MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session May 19, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:30 a.m., on Friday, May 19, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator Joseph M. Neal, Jr. COMMITTEE MEMBERS ABSENT: Senator John B. (Jack) Regan (Excused) STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Molly Dondero, Committee Secretary OTHERS PRESENT: Bob Gagnier, Executive Director, State of Nevada Employees Association Richard Van Epps, Forensic Specialist III, Mental Health Unit, Department of Prisons Dennis Healy, Jr., Attorney, State of Nevada Peace Officer's Association B.J. Thomas, Assistant to the President, International Alliance of Theatrical Stage Employees and Moving Picture Machine Operators of United States and Canada, Local 720 Danny Thompson, Lobbyist, Political Director, American Federation of Labor/Congress of Industrial Organizations (AFL/CIO) Madelyn Shipman, Assistant District Attorney, Civil Division, Office of the District Attorney, Washoe County, Nevada Helen Foley, Lobbyist, 7-Eleven Franchise Owners Association Teresa Maloney, Vice Chairman, National Coalition of 7-Eleven Franchisees Susan P. Kezios, President, American Franchisee Association (AFA) Dave Winchester, Franchise Owner, Jackpot Food Mart Kenneth L. Vumbaco, RMK Jackpot Food Mart Lana K. York, Franchise Owner, 7-Eleven Store Terry L. Holtz, President, Franchisee, 7-Eleven Franchise Owners Association of Southern Nevada/Las Vegas Tim Cegavske, Franchise Owner, 7-Eleven Store Paula Yocum, President, Greater Bay/Sierra Mountain Franchise Owners Association, Northern Nevada 7-Eleven Franchisees Bob Barrengo, Lobbyist, International Franchise Association D. Kendall Edwards, Director of State Government Relations and Associated Counsel, International Franchise Association The first bill discussed was Assembly Bill (A.B.) 57. ASSEMBLY BILL 57: Broadens application of provisions governing eligibility for workers' compensation for diseases of heart or lungs. Bob Gagnier, Executive Director, State of Nevada Employees Association, discussed the amended version of the bill. He stated his organization agrees with the amendments. He stated the bill affects two groups of people, correctional officers working at Lake's Crossing (Center for the Mentally Disordered Offender) and forensics specialists who work for Lake's Crossing and the prison system. He stated these people are law enforcement officers but up to this time, have not been covered under current legislation for compensation for diseases of the heart and lung. He stated the correctional officers working at Lake's Crossing do not work for the Department of Prisons. He stated there are eight people affected by this bill. He pointed out the forensic specialist is a person who is both a correctional officer and a specialist in mental illness. He explained they have full peace-officer powers. They are covered by the police and fire department retirement system. Senator Townsend stated the committee needs to know the number of officers affected in each category, and the fiscal note before the bill can be processed. Mr. Gagnier stated there are 23 forensic specialists at Lake's Crossing. He stated the fiscal impact has been given by the State Industrial Insurance System and he will obtain that information for the committee. Senator O'Connell asked why the forensic specialist was added to the reprint of the bill and was not included originally. Mr. Gagnier stated the original bill removed the list of all of those who qualify and it said anyone who was Peace Officer Standard and Training (POST) certified was included. This language was changed in the Assembly because they felt the language was too broad. The forensic specialist needed to be added since the changes were made. Richard Van Epps, Forensic Specialist III, Mental Health Unit, Department of Prisons, explained prior to being a forensic specialist, he was an officer at Lake's Crossing. He stated he takes a physical under the conditions of the heart-lung regulations. He thought he was covered during these past years of service, but he found out he was not covered because he is not "uniformed" staff. The current legislation stipulates "uniformed" for coverage. He pointed out a uniform brings about negative reactions from an inmate. Senator Lowden commented Mr. Van Epps was covered when he was a uniformed staff member, but when he received a higher degree, he stopped being covered in regulation. Mr. Van Epps agreed. He commented he deals directly with the most criminally insane people in the Department of Prisons. Mr. Gagnier stipulated the employees at Lake's Crossing are peace officers. He stated the language in the heart-lung legislation is the only place where they are not considered to be peace officers. He stated, "The Department of Prisons has believed these people to be covered and they