Vermont Legislature SmartTranscripts:

[Sen. Alison Clarkson (Chair)]: Great. Thank you. Welcome back to Senate Economic Development and Housing in General Affairs. And we are now turning our, thoughts to a bill that originated with in this committee, s two thirty, which is our labor bill. And it is it has had some changes of additions in the house, and we have our legislative council to walk us through it.

[Sophie Sedanny (Office of Legislative Counsel)]: Good morning. Sophie Sedanny for the office of legislative council. And I did a quick chart just showing what the changes are. Oh, thank you. That's so helpful. Thank you. So and I can put up the the bill. So this has not yet passed the house. It's up on the third meeting today. Veterans Agreement. So, again, as you noted, this originated in the senate and the committee, and it essentially was covering, I would say, substantive corrections for the most part when it was when it was here. So the first section is the one that adds in the citation to the code of federal regulations relating to full time teachers, and there was no change to that in on the health side. So that you've already seen section two is the section that takes the language that was put into the parental and family leave act by act 32 last year around self attestation for victims of sexual assault, stalking, etcetera, domestic violence, and and transitions that language into the definition of crime victims under the Fair Employment Practices Act. So no change except for the fact that this committee in s two thirty, when you passed it out, you had added in some additional language, which was that the self attestation had to be under penalty of perjury, and the house took that additional language out. So what's what's in s two thirty is the same language that was in that is currently in the parental and family leave act. It's it's identical on both sides now. Section three is the section in the Fair Employment Practices Act that permitted institutions of higher education to have mandatory retirement for tenure faculty at the age of 70, which has been unlawful since 1994. So this is a repeal of that section, so no change on that. And then the additional sections, 21 VSA three eighty three, this is under the minimum wage provision. So, again, this is page four of the version that we're looking at. And this was house bill five fifty six, which I believe you have came over here and had passed the house previously, and that you've, I think, had a walk through, etcetera, on that. But what this does is it exempts from the definition of employee up to the minimum wage laws and overtime laws in elected and appointed municipal officers. And this is just to make it consistent both with the Federal Fair Labor Standards Act, but also consistent with what happens in practice today, and this was something that had been requested

[Sen. Alison Clarkson (Chair)]: through the Vermont Right. Through the LTT. Right.

[Sophie Sedanny (Office of Legislative Counsel)]: Then finally, section three b, this is new to this committee. This is adding some language around agreements not to compete. This would be a new section under the Fair Employment Practices Act. This was originally a subject of an extensive bill, somewhat working group created by the House Commerce and Economic Development Committee, extensive testimony in that committee. It was called h two zero five. It went to the floor, and then there was a challenge to it on the floor around whether or not it should it was to do with language that's in title 16, an education provision around when contracts signed by teachers, and that was it was just a huge issue that could not be resolved under under this provision. And so it was returned back to house commerce and economic development. And then the general and housing was adding a much more streamlined version. So what this does is it simply provides a prohibition on agreements not to compete for non exempt employees. So non exempt employees, non exemptees, they're not exempt from the Fair Labour Standards Act at the federal level. And typically, are your hourly folk, the ones that are eligible for overtime. They aren't don't have advanced degrees or specialized knowledge. They aren't direct supervision. So this is to prevent some of the the more egregious conduct that can happen where individuals with little to no bargaining power required to sign non repeat agreements, which means they can't work for another food establishment within a 10 mile radius for a year or whatever. I mean So

[Sen. Alison Clarkson (Chair)]: I mean, that restricts these nonunion members?

[Sophie Sedanny (Office of Legislative Counsel)]: Because They can be union members. So there is language in there that if there's if there is a non which, again, I've not seen and you mean contracts, but if there were to be one, if it's bargained for as part of a collective bargaining agreement, then there's been some negotiation with the employer over it. So that would be permissible. But for the individuals, you you can't have an agreement not to compete. And, these are not individuals, you know, with with I I don't wanna say anything that's pejorative because it's not

[Sen. Alison Clarkson (Chair)]: meant that way. That's like individuals with huge means.

[Sophie Sedanny (Office of Legislative Counsel)]: Right. These aren't sophisticated people with specialized knowledge. These often, if you run into it with, like, hairdressers and things where somebody works at the salon, and then they're told you cannot work you know, in a 20 mile radius if you leave our establishment, and you're effectively denying the ability to work with someone else or to open their own salon. So this is really Okay. Address the more sort of egregious incidents that happen. So I think you need to go back to, like, what's an exempt or a nonexempt employee because I don't think that's necessarily accurate that a salon employee would automatically be categorized as nonexempt, gross exempt. A a nonexempt employee has a a set hour, wage, etcetera. Salon employees can have all kinds of agreements

[Sen. Alison Clarkson (Chair)]: or how they're Well, may be not the perfect example.

[Sophie Sedanny (Office of Legislative Counsel)]: Well, I'm but it like, we should know what we're talking about when we talk about Right. Percent exempt. So let's take with that's a a really interesting way to determine certain elements of labor law that I think we'd wanna talk to one of our state's employment lawyers about. I mean, was testimony on this in the Who did they last hear from? David Meckenburg, Austin Davis from the chamber.

[Sen. Alison Clarkson (Chair)]: Think We have somebody coming in next week.

