Call to Order and Roll Call
The 4th meeting of the Interim Joint Committee on Labor and Industry was held on Tuesday, September 15, 2015, at 3:30 PM, at the 38th Labor-Management Conference at Kentucky Dam Village State Resort Park in Gilbertsville, KY. Representative Rick G. Nelson, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Rick G. Nelson, Co-Chair; Senators Perry B. Clark, Denise Harper Angel, Ernie Harris, Jimmy Higdon, Wil Schroder, and Reginald Thomas; Representatives Denver Butler, Will Coursey, Jeffery Donohue, Jim DuPlessis, Jeff Greer, Dennis Horlander, Adam Koenig, Charles Miller, Terry Mills, Tom Riner, Jim Stewart III, James Tipton, and Brent Yonts.
Guests: Secretary Larry Robert, Kentucky Labor Cabinet; Commissioner Dwight Lovan; Department of Workers’ Claims, Kentucky Labor Cabinet; Deputy Secretary Beth Brinly, Kentucky Education and Workforce Development Cabinet.
LRC Staff: Carla Montgomery, Adanna Hydes, and Sasche Allen.
Approval of Minutes
A motion by Representative Yonts and a second by Representative Coursey to approve the minutes from the July 16th and August 20th meetings carried by voice vote.
Partnership with U.S. Labor Cabinet for Employee Misclassification
Secretary Larry Roberts, Kentucky Labor Cabinet, testified about the partnership between the state and the U.S. Department of Labor (U.S.D.O.L.) to prevent the misclassification of employees as independent contractors. When employees are misclassified as independent contractors they are no longer eligible for overtime pay, unemployment benefits, or workers’ compensation. While workers are being denied benefits, the government is also being denied revenue due to taxes not being withheld and unemployment insurance taxes being paid and workers’ compensation insurance not being purchased. Lawful employers are also being denied a level playing field because of those employers that are misclassifying employees to reduce their costs and underbid their competitors. When an employer misclassifies workers it can conceal the actual nature and/or size of their business to insurance providers and governmental organizations.
Under this memorandum of understanding (MOU) with the U.S.D.O.L. the Labor Cabinet will be able to attack this issue with a combination of a training and outreach campaign and data-driven tactical implementation through information sharing and coordinated enforcement. This partnership will not change any current state laws or regulations, but it will allow the state to better utilize pertinent resources to combat employee misclassification. Secretary Roberts pointed out that the Labor Cabinet’s website has information regarding misclassification and the difference between an employee and an independent contractor. The cabinet wants to ensure that Kentucky’s workforce is treated fairly and are able to collect the wages they are due. The U.S.D.O.L. has entered in MOUs with 26 states, including Florida, Alabama, and Texas.
Responding to Representative Tipton, Secretary Roberts stated that the definitions of an employee and an independent contractor may vary slightly in wording among different state agencies but some have clear and specific definitions while others are based in case law.
Update on Black Lung
Commissioner Dwight Lovan, Department of Workers’ Claims, Kentucky Labor Cabinet, testified about coal workers' pneumoconiosis (black lung) claims. There have been 1,300 new claims filed with the department in the last two and a half years, and the department is on track to have about 500 filed for 2015, which is causing stress on the system. Between 2005 and 2011, there were approximately 500 claims filed. The number of claims has increased in recent years due to the manner in which cases are now decided and the number of layoffs in the coal mining industry.
In April 2010, the Kentucky Supreme Court ruled that the state’s process of analyzing black lung benefits was unconstitutional as a violation of equal protection because the claims were handled differently than any other occupational lung disease. As a result, the department has resorted to the use of statutory university evaluations to determine claims. This caused an issue due to the University of Kentucky and the University of Louisville not having the resources or staff to process the claims. Therefore, the state contracted Coal Miners Respiratory Clinic in Muhlenberg County and Commonwealth Respiratory Consultants in Fayette County to assist with evaluations, and between the two facilities about 50 evaluations are performed a month.
