal Services in the Personnel Cabinet.
LRC Staff: Linda Bussell, Melvin LeCompte, Adanna Hydes, and Betsy Bailey.
Rep. Marzian welcomed members and guests and said Co-Chair Kerr would not be attending the meeting because she is recuperating from a recent medical condition. She also advised the members that there would probably not be a July meeting.
Rep. Marzian called on Dwight Lovan, the new commissioner (formerly the executive director) of the Department of Workers' Claims. She explained that Commissioner Lovan would provide an update and status report on the implementation of SB 199 and HB 534 relating to workers' compensation enacted during the 2008 Regular Session.
Commissioner Lovan explained that SB 199 related to the 6th edition of the AMA Guides for Workers' Compensation. He further explained since 1996, Kentucky's workers' compensation law requires that impairment ratings be determined based on the most recent edition of the AMA Guides. The 5th edition of the Guides have been utilized since 2001. The 6th edition was published in late December, 2007. SB 199 placed a moratorium on adoption of the 6th edition until July, 2009, unless Commissioner Lovan makes a written finding that the welfare of Kentucky's workers' would be materially enhanced by adoption of the 6th edition before July, 2009. SB 199 also requires Commissioner Lovan to conduct a study of the feasibility of adopting the 6th edition or retaining the 5th edition and to submit the report to the Legislative Research Commission by January 5, 2009. He informed the committee that he hopes to have a study group consisting of medical experts and others knowledgeable in the field of workers' compensation in place by July 1 to begin the process of evaluating the AMA Guides and that he, as commissioner, would approach this issue from a position of complete neutrality.
Commissioner Lovan said HB 534 requires that his department provide notice to any additional insured named on a workers' compensation policy when the policy is cancelled or otherwise terminated. He explained that in some cases a contractor who subcontracts with a subcontractor does not know when the workers' compensation policy of a subcontractor is no longer in effect. This makes the contractor liable for workers' compensation benefits to the subcontractor's employees in the event of workplace injuries. The workers' compensation law requires each insurance carrier to notify the department proof of coverage for an employer. Typically, the policy will name only the employer that is insured. HB 534 permits inclusion of any additional insured on the policy. An insurance carrier is also required to notify the department when the policy is cancelled or terminated. HB 534 requires the department to notify the insured and any additional named insured when a policy is cancelled or terminated. He said his department is also in the process of making a change to its insurance data base that will be policy driven rather than employer driven. This is significant because a policy driven data base will show individual locations that are covered which will identify any additional insureds. The new data base will permit the department to implement a procedure to notify insureds when policies are cancelled. He said this will result in an expense for the department because of the large number of cancellations that occur. Commissioner Lovan said his department is working on a data base that will permit a process that will allow online verification of the existence of a workers' compensation policy. He said this should be available by the second quarter of the next fiscal year.
Rep. Marzian commented that she is pleased to hear that Commissioner Lovan is planning to involve all interested and knowledgeable parties in the study of the AMA Guides.
The next item on the agenda was a review of two executive orders. Executive Order 472 that elevated the Department of Labor to the Labor Cabinet. Rep. Marzian introduced and congratulated Secretary J. R. Gray, Deputy Secretary Mark Brown, and Kembra Taylor, General Counsel.
Secretary Gray said he would be brief in his overview. He introduced Mike Sparrow, a former long-term employee of the Labor Cabinet, who agreed to come back as a consultant to assist in the implementation of the Executive Order. Secretary Gray said the previous administration merged three cabinets, including the Labor Cabinet, into one cabinet that included about 3400 employees. Under that reorganization, the Labor Cabinet became a department. The current Governor made a campaign commitment to labor that he would elevate labor to cabinet status as it was previously. On June 2, the Governor signed Executive Order 472 that did this. The order became effective on June 16. In order to make the reorganization revenue neutral, a shared services concept was devised. Under the shared services concept, the newly created Labor Cabinet, Energy and Environment Cabinet, and the Public Protection Cabinet will share services such as computer services and personnel services. Secretary Gray said Mr. Sparrow and Kembra Taylor have been working diligently to implement the shared services concept and he was hopeful that this will be in place within the next 60 days.
Kembra Taylor said the reorganization returned the labor department to a programmatic organization structure that is very similar to what was in place prior to the comprehensive reorganization done in 2003 and 2004. By doing this, unnecessary levels of management have been eliminated which has resulted in a substantial cost savings. She said the new Labor Cabinet consists of two departments, the Department of Workers' Claims and the Department of Workplace Standards. These departments replaced offices and executive directors under the previous structure. Under the new structure, three executive director positions were replaced with one commissioner which has resulted in substantial cost savings. Ms. Taylor also commented on the shared services concept that the governor hopes will become a model for state government. By adopting this concept, the newly created cabinets will share services without any additional budgetary expense.