[Sophie Sedanny (Office of Legislative Counsel)]: Okay. Okay. So just to run through, so this is, again, under federal law. It says usually because there are some exceptions, but so the distinction between exempt and nonexempt. To be exempt is typically you have to earn a minimum salary, a a salary threshold. The current federal salary threshold is around 35 and a half thousand dollars a year, plus there's a duties test. So you have to have duties. Again, primary duties require the use of advanced knowledge or skills, and you have the authority or ability to make decisions independently. So nonexempt, you have to be paid minimum wage. So whether that's federal or state, you have to, you know, you're entitled to receive overtime. And then there is no duties test for that. And then, so these were just some general examples. Again, you can't have non exempt employees who are paid the salary, but then the employer still has to make sure they're getting paid overtime. You know, they so you can't get around avoiding paying overtime if somebody is non exempt. And then there are very this is a very simplified overview, but there are fact sheets for each of the tests for all the different exemptions. So the goal of the subdivision a under section 3B is really to eliminate agreements not to compete against those of the most vulnerable workers, lowest paid workers, ones that have the least bargaining power with their employees. And then the second provision, Septic provision is specific to healthcare providers, and this was language that came from the medical society. This was language that had been contemplated being put in some of the healthcare bills and was taken out because their participation was that H2O5 was going to move forward, which it then did not.

[Sen. Alison Clarkson (Chair)]: Sorry, this is page? This is page five, subsection

[Sophie Sedanny (Office of Legislative Counsel)]: B of 3B. And so what this does is it puts in contracts or agreements with health care providers, this identifies a number of provisions that would be void and unenforceable. And so A is essentially a non conspicuous, so that includes restrictions on the rights of healthcare providers to provide healthcare services in any geographical area for any period of time after the termination of a partnership agreement or professional relationship. It would limit the ability of a separated healthcare provider to provide notice of their change of employment, and then there's some additional language below on the notice. C restricts a healthcare provider from making disparaging statements. So, it would prohibit non disparity clauses. It would prohibit provisions that are inconsistent with Vermont law or provisions that require litigation that arise from the performance of a contract or agreement in Vermont to be conducted in another state. And then subdivision two, it says what could be in the notice of somebody's healthcare provider is leaving their current practice, place of employment, they can provide this notice to their patients that they're continuing to practice their new professional contact information and that the recipient has the right to choose a healthcare provider. Subdivision three provides that those healthcare provider limitations don't apply to contracts with non clinical business support services. This is really focused on healthcare providers and making sure they have the ability to work elsewhere, open their own practice, etcetera. Subdivision C is simply provides that the other the non retaliation and the remedies under the Fair Employment Practices Act would apply to this in each section. And then there's an effective date in the statute to make clear that it would apply these two sections regarding non exempt employees and health care providers would apply to agreements entered into on or after 07/01/2026. So it wouldn't disrupt any existing agreements that were already in place.

[Sen. Alison Clarkson (Chair)]: So are all these provisions for health care employees, health care providers, all non exempt healthcare employees? No, this

[Sophie Sedanny (Office of Legislative Counsel)]: is a separate provision. So there's two different sorts So, of

[Sen. Alison Clarkson (Chair)]: it included in the definition of healthcare providers?

[Sophie Sedanny (Office of Legislative Counsel)]: So, there are statutory definitions. There isn't a single one included in here, but generally it's a very broad definition under Vermont law, and it covers pretty much anyone, including wellness, folks that provide wellness services. So it includes doctors down to nursing assistants at home? Mean, you know, home healthcare pays. And again, there was testimony, this hasn't been, this provision hadn't been taken out in the healthcare committees, but my outstanding is this was language that was originally anticipated to be in a health care bill. And then because it was they thought it was moving forward in h two zero five, it got moved over. To a labor bill. To this. Six. If

[Sen. Kesha Ram Hinsdale (Member)]: I can't think of page six, line five, paragraph c, is this is this have to do with separating employees? Yes. Yes. So at the point of separation, they can choose their own healthcare provider. That's it. It's not about current employee deciding they wanna go to healthcare, a different healthcare plan.

[Sophie Sedanny (Office of Legislative Counsel)]: This is simply that if you've got a doctor that you're used to seeing, you show up at your practice, and they say, oh, yeah. No. Doctor Weeks is is no longer here. And it's sort of like, well, where is he? Normally, they don't they won't tell you, like, oh, we won't say that. This is just allowing Doctor Weeks when leaving that medical practice to be able to notify his patients that, you know, I'm still practicing, I've moved down the road, this is the we address, you have the right to choose who your healthcare provider is, so you could

[Sen. David Weeks (Clerk)]: For a current employee.

[Sophie Sedanny (Office of Legislative Counsel)]: This would be someone as as this would be for the employee, the healthcare employee that is leaving their current employment, that they could provide notice to their current patients as to the fact that they're moving. That would not be a violation of, for example, a non solicitation agreement. So I've just faced this with a dentist who I have been with for thirty over thirty years.

[Sen. Alison Clarkson (Chair)]: And she left a practice where she was a partner and has I understand.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I mean, been there for

[Sen. Alison Clarkson (Chair)]: a long time. Has set up a practice in Lebanon, New Hampshire. None of her patients have been given her contact information or her address or anything else. And I only learned that she had left and she was a timely partner of this group, of her group, and then it merged with this other group. I mean but it's this is an example of I mean, I've and I've asked them for and they won't they aren't giving me and so I have to Google her, which is fine, I can do that. But it really is irritating. I mean, I've been her patient for a long time and I'd like to actually continue to be her patient. And I haven't really been easily given that opportunity. So that's for me an example of this maybe. Right. Maybe a modest point.

[Sen. David Weeks (Clerk)]: Where would the person in this situation get the address and other contact information for that patient?

[Sophie Sedanny (Office of Legislative Counsel)]: I would say for my current employer that they would have a list of who that current patient is.

[Sen. David Weeks (Clerk)]: Well, again, it's not necessarily something that's routinely available to every employee who provides professional services in the office, whether it's a nurse or a labist, some sort of an assistant who deals with patients directly.