Between May 2014 and September 8, 2015 201 claims have been referred for KRS 342.315 evaluations; 202 claims have appointments scheduled; 128 claims have completed the evaluation process; and 450 claims continue to be temporarily assigned to the Chief Administrative Law Judge (CALJ). There are 17 administrative law judges, and one of those specifically concentrates on black lung. Since January 2014, there have been 79 awards, 483 agreements, and 201 dismissals, which is a total of 763 cases that have been resolved. Commissioner Lovan said that the department is working diligently to eliminate the back log of black lung claims so that new claims can go into a normal queue of being processed but the department has not yet reached that point. The department is working on adding two additional facilities to assist with evaluations and the commissioner predicted, based on recent figures, that the number of new claims next year will likely be less than this year.
Answering a question from Representative DuPlessis, Commissioner Lovan said that the universities have been doing some evaluations but currently U of L is not performing them due to one doctor on staff leaving the facility and not being replaced as of yet. Between 30 percent and 40 percent of university evaluations are positive interpretations of black lung.
In response to Representative Yonts, Commissioner Lovan stated that when it comes to the evaluations and x-rays, each claimant is entitled to two medical reports but more often than not with black lung there is only one performed. An x-ray would qualify as one of the two allowed medical reports. Since 2012, there have been 40 to 45 complicated cases of black lung decided, and one to two have been controverted.
Coal Self-Insurance Guaranty Fund
Commissioner Lovan also gave an update on the Coal Employers’ Self-Insurance Guaranty Fund. During the special session of 1996, guaranty funds for the self-insured industry were created which included individual self-insured employers, group self-insureds, and individual coal employer self-insureds. To be self-insured, a certification must be obtained from the Department of Workers’ Claims and security must be posted in case of a default. Employers of the coal self-insurance guaranty fund are responsible for payment of claims, in the event of a default, if the security is insufficient. There is potential that is not always assessed. The statute provides an assessment of up to 2 percent of their simulated premium. Originally there were 23 self-insured coal employers, but today there are only four. One of those four is in the process of being sold and another has only 11 employees and has filed for bankruptcy. Therefore, according to the commissioner, by the end of 2015 the Kentucky Coal Employers’ Guaranty Fund could be down to only two self-insured coal employers. Although the department does a good job assessing security, the commissioner sees potential problems if eventually there are only two self-insured coal employers that comprise the totality of the guaranty fund.
Replying to a question from Senator Thomas, the commissioner said that the state holds no liability according to the statute if a self-insured coal employer is unable to pay for their employees claims, but if the state chose to take responsibility, the amount would be close to $8 million as of right now.
Update on Unemployment Insurance Trust Fund
Deputy Secretary Beth Brinly, Kentucky Education and Workforce Development Cabinet, gave a presentation on the Unemployment Insurance Trust Fund and reported that the $972 million UI loan has been paid off seven years ahead of schedule. For the first eight months of this year benefits have been down 11% from last year; contributions are up 2.5 percent; initial claims are down 7.5 percent; and the weeks benefits are claimed is down 14.6 percent. Collections for the surcharge are $29.7 million, and the Title XII interest and JPMorgan repayments will total $14.4 million for September 2015. The federal Title XII advance balance became positive in August 2015 and as of September 2015 is $36.5 million. The balance will remain positive through November 10, 2015, which is the critical date for ensuring Kentucky employers will no longer face a “credit reduction” when filing their 2015 taxes which makes the total estimated savings for employers of $165 million.
Kentucky is a credit reduction state and Kentucky employers started paying an additional tax beyond the normal $42 or 0.6 percent net Federal Unemployment Tax Act (FUTA) tax in 2011. The total FUTA tax rate for 2015 is 2.1 percent, which is $147 per employee and a gross amount of $230 million. The loan repayment will save Kentucky employers $165 million in federal taxes in 2015. Factors that enabled the state to pay the Title XII advance include implementing the recommendations of the Governor’s Unemployment Insurance Task Force, the FUTA credit reduction, active financial management, and an improvement of the labor market.
The department expects to have sufficient surcharge receipts by mid-2016 to end surcharge collections from employers. Prior to July 1, 2015 the department applied for a benefit cost rate (BCR) add-on waiver and substitution and for a cap on FUTA credit reduction. A $9.3 million payment was made to JPMorgan on September 1, 2015, and there will be an estimated $5.1 million of Title XII interest paid to the U.S. Treasury before September 30, 2015. The Education and Workforce Development Cabinet will continue to monitor tax and benefit accounts as well as continue to sweep the accounts as needed to improve tax payments for employers.
There being no further business, the meeting was adjourned.