Senator Carroll asked about the types of services will be shared by the cabinets. Ms. Taylor said administrative, fiscal, personnel processing, human resources, purchasing, and other functions that would otherwise have to be performed by each cabinet. She said there would be an office of general administration and program support that would be attached to the Labor Cabinet to administer this shared services function.
Mike Sparrow, who was instrumental in setting up this process, further explained that the services that would be shared would be fiscal, personnel, and budgeting. He said the process is like a third party administrator. The shared services unit would be attached to the Labor Cabinet for oversight and the secretary will have personnel authority over the unit, but the employees of the unit will respond to the three separate cabinet secretaries who retain the authority to administer the policies of those cabinets. Mr. Sparrow said cost savings were realized up front and no new positions were created. In the long term, additional cost savings are anticipated from consolidation of services and functions. Mr. Sparrow said the executive director responsible for the shared services concept would report to the cabinet secretaries and make services available to them in a fair and impartial manner.
Senator Carroll asked how computer services would be shared. Mr. Sparrow said the cabinets would retain their own data bases but would share some services. Kembra Taylor also said there would be an inspector general for shared services that will also be shared by the three cabinets. Senator Carroll said there has been an ongoing problem with the Office of Technology taking the computer planners out of the agencies and then charging the agencies for services provided to them. He said he thought this was a mistake because the planners with the agencies know more about what is going on in those agencies that the planners in the Office of Technology. Mr. Sparrow said this is an evolving issue and they are working with the Office of Technology to redefine those relationships to determine who will actually be the planner and designer of the agency systems.
In response to a question from Rep. Marzian regarding cost savings, Mr. Sparrow said there is no way to know at this point what the ultimate cost savings will be. He said at this point there have been no additional costs or personnel required.
Rep. Marzian introduced Dan Egbers, Executive Director, Office of Legal Services in the Personnel Cabinet, to explain Executive Order 08-471 which created the Governor's Employee Advisory Council(GEAC).
Mr. Egbers said, historically, different employee organizations have been set up, but they had no formal recognition or means of accessing the Governor. Because of this, Governor Patton, in May, 2001, created the Governor's Employee Advisory Council. The original GEAC consisted of groups of employees categorized on the basis of common jobs and functions. The employee groups were permitted to select labor organizations to represent them on the council. The function of the original GEAC was to advise and make recommendations to the Governor on various terms and conditions of employment. The GEAC was not intended to be collective bargaining and it certainly was not. Mr. Egbers reminded members that state employees are not permitted to collectively bargain and that the federal National Labor Relations Act (NLRA), the federal law that governs collective bargaining in the private sector, does not apply to state employees. The original GEAC was in place for about 2 1/ 2 years. Governor Fletcher, in 2003, rescinded the GEAC and all agreements negotiated while it was in place.
Mr. Egbers said Governor Beshear issued 2008 Executive Order 471 on June 2 to be effective on July 1. That order reestablished the original GEAC and added new voting members to the council. The new members are the: Secretary of Personnel, Secretary of Labor, and a representative of the Governor. The newly created GEAC retains the purpose and function of the former council. As with the former GEAC, the current one covers only nonsupervisory classified employees. Participation in the GEAC is strictly voluntary. Employees have been advised of this, that they can join if they choose, and they will not be required to pay dues. There will not be fair share payments in lieu of dues. The Personnel Cabinet will facilitate dues deduction if requested to do so by the employee.
Senator Stine asked if the Governor will be bound by the advice of the GEAC. Mr. Egbers responded that the Governor will not be bound because this is a voluntary process.
Senator Stine asked if the governor sees the GEAC as a first step toward collective bargaining or as a substitute for it, and how Mr. Egbers sees it. Mr. Egbers said he could not speak for the governor, but he is unaware of any movement in the direction of collective bargaining. Mr. Egbers said his experience with the former GEAC made him conclude that empowering employees by providing a means through which they can speak in a collective voice if they choose is the right thing to do. He also said that no statutory or regulatory authority was ceded to the GEAC, but interpretations of those statutes and regulations could be discussed and considered by the council.
In response to additional questions from Senator Stine relating to oversight and uses of the dues collected from the employees, Mr. Egbers responded that the Personnel Cabinet would collect the dues and turn them over to the labor organization. He said there would be no state oversight over the dues and that he was unaware of other accountability requirements relating to the use of the dues payments. Senator Stine asked about the master agreement that existed under the former GEAC and adopted by the current council. Mr. Egbers said the agreement consisted of about 28 articles and set out procedures for various things such as dues deductions and prohibitions against strikes.
There being no further business, the meeting was adjourned.