[Sophie Sedanny (Office of Legislative Counsel)]: Yeah, the intent behind this was the focus was on sort of the directs. You could send out all the patients at the private ones you've never seen, but ones that you were trying

[Sen. David Weeks (Clerk)]: find out is, is there a duty of the business to provide that information if the employee who is separating doesn't have it individually?

[Sophie Sedanny (Office of Legislative Counsel)]: So that's not explicitly included in BM? This, again, is just language that came from the medical society, then there were some narrowing of that language in general and housing.

[Sen. David Weeks (Clerk)]: It's a question. It's about the collapse. I'm leaving and I want notify my patients before I deal with them of that information, but I don't have a name, I don't have my name, my first name or something, but I don't have any address or other contact information. Randy, you give it to me?

[Sen. Alison Clarkson (Chair)]: We have Jess here. Maybe we could ask Jess to respond to that if that was possible.

[Sophie Sedanny (Office of Legislative Counsel)]: I'd be happy to. Do want to

[Sen. Alison Clarkson (Chair)]: make at this point? Just stay right where you are. Jessa Barnard.

[Jessa Barnard (Vermont Medical Society)]: Yeah, absolutely, thank you. Jessica Barnard with the Vermont Medical Society. We represent physician assistants around the state. So this is narrower, it's a great question. We are starting more narrowly, where the language here, the intent here is to, again, it's sort of a double negative, but to prevent prohibitions on a clinician from communicating that information to a patient or former patient. It does not go so far as to require the employer to put out that information. I believe our organization would support that as well, but that's a sort of step further than this bill goes, which is to simply say you can't include in a non solicitation clause in an employment contract of prohibition on that provider providing that information to a patient.

[Sen. David Weeks (Clerk)]: I think that the practice that's involved would not be particularly enthusiastic about providing a list of patients to someone who's leaving the organization.

[Jessa Barnard (Vermont Medical Society)]: I think that would have to be something, right, to be worked out between the separating employee and the practice. I think it also could be potentially interpreted as allowing something like a posting in a newspaper. Certainly that provider could do other sort of public announcements about, I'm opening a new practice and patients are welcome. I'm accepting new patients, but it doesn't go so far as to require providing that information. There are preexisting ethical obligations for continuity of care. So if a practice is entirely closing or a practice won't be able to care for patients anymore, say a provider's retiring or leaving and they can't stay a patient of that practice, patients in that case do have to be notified that Doctor. Weeks' practice is closing, we can't care for you any longer, here's how to contact us for your records, or next steps if you wanna find a different practice, but in terms of just if that bigger practice could continue to care for those patients and one provider is leaving, there's not really an obligation to notify currently. Think the other piece that came up in House Commerce and Economic Development when the medical provider provisions were originally being discussed was also in anticipation that maybe the practice and the departing employee could do a joint notice or whatever. Then it would just include these elements.

[Sen. David Weeks (Clerk)]: Well, guess it depends on whether or the person leaving is on good terms with

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: think good practice. Depends on that.

[Sen. David Weeks (Clerk)]: You know, the practice might well just set out a note. Doctor Weeks has taken care of you for the past two years since leaving our practice. Your new doctor is Doctor. Chittenden.

[Sen. Alison Clarkson (Chair)]: But they sadly never do that. You just arrive and the person's gone. I mean, this happens at Dartmouth Hitchcock all the time because you have all these doctors rotating in and out. Hard to find somebody who's there for the long haul except the few, which is frustrating. Question a different part of

[Sophie Sedanny (Office of Legislative Counsel)]: the question. So

[Sen. Kesha Ram Hinsdale (Member)]: I generally very supportive of manning how to be for low wage,

[Sen. Thomas Chittenden (Member)]: low earning individuals. That makes a lot of sense

[Sen. Kesha Ram Hinsdale (Member)]: to me. My concern is I do have an email from

[Sen. Thomas Chittenden (Member)]: I don't know what his name is, but he says that this is a sledgehammer. We might want to scalpel. So I I'm overlaying his concern that this might apply to highly paid, not exempt employees. Did the house consider and I think other other states have done this where they banned documents at certain wage rates and lower, like twice the federal poverty line or twice the minimum wage. Right now, this language would, in fact, ban on competes for all nonexempts even if they're getting paid $200

[Sen. Kesha Ram Hinsdale (Member)]: an hour. Is that correct?

[Sophie Sedanny (Office of Legislative Counsel)]: That is well, is that if they meet, yes. So I I

[Sen. Kesha Ram Hinsdale (Member)]: propose we wanna at

[Sen. Thomas Chittenden (Member)]: least have a final cap. If an employer is gonna give but a high salary, then they can negotiate

[Sen. Alison Clarkson (Chair)]: with it. But why does pay have anything to do with it? I mean, if you're no. I'm so hear me out. If you're a lawyer and you have left well, I mean, that may not be a good because that's a sound. Well, it's not actually. It's not necessarily. If you are a provider service of some variety and you're highly paid and you front company with the partnership or the practice that you're working with, and you live in a town and you weren't able to practice within thirty months, that's I don't think that is I mean, I don't know. It depends on the pay. I think pay is irrelevant in a way. It matters that you're if you live in a place and you aren't able to practice near where you live or I'm not where your where your community is, it it just strikes me that that is unfair.

[Sen. Kesha Ram Hinsdale (Member)]: I love testimony of when and why people want non compete because I'm

[Sen. Thomas Chittenden (Member)]: pretty sure you're gonna wanna non compete when you wanna engage with somebody that you're sure that they can take and move to somewhere else. So if you pay them enough, I feel like it's

[Sen. Kesha Ram Hinsdale (Member)]: a fair contract between laborer, but I don't want that happening for minimum wage employees. It's making it harder for them to be mobile down the street. I'm not as sympathetic to health lawyer.

