Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Labor and Public Employment, to which was referred S.B. No. 678, S.D. 1, entitled:

begs leave to report as follows:

The purpose of this bill, as received by your Committee, is to require insurance adjusters and independent bill reviewers to keep records of transactions related to workers' compensation claims for eight years immediately after the date of the completion of such transactions.

For the purposes of the public hearing, your Committee circulated a proposed version of the bill that deletes the contents of the bill as received and inserts new provisions amending the definition of "employment" under the workers' compensation law. The proposed House Draft 1 extends the workers' compensation insurance exemption to employers having a distributional interest of at least fifty per cent of a limited liability company (LLC) or having a transferable interest of at least fifty per cent of a limited liability partnership (LLP).

The Hawaii Business League, National Federation of Independent Business, and the Hawaii Association of REALTORS supported the proposed draft. The Department of Labor and Industrial Relations, The Chamber of Commerce of Hawaii, and the Hawaii Insurers Council supported the intent of the proposed draft. Testimony in opposition was submitted by ILWU Local 142 and a concerned citizen. The Department of the Attorney General and a concerned citizen offered comments.

Your Committee finds that Hawaii's workers' compensation law has not kept pace with changes in the business sector, and more specifically, the development of different types of business entities. Because of this, the exemption of certain individuals from workers' compensation coverage has not been equitable.

For instance, your Committee has learned that Hawaii’s workers' compensation law does not require coverage for owners of corporations holding fifty per cent or more of its stock. However, the law does require coverage of Limited Liability Company (LLC) members who hold a distributional interest of fifty per cent or more.

Your Committee has also learned that while partners of a Limited Liability Partnership (LLP) must be covered under the workers' compensation law, partners of general partnerships do not. Your Committee can discern no reason for the inequity.

Due to this information, your Committee has determined that the following individuals should be excluded from workers' compensation coverage:

1. Members of an LLC (including members of a limited liability law company) having a distributional interest of at least fifty percent;
2. Partners of an LLP (including partners of a limited liability law partnership); and
3. Sole proprietors.

In light of these factors, your Committee has incorporated the contents of the proposed draft relating to LLCs, sole proprietorships, and partners of partnerships if the partner is an individual. As amended, this bill excludes from the definition of "employment" under the workers' compensation law:

Your Committee believes that this bill as amended will greatly assist Hawaii businesses by reducing workers’ compensation costs, and providing equity for certain business owners regardless of their legal structure.

Not unmindful of the Attorney General's concerns, your Committee believes that defining "employment" for purposes of determining coverage under the workers' compensation insurance law falls reasonably within the embrace of a title "relating to insurance."

As affirmed by the record of votes of the members of your Committee on Labor and Public Employment that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 678, S.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 678, S.D. 1, H.D. 1, and be referred to the Committee on Consumer Protection and Commerce.