indicated in the original fiscal note that there was no cost, because they are already paying workers' compensation for these people as if they were covered." He stated the word "uniformed" has omitted them from coverage. Senator Neal commented these officers provide transportation for the prisoners outside the facility. He stated it was the intent of the original legislation to provide the status of a peace officer to these officers during the performance of their duties. He said they should be covered under the law for all aspects of their job. Senator Shaffer asked if a change of title will help. Mr. Gangier stated the law is specific that it applies to "uniformed" officers. He stated correctional officers at Lake's Crossing are not covered, but correctional officers at the Department of Prisons are. Senator Townsend asked if there has been any litigation because of this law. Mr. Gagnier stated there has been none of which he is aware. Mr. Young commented there has been litigation under different regulations determining length of service for volunteer firefighters, or if a heart attack occurred during times of stress and danger. Dennis Healy, Jr., Attorney, State of Nevada Peace Officer's Association, submitted Exhibit C into the record. The hearing was closed on A.B. 57 and the hearing on A.B. 383 was opened. ASSEMBLY BILL 383: Requires security for payment of wages of all persons employed in productions in entertainment industry. B.J. Thomas, Assistant to the President, International Alliance of Theatrical Stage Employees and Moving Picture Machine Operators of United States and Canada, Local 720, spoke on behalf of A.B. 383. He presented Exhibit D and read Exhibit E. Senator Townsend asked if there have been other problems other than those illustrated in Mr. Thomas' testimony due to interpretation by the labor commissioner. Mr. Thomas indicated there have been problems. He stated there is no bond required if the performance is not classified as "entertainment" and that interpretation can vary. He stated it does not matter whether he is working at a prizefight, a baseball game, or a drag race, he is still doing the same kind of work. Senator Lowden suggested the committee clearly define the word "entertainment" for the labor commissioner. Danny Thompson, Lobbyist, Political Director, American Federation of Labor/Congress of Industrial Organizations (AFL/CIO), discussed Exhibit D. Senator Townsend said a clear definition of "entertainment" will be a quick way to fix the interpretation problem and to handle the difficulties being experienced by the workers. The hearing was closed on A.B. 383 and was opened on A.B. 58. ASSEMBLY BILL 58: Makes various changes to provisions governing enforcement of claims for wages, commissions or other demands of person financially unable to employ counsel. Madelyn Shipman, Assistant District Attorney, Civil Division, Office of the District Attorney, Washoe County, Nevada, discussed A.B. 58. She stated the bill takes the labor commissioner and the district attorney's office out of the enforcement of the regulation and requires the attorney general's office to enforce the claims for wages. She indicated there is a fiscal note for the bill of approximately $75,000. Senator Townsend told Ms. Shipman to contact the attorney general's office to see if the budget will be impacted by this bill. Senator O'Connell asked if it is the fiscal impact which is the reason this bill has not passed in previous sessions. Ms. Shipman indicated she did not know. Ms. Shipman stated there does not need to be a fiscal note because under the bill the deputy labor commissioner is allowed to hire an attorney as a deputy labor commissioner. She pointed out that position is in the budget. The hearing was closed on A.B. 58 and was opened on S.B. 459. SENATE BILL 459: Regulates the operation of franchises. Helen Foley, Lobbyist, 7-Eleven Franchise Owners Association, spoke in favor of S.B. 459. Ms. Foley read Exhibit F. Teresa Maloney, Vice Chairman, National Coalition of 7-Eleven Franchisees, spoke in favor of S.B. 459. She read Exhibit G. Senator Townsend disclosed that he and Ms. Foley work for the same firm, that he and his wife are landlords for a franchisee, that he serves on the board of the Association for Retarded Citizens which is a franchisee for an organization based in Texas, and that he is a patron of Ms. Maloney's store. Ms. Foley discussed the various sections of the bill as outlined in Exhibit F. She discussed section 3, subsection 2 and stated it does not apply to automobile distributors, local governments, cable television, or to miscellaneous trade regulations. She stated they have been asked not to include sanitation departments. She discussed Exhibit F. She explained section 12 makes certain Nevada laws apply to Nevada businesses. Ms. Maloney stated section 14 protects the seller from arbitrary