[Sophie Sedanny (Office of Legislative Counsel)]: The reason other states use state Well, the reason other states use things like hour and wage level is because exempt nonexempt is an extremely blunt instrument for this. You're gonna leave out people who you think should be protected by provision of noncompliance, and you're gonna bring in people just based on their status as to whether or they're exempt or not,

[Sen. Alison Clarkson (Chair)]: that could result in some cases in in more misclassification than actually getting at the heart of non compete agreements. Did you talk about other different lenses or filters to sift people through whether did you talk about something other than non exempt?

[Sophie Sedanny (Office of Legislative Counsel)]: So there was extensive testimony on this in the House of Commerce and Economic Development in the original h two zero five bill, There was huge discussion around salary levels and looking at what other states do. And there are a number of other states that have these cutoffs. The canon was and again, there was, you know, extensive, extensive work in communism, house commerce, and economic development. The challenge was trying to thread the though, like, did they get to the exempt versus nonexempt early in the process? Or No. Because that's not how it was in h two 2005. Right. So I guess I just wanna make sure we're properly characterizing how long people had to react to the exempt versus non exempt, which is a huge question of labor law, which usually the house general committee. It it it would So this came out. Yeah. That was that came in in the House General and Housing. So they they they're the ones who took the testimony, and then they put exempt versus nonexempt? They were the ones that moved forward with exempt, nonexempt as as as a way to target the most vulnerable employees. But that was close to the end of their process. That was at the end of the process. Right. In They talk a lot. I mean, work a lot on this bill.

[Sen. Alison Clarkson (Chair)]: I mean, it's not like they I'm just trying to

[Sophie Sedanny (Office of Legislative Counsel)]: be really clear about how long we've had to understand the impact of the peak outcome here. Right. But we're gonna

[Sen. Alison Clarkson (Chair)]: take more testimony in the sixth week.

[Sophie Sedanny (Office of Legislative Counsel)]: Okay. Yeah. So, House Commerce and Economic Development, the challenge with the salary piece was where to put salary. And it was largely dealing with the main concern being around startups where somebody may be paid a low salary but has a lot of authority. They're right in the centre of this new company. They've got a lot of access to very privileged materials, and so there was a real concern about where you would do the salary piece. Yeah, Thomas.

[Sen. Thomas Chittenden (Member)]: Quick Google. 12 other states have done this

[Sen. Kesha Ram Hinsdale (Member)]: with an income threshold, and

[Sen. Thomas Chittenden (Member)]: I don't have much sympathy for that scenario that if you wanna pay somebody less, then you don't get as many assurances that they're not

[Sen. Kesha Ram Hinsdale (Member)]: gonna take their skills and go somewhere else in my opinion.

[Sen. Alison Clarkson (Chair)]: I feel

[Sen. Kesha Ram Hinsdale (Member)]: like if you pay them a larger amount, then you can ask them and contractually obligate them to notch to take those skills elsewhere. So that's why I think an income threshold has been rational because New Hampshire, Massachusetts, Rhode Island, Maryland, Virginia, Illinois, Colorado. So I I'm deporting of putting a cap on this because I think nonexempt

[Sen. Thomas Chittenden (Member)]: should still be able to have a collect collective voting on them, not compete at certain amounts.

[Sophie Sedanny (Office of Legislative Counsel)]: There's no other states that do exempt or not exempt. Are you? I'd have to go back and look. I did look a lot. So last time I was trying to look and I just wanna clarify, but it's it's no other state that I'm seeing has it. So typically, what a lot of states do is they'll have a either a flat amount or link it to a percentage of the federal poverty level. Mhmm. Or job function. Or industry specificity. Right. So there was a lot more specificity in H two zero five. So, again, this was an effort to move forward with a portion of H two zero five to get something through for what was perceived to be the more vulnerable workers. And So, the rest of health care yeah, I I think if you if there's a salary level, one of the things you would want to consider would be having having a mechanism like a percentage of a level, it's not stagnant. You know, the problem when you say $50,000 is then in ten years' time, that's not a good number. If you say it's twice, you know, for example, so one of the mechanisms they looked at was state minimum wage, right? So the state minimum wage, if you were paid that for a full year, around $30,000. So you could say, you know, 200% of the state minimum wage, would make it 60,000 or three times the state minimum wage, it would be 90,000. So having some mechanism whereby There's a real value in having interstate commerce work, I mean, people switch jobs. They they might their non compete might apply to a very specialized job where people move around the country for these jobs. So it's it's really just not a good idea in my mind to have a completely different standard

[Sen. Alison Clarkson (Chair)]: I I I'm I'm hearing that. So we have a a witness that Austin Davis has given us on this, and any other witnesses that would please let us know. We're booking them in

[Sen. David Weeks (Clerk)]: for next issue is just the duration of time for non compete. I currently have a non compete that I've had, I think, thirty six years. Now, just because of my special skills, like the person who's COPAL programmer, is not a great demand today, except here. They got those programs still operating.

[Sen. Alison Clarkson (Chair)]: How could a non compete last for more than two years?

[Sen. David Weeks (Clerk)]: Well, unless it's specified.

[Sophie Sedanny (Office of Legislative Counsel)]: Typically, courts will look at agreements not to compete, and they look at reasonableness. Whether it's reasonable in scope, it's reasonable in the amount of time, it's reasonable in the geographic area. And as you say, that can vary widely. It could be global. It could be 10 miles. I mean, you just depends on what the particular activity is. But, again, if you're a unique person that has some specialized knowledge that could be beneficial anywhere in the world, you know, it could be global, but not They

[Sen. David Weeks (Clerk)]: love confidential information, for example, about the business that you work for, and that business is still in operation, then that confidential metric base would be valid.

[Sophie Sedanny (Office of Legislative Counsel)]: So this wouldn't preclude nondisclosure agreements or non solicitation agreements or other types of agreements or trade secret protection, etcetera. It wouldn't eviscerate any of those protections.

[Sen. Alison Clarkson (Chair)]: Thomas, and

[Sen. Kesha Ram Hinsdale (Member)]: then we're gonna echo what I think

[Sen. Thomas Chittenden (Member)]: I heard senator Rutland will say, which I I don't support just having exempt be excluded from this because there are assistant general managers that

[Sen. Kesha Ram Hinsdale (Member)]: will make 43 and $45,000 a year that are also asked to work fifty five, sixty hours a week. So you do the math though, that gets back down to minimum wage. I think looking at a salary threshold to apply not to be restrictions on is one other state

[Sen. Thomas Chittenden (Member)]: of the dominant, it's a lot

[Sen. Kesha Ram Hinsdale (Member)]: better approach, you know, to achieve what we're after.

[Sen. Alison Clarkson (Chair)]: Right. Right. So we're gonna pick this up again next week. If you have Austin's given us a chat whose name anyway, we have somebody who's weighing in. If you have other people who want

[Sophie Sedanny (Office of Legislative Counsel)]: to I emailed everybody a lot of information that I found on what other

[Sen. Alison Clarkson (Chair)]: states do. Thank you. Okay. Thank you, Sophie. You're welcome. And I understand when your time challenged for Cam, maybe. So let's shift to 07:57. We wanted to wait till David Hall got back. So, David, why don't you start and stay quiet? Because there were sections of 757, which I have to pull up that we were waiting for a year from here. Sure. Okay? Two days in a row.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: That's great. That's here to that's here to two two.

[Sophie Sedanny (Office of Legislative Counsel)]: What is what is this one?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I don't know. Is it many I don't know why I'm here. Okay. I just show up.

[Sen. Alison Clarkson (Chair)]: This is manufactured homes and limited equity cooperatives.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Awesome. That's That's $7.57. While you're looking

[Sophie Sedanny (Office of Legislative Counsel)]: Still have asked us by the house.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Yes. While you're all looking, and I'll introduce myself, David Halls, Director of Business Service Division Secretary of State, I will pitch to you. This morning we had what I would call the initial or preliminary meeting of the Act 10 stakeholder engagement process. Very exciting, great attendance, and it occurred to me that one or more of you may wish to join or at least be included in the progress we make over the course of this year. People from this community, people from finance, ways and means, commerce, would like to at least be aware of the work. You know, I I I might you might see an email from me to that effect, and if you want to play along or join us, I would welcome you. That is the activity. You may remember what's the business bill we did that updated, harmonized a lot of provisions about our processes, and the next iteration of that is stepping on where do we go from here with business organization laws, filing requirements, fun things like trademarks and service marks, all all kinds of stuff. So culminating in a report to the legislature in December, and I hope legislation in the next biennium. So be on the lookout for an email from me.

[Sen. Alison Clarkson (Chair)]: Right. I think you are here to talk to us about limited life limited equity cooperatives.

[Sen. Kesha Ram Hinsdale (Member)]: Think so.

[Sen. Alison Clarkson (Chair)]: Pam's still here. I believe that's Yeah. Who you were ragging

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I think you had a couple of questions on that relating to their status and what this part of the bill does about updating their status, so to speak. I I have to tell you, it's really born of two things, a historical error and I think maybe a misapprehension or a conflation of what it means to form one of these things at the state level versus your tax status. And that's really where the divide occurs. So we are in the universe of business organizations. That's why I'm here. We form and register most of them in this state. Included among those is a housing cooperative corporation that is a type of corporation, just like it sounds. But it is a type that is formed and has always, to my knowledge and my research of legislative history, has always been formed under the umbrella of business corporation law, not nonprofit corporation, but a business corporation. That was formally governed in Title XI in Chapter I, and then when you adopted in '94, Title XI A, you adopted the model business corporation act. That is the standard, the gold standard, the ADA promulgated law that governs business corporations. And that's important. It's important, it should be important for these entities because we're talking about ownership interests. And in Vermont and in most places, nonprofit corporations don't have ownership interests. They are members in these organizations. They have voting rights in its governance, but they don't own the business. They don't, know, and when the business owns things, when the business dissolves, generally, it is required to convey its assets to other nonprofits. That's part of what being a nonprofit is, right? So, here's where I think the problem arose in the historical record. It's lost the history in my office because it's a long, long time ago. But at some point, somebody, and I think it was in the period of time when there was not a director of my division that had been folded in with another division, and there was nobody sort of maybe

[Sen. Alison Clarkson (Chair)]: With eyes on it.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: With eyes on it. There was confusion about these limited equity co ops and how they were characterized in the record because they felt very legitimately that we operate on a nonprofit basis, some of them have nonprofit tax status, we're a nonprofit. Well, there's a difference between your state level organizational structure and your tax status for the IRS in the state. And in a very, very narrow, because of a private letter ruling and some rules that were adopted by the IRS, it is a very narrow path through which a business corporation formed on a limited equity cooperative basis for housing purposes can actually get, qualify for IRS tax exempt status. That is not typical. Right. That is not typical. But it's there specifically to allow these types of entities to exist and to benefit from tax exempt status. But they have to be very specific in how they are formed and how they operate. There's two tests they have to satisfy. Not just what you do, but also how were you formed. So that's why these provisions are what they are in the law about how much, you know, you can charge for rent if you rent the place, if at all, how much how many people on the board of directors can can be owners, What has to happen to the assets upon dissolution, etcetera? So they're doing all this stuff to satisfy

[Sen. Alison Clarkson (Chair)]: So, man, as technically business structures

[Sen. Kesha Ram Hinsdale (Member)]: Uh-huh.

[Sen. Alison Clarkson (Chair)]: To qualify as a nonprofit for tax purposes Right. They're having to do two things. Mhmm. What to walk this narrow line, they have to form

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: At the state level a corporation. Yeah. That has structural elements in its articles of incorporation to satisfy regulatory and tax requirements to get tax Right. Exempt

[Sen. Alison Clarkson (Chair)]: that's how they form. Right. And then what's the second one? You said there were two.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: There's two tests. What are the other tests? I was referring to the organizational and the operational tests, are the the litmus test for nonprofit, don't say nonprofit, say tax exempt status. Tax exempt status, you have to have in your organizational structure the provisions that they will read and say, you check all these boxes in the way your documents are actually written. And then in the way you operate the thing, also have to satisfy the tax exempt status. And that means you can't just form a shell and then start making a bunch of money and try to hide. So long story short, these were all actually or should have been business corporations all along. The reason that this is in the bill is because I think the people out in the world think they're supposed to be nonprofits, but they're not for our purposes. They're supposed to be business corporations who are able to pursue tax exempt status if that's what they choose to do, but that's not up to me. That's up to the IRS. But to say that you're some of them are characterized as business corporations. Some of them are characterized wrongly as nonprofit corporations is the status currently. And I you know, the request, the the language says we could fix the record if that's what somebody asked us to do. But I think what they're asking, what they were hoping was that we would change all the profits to nonprofits when really it's the reverse. If we were going to correct the record, we would be changing the nonprofits to profits. I don't think they want that. I'm not sure anything's gonna happen here. I mean, you can pass

[Sen. Kesha Ram Hinsdale (Member)]: the language. So we're putting

[Sen. Alison Clarkson (Chair)]: the onus on each individual limited

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: equity co op to come and work this out with you? Well, we're you're giving us express authority to change our record if they request us

[Sen. Alison Clarkson (Chair)]: to If they request so

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: to properly reflect their status. Right.

[Sen. Alison Clarkson (Chair)]: So are you so So does that be And what does that mean? So the cam would like to weigh in here too. Cameron might wanna weigh in here too because we've gone through this. So we wanna give them that opportunity so that they can take advantage of their nontax status.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Yeah. Yep. I I wanna be really careful here. I think what they think they're asking for is to tell us change all the profits or business corporations to nonprofit status in our records. But they What I'm saying is, what would actually happen is, we would change their nonprofit status to for profit status. They don't I don't think anybody's gonna ask us to do that once they understand the implication. So I'm saying this provision probably does no harm because I don't think anybody is gonna avail themselves of it, but maybe they want to.

[Sen. Alison Clarkson (Chair)]: I don't know. So there's no David, did you have a question? I saw you. No. I'm trying to you're right. It is confusing. There so there's no are there some of these company? Are there some of these corporations, cooperatives that are treading the line and are functioning as business entities, business corporations that have act have effectively done what's needed to then be able to have a non tax status?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I have no idea in the real world if they So if can't

[Sen. Alison Clarkson (Chair)]: take that from their records or how they're filing.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: No. Because that is a there's a there's a wall between Between the old tax status and your state corporate status. And I don't care about the former. I only care about the latter.

[Sen. Alison Clarkson (Chair)]: No. But you do because you also carry the records of nonprofits, though, in

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: in your state forms of first. Yeah. For tax purposes. No.

[Sen. Alison Clarkson (Chair)]: But you know how they're organized. I mean, are either

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: And Yes. Or some profit. What I mean. That's the part that matters to me. Right. And and and what I'm saying is the law that governs formation of this type of entity is the business corporation law. It is not the nonprofit.

[Sen. Alison Clarkson (Chair)]: So if a mobile home park was thinking of changing its business structure and, you know, you know, if they were going co op or whatever they would they they would most likely have come to you to talk with what business structure they wanted to choose?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I can't give people advice on that, because that's legal advice on what you should do. Here's what

[Sen. Alison Clarkson (Chair)]: So, gives them an opportunity to change what I think I hear you say.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Yeah.

[Sen. Alison Clarkson (Chair)]: This gives these cooperatives an opportunity to change their status, but it may not be able to change it the way they're anticipating. Yes. Is not gonna enable them to change it to nonprofit. This will only enable them to change it to for profit.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Right. And at least in the characterization of our records, right? It'll search for this business. But instead of saying nonprofit corporation, if they ask me to change it, they will say profit corporation.

[Sen. Alison Clarkson (Chair)]: But if they do that, and you sort cure it, because we're using the language of impurities Sure. In this If they cure it, are they then able, under that umbrella, are they also then able to tread the narrow line of being able to continue being tax exempt?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: That's it, see. Sounds like

[Sen. Alison Clarkson (Chair)]: the narrow way they could do that.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: There is, and there is. And so that's the danger of conflating the state organizational structure and the tax exempt structure for tax purposes. And they, the bottom line is, right now, they're listed incorrectly in our record.

[Sen. Alison Clarkson (Chair)]: All of them?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: No, I don't think all of them. Some of them. There's like 11, and I think, I'd have to

[Sen. Alison Clarkson (Chair)]: look at it, but maybe half, or eight and three, or Have you contacted them to let them

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: know They've contacted us. This has been going on for a long time.