restrictions. Ms. Foley commented franchisees have a difficult time obtaining specific information in writing from the franchisor. Section 15 was discussed in detail. Ms. Foley explained even though Nevada is a community property state, the law does not apply to franchises. She illustrated a case of a woman whose husband died and within hours of his death the management of Southland corporation closed her store, fired her employees and reopened it under their own control, locking her out of her husband's store. She stated Nevada law did not allow the situation to continue, but there is no protection in franchise law in Nevada which clearly protects the spouse of a franchisee from this type of action. Senator O'Connell asked how this can happen. Ms. Foley stated the husband was single when he signed the contract, then married. She stated the new spouse should have to go through training and must meet reasonable requirements, but the problem arises when the request is made to put a spouse or child on the contract. Then a new contract must be signed and there are often many new provisions which were not previously required. Susan P. Kezios, President, American Franchisee Association (AFA), presented Exhibit H. She stated Iowa has established a franchise act. It was said that if that act passed, franchising would cease. She presented Exhibit H as proof that franchising in alive and well in Iowa. Ms. Kezios stated the AFA represents franchisees of 60 different corporations. She stated small business owners throughout the country support the legislation incorporated into S.B. 459. She commented the issues are broad- based and strike at the heart of most franchise contracts. Dave Winchester, Franchise Owner, Jackpot Food Mart, spoke in favor of S.B. 459. He explained Jackpot Food Mart is based in Washington state. He stated they will not speak with the AFA and will only speak to the owners individually. He explained how he has been singled out for continuing harassment by Jackpot Food Mart management. He stated if he receives a default notice for something as simple as a spot of oil on the floor he can be kicked out of his store. He stated they can make you leave without buying any of the inventory, equipment or settling in any way with the owner. He stated last month one of his employees had taken off her uniform while she was in the restroom, and when she emerged from the room she had not yet replaced the complete uniform, there was a company representative in the store and Mr. Winchester received a default notice for the incident. He stated it is a continuing problem. He stated the franchisee is at the mercy of an egotistical representative and there is nothing the franchisee can do about it. He stated the franchisee must travel to the state of Washington to protest disciplinary action and must go through arbitration. He stated he is governed by Washington law, except that the franchisor is excluded by Washington law from franchise protection in Washington. He pointed out he has no protection in Washington. He stated he cannot use his own lawyer from Nevada because the lawyer is not licensed in Washington. He has to hire a lawyer who he does not know to fight the "corporate giant" in its own ground in Seattle. He pointed out the franchisor knows he has to travel out-of-state, pay $20,000, to refute trivial allegations made by an inspector. He related the case of a franchisee in Sparks who was given a 5-day eviction notice for a trivial charge. He stated S.B. 459 levels the playing field for Nevada franchisees who must deal with out-of-state corporations who can spend a great deal of money to keep the franchisee at bay. Kenneth L. Vumbaco, RMK Jackpot Food Mart, related his experiences with his franchisor. He discussed section 18 on renewal. He stated he had a 3-year contract and when it came up for renewal there were over 100 changes, many with which he could not agree to. He stated the contract was nonnegotiable. He had no choice and he lost his business. His initial investment was $100,000. He accepted a $38,000 buy-out from the franchisor, but had listed the business for sale at $165,000. Senator Augustine commented she thought the contracts were for 10 years. Mr. Vumbaco explained Jackpot Food Mart contracts are only for 3 years with a 3-year renewal and no renewal guarantee after the second 3-year period. Senator Neal asked what the $100,000 investment covers. Mr. Vumbaco stated it includes the small equipment and stock. It does not include the building or the land. He stated he pays 9 percent of gross sales to the franchisor. This includes his lease and advertising. Ms. Foley stated 7-Eleven franchisees pay 52 percent of gross profit. She emphasized each franchise is very different. Senator O'Connell asked if most of the franchises are turnkey operations. Mr. Winchester stated not all of them. Mr. Vumbaco stated the store he lost was a new store with no customer base established. He built the cliental and developed the sales area. Lana K. York, Franchise Owner, 7-Eleven Store, read Exhibit I. Terry L. Holtz, President, Franchisee, 7-Eleven Franchise Owners Association of Southern Nevada/Las Vegas, submitted Exhibit J. He related the problems he has had trying to get his wife's name added to his contract even though she had signed the original loan papers and has worked in the store for several years. She has completed the training course required, but she is still not on the contract. He stated the person who must approve of her is present in the hearing, today, and is opposed to S.B. 459. He stated the highlighted sentence in Exhibit J indicates they must sign a new agreement even though there is still 5 years left on the original contract. Mr. Holtz stated he has not requested any changes other than having his wife's name added to the original contract so she will have financial security should he die. He stated one change listed in the new contract will cost him over $130,000 in lost revenue because he will have to change vendors on his slot machines because they now require everyone to use the same slot operator and that company will take a larger percentage of profits from the machines. Senator Lowden asked if Mrs. Holtz does not sign the new contract and Mr. Holtz dies, what will happen to the store. Mr. Holtz stated she will have to sign a new contract, be requalified, and be subjected to whatever approval or disapproval the market manager decides. He pointed out that one person has the control over whether or not she may have the store, and if she is denied, Mr. Holtz stressed his 18 years of hard work is all for nothing. He emphasized that one person has that much power over the future of his family. Tim Cegavske, Franchise Owner, 7-Eleven Store, read Exhibit K. Paula Yocum, President, Greater Bay/Sierra Mountain Franchise Owners Association, Northern Nevada 7-Eleven Franchisees, read Exhibit L. Senator Neal asked how much of the gross profit goes to the franchisor. Ms. York stated 52 percent of the gross profit. Mr. Cegavske commented 52 percent is the only deal, it is not negotiable. Exhibit M was offered in support of the testimony presented in favor of S.B. 459. Those opposed to S.B. 459 spoke against the bill. Bob Barrengo, Lobbyist, International Franchise Association, introduced D. Kendall Edwards, Director of State Government Relations and Associated Counsel, International Franchise Association. Ms. Edwards read Exhibit N. Ms. Edwards referred to section 17 and section 15. She stated Louisiana rejected similar legislation 2 weeks ago. She stated 28 states have considered legislation regulating franchise agreements, but have not voted on this legislation to date. She cautioned against intrusive legislation. She stressed even though the local franchisee provides the job, it is important to recognize that without the franchisor there is no franchisee. Senator Augustine asked if other states have considered the same legislation being presented here today. Ms. Edwards stated there are 18 states with disclosure and registration law. She stated there are some states with "termination," "good cause," and "non-renewal" regulations, but this legislation is very limited. She said no state has such comprehensive legislation as Iowa. Senator Neal asked Ms. Edwards if she was from the East. Ms. Edwards commented she is from Washington, D.C. Senator Neal asked what portion of the Iowa law was declared unconstitutional. Ms. Edwards stated it was the retroactive application of the law. Senator Neal pointed out S.B. 459 is not retroactive and only applies to new contracts. Senator Neal asked what specific disagreement she has with S.B. 459. He commented he does not see why she disagrees with S.B. 459. Ms. Edwards commented the contracts are private and should not be the concern of the state. She stated all parties are aware of terms of the contract prior to signing. She stated there are too many opportunities for litigation in the bill. She pointed out the bill is too broad. Senator Neal commented it is his impression that the franchisor is somewhat overbearing with the franchisee and that is the reason they have brought about this bill. Mr. Barengo commented the franchisor has invested a great deal of time and money into developing the franchise. He stated the franchisor should not be placed on an equal footing with the franchisee to negotiate a contract. Senator Neal asked Mr. Barengo what he specifically dislikes about the bill. Mr. Barengo stated section by section, the bill sounds fine. But when the entire bill is put together, it is overbearing. Exhibit 0, Exhibit P, Exhibit Q were offered without testimony by direct sellers. The hearing was adjourned at 10:30 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor May 19, 1995 Page