[Sen. Alison Clarkson (Chair)]: So they've contacted you because IRS has denied them their No. No. No. No.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: No. Keep for for a moment, keep the IRS out of it. They when they go for grants

[Sen. Alison Clarkson (Chair)]: Ah. That's to to face

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: the bankruptcy of whatever. Of funding. Uh-huh. They think it's a problem that they're listed as a business corporation or a profit corporation instead of a nonprofit corporation based on their corporate status. When the reality is they should be, they are formed under the business corporation law, so they are a domestic business profit corporation, and they could also be, and in some cases I believe they are, tax exempt. So, both can be true, but people are, again, conflating the tax exempt status and the organizational structure. I appreciate that.

[Sen. Alison Clarkson (Chair)]: Yep. So I can't even appreciate this. If they come to you in at taking advantage of this opportunity to to get them into that narrow path. Are you able to help them with that, or is that a lawyer who has to help them with that?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I I don't get involved in the application for Texas status, but that's something they'd interested.

[Sen. Alison Clarkson (Chair)]: But it is something. This bill gives them the opportunity to sort of cure a mistake, a historic mistake.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: It gives them the right, and us, the express authority, to correct the record. And all I'm saying is it's not gonna flow in the direction that they want. It's actually gonna flow in the opposite direction.

[Sen. Alison Clarkson (Chair)]: Well, but what you're saying also is that if they have a lawyer and they are working on trying to find this narrow path, could find it. Yeah. So they're not all gonna be negative necessarily. So

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: the lawyer and the tax exempt status and all that is beyond me. That's after me, that's IRS. The record, the organizational structure, how it's listed in my records, is just what kind of organization are you? Are you formed under and governed by eleven a because you're a business corporation? Are you formed under and governed by eleven b because you're a nonprofit? The correct answer is housing cooperative corporations, of which limited equity co ops are a subset, are formed under 11A, period. The record incorrectly says that some of them are nonprofits from under 11B or governed by 11B, and that's wrong. So, again, the 11A, 11B dichotomy is what my office is concerned with, if you could think of it that way.

[Sen. Alison Clarkson (Chair)]: And 11B is the nonprofit.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Nonprofit corporation as a structure, as an organization type sanction, authorized by the state into which we breathe life until it's deep. Yep. The tax exempt status is Is a separate Is an IRS question. It's just like anybody else. You go, you apply, you demonstrate.

[Sen. Alison Clarkson (Chair)]: But you somehow know. Yeah. Even though you're only looking at construction, business structures. Right. You somehow know that some of them are actually treading this narrow path.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Well, you're, like I said, so the organizational test for taxes and status is that your organizational documents have to have, you know, one through six, how you're formed. That's the organizational test. And so I see the articles of incorporation that have been submitted, and I see that you've included these pieces to be a limited equity co op and to check those boxes for this narrow path. So that's how I know that you were at least organized with that in mind. Don't know if you've actually gone to pursue it, because it's not my business. But I know that you're set up that way.

[Sen. Alison Clarkson (Chair)]: So who's letting them know that they are not in compliance with the law, that their structure is I

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: believe the way this is triggered is they go apply for a grant or a loan. Right. They give their articles. The articles of incorporation say, this is a Vermont business corporation or this is a Vermont property corporation from under 11 a, therefore, you're not eligible. That's probably not right. I mean, they can because if they're tax exempt, they're tax exempt. So the question I don't know the answer to is, you know, in the million the pantheon of grants and loans, is it predicated on the organizational structure or on the tax exempt status? I have no idea. But I think that's the communication vector.

[Sen. Alison Clarkson (Chair)]: And and so while Cameron is here, we can have this done. And so that this bill fixes that Or it enables a cure. I mean, I'm trying to predict what we're doing. Yeah. Fair. Are you clear on what we're doing?

[Sen. Kesha Ram Hinsdale (Member)]: I'm clearer Yeah. In this presentation. Yeah. Yeah. I'm trying to pull up a I'm not sure what we're solving with this.

[Cameron Wood (Office of Legislative Counsel)]: I, for the record, Cameron Wood, officer legislative counsel, I 100% agree with everything that Mr. Hall is saying. Think he is articulating it in a

[Sen. Alison Clarkson (Chair)]: best way humanly possible. For a complicated vest. I mean,

[Cameron Wood (Office of Legislative Counsel)]: there is an issue, and the resolution to the issue is not what the advocates who are asking for a resolution want.

[Sen. Alison Clarkson (Chair)]: So why did they? It's one thing. Why did they pass this if it's not what

[Cameron Wood (Office of Legislative Counsel)]: they want? Well, because there's a separate provision in here that somewhat addresses what the request is. So I'm gonna

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Okay. So wait. I'm happy to jump in to share a few No.

[Sen. Alison Clarkson (Chair)]: It's okay. We have only ten more minutes. I would trying to

[Cameron Wood (Office of Legislative Counsel)]: get to a Zoom link so I can potentially share my screen if you can. So

[Sen. Alison Clarkson (Chair)]: so while you're doing that, so some of these of the 11 cooperatives that we have, roughly half figured out how to form be formed as a business structure, and have figured out this narrow path of the

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I don't wanna characterize it that way. What it's it's more rudimentary than that. It's that some of them are correctly labeled and some

[Sen. Alison Clarkson (Chair)]: of Got them are incorrectly it.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: And that's that's what I know.

[Sen. Alison Clarkson (Chair)]: And that this bill allows them to come back, change correct their status with you and figure out if they need to for grants or other things, figure out with their lawyers or whoever, how to find this narrow path so that they can also have a tax structure that works for them. So, what's that, Randy?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I think that's a possible explanation. Thank you.

[Sen. Alison Clarkson (Chair)]: I Yeah. Need to find one. I know how that

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: could I think the point Cam is about to make is important about the grants and stuff.

[Cameron Wood (Office of Legislative Counsel)]: Yeah, okay. So, what page are Cam? So, this is page,

[Sen. Alison Clarkson (Chair)]: I think

[Cameron Wood (Office of Legislative Counsel)]: it's great. So the issue is you have some of these entities as Mr. Hall was mentioning, you have some of these entities that are registered as nonprofits and then you have new ones that are coming in. They're saying, hey, why aren't we being registered as nonprofit? You see this sister park over here that has the exact same structure and the exact same articles of incorporation why are they being treated differently than us and the reality is the straightforward answer is because you're being treated correctly and they were incorrectly registered okay? And so, there is no way to resolve that issue because the the resolution is as Dave's pointing out is to go back and rearticulate the ones that are done incorrectly in a way that they don't want and so, that's why the that's why the committee landed on the language that you have at the bottom of the bill which says if the entity wants to they can request that their status be updated correct. Alright so you're with Mr. Hall they're probably not going to do that because in theory, they're losing the advantage that they feel that they have by being listed as a quote nonprofit. We're just she'll say they could do that. That's what you all were talking about here. Nothing about that should be seen. Nope, look at the very end of page 11, sections Oh, how's of that variant? Yep, Secretary of State may, upon request, update a limited equity cooperative's registration to ensure proper reflection. That's the discretionary language that's in here that allows them to request that their status as registration secretary of state be updated. I don't imagine that any of them are gonna take avail themselves of of that ability. So then, what the House General Committee also added in was this section at the bottom of page eight which says that a mobile home park organized as a limited equity cooperative shall be treated for purposes of state funding and grants as if it were incorporated as a state non profit corporation for a public purpose and a public benefit of So, the laws of the there's a few concerns that I've raised with this language previously in that. You're treating mobile home park limited equity cooperatives different from other limited equity cooperatives.

[Sen. Alison Clarkson (Chair)]: You're giving a special stance. Right. You're saying you don't have to be correctly registered to take advantage of these opportunities. Correct.

[Cameron Wood (Office of Legislative Counsel)]: But as a public policy point, the argument here is a limited equity cooperative. The assets of the cooperative are limited in statute and treated in a way that is similar to a nonprofit entity. As we walked through last time, we talked about this language. When you look at the section that governs limited equity cooperatives, if the cooperative dissolves, any assets remaining after the cooperative pays off its debts or pays back its members their share, that remaining assets have to be distributed to another limited equity cooperative or another nonprofit. So you've limited how the assets of this corporation can be distributed once it's dissolved. They've articulated that the public purpose of a limited equity cooperative is to serve low and moderate income individuals. Remember, we talked about the definition of low and moderate. Those are the individuals who are able to meet members of the limited equity. So in statute, you were you were somewhat treating them as if they are similar to a nonprofit with a purpose. Because that's a public Right? Right. So the policy question on fee one is, why are you limiting this to only mobile home parks that are limited equity cooperatives? Seemingly, other limited equity cooperatives serve the same type of purpose as a mobile home park. That's the first question you all, I think, need to address. Separate from that, I think, is the broader question of this is a very broad stroke in saying that if you're a limited equity cooperative, you're treated as if you're a nonprofit for all state funding and grant purposes. That's a public policy decision that you as a committee have to make, whether you're you're wanting to treat them all that way. I think that the the issue that people are raising is because some of them are registered incorrectly and registered as nonprofits, they aren't having to jump through the same hoops and and overcome the same barriers as other similarly situated entities that are not being registered or have not registered as the nonprofits of the Secretary of State. And that all comes back to why are they different? Why are they registered different? Why do we have this challenge to begin with? All that comes back to the information that mister All been sharing this morning. It is an error that was done years ago, and that is the landscape that you're dealing with now in the same

[Sen. Alison Clarkson (Chair)]: So we're trying to fix the error in a very narrow circumstance. Global home parks that are formed as limited equity cooperatives. How many other limited equity cooperatives are there that are not going as home parks? Do you have a notion

[Cameron Wood (Office of Legislative Counsel)]: for that?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: I don't know off the top of my head. There's a few, but they're not just local home parties.

[Cameron Wood (Office of Legislative Counsel)]: Can you Primarily housing? Yeah.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Oh, these are all subsets of housing cooperative corporations. So a handful, five, six, nonfocusing parks, a few Burlington.

[Sen. Alison Clarkson (Chair)]: And they are apartment buildings generally? Didn't identify

[Sen. David Weeks (Clerk)]: the entities, though. Yeah. Let

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: me make two observations on this. It's true that historically, for whatever reason, there is a characterization or classification error, right? If you look up this entity and it says, Here's such and such, limited equity co op, nonprofit corporation. That's the database, that's the database you'd look in to find it. It doesn't change its articles of incorporation, were filed properly and are under. So it's not even a question of whether this was organized properly or not. It's really not. It's it's like the label is wrong. Do you know what I mean? In law, legally, these are all profit corporations because of the way they were organized, because of the law under which they organized. The error, the historical mistake is just a label. It's a classification error in our records. That doesn't change the nature of the entity, first off. Second off, I guess I would observe about that language about being to be a nonprofit for purposes of grants and such. I would almost question whether you should be framing it in terms of treated like a nonprofit corporation, which again, is an organizational structure, or you should be framing it in terms of tax incentives.

[Sen. Alison Clarkson (Chair)]: Yes, as opposed to nonprofit.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Right, because again, you could be organized in lots of different ways and still be tax exempt if you apply and approved by the IRS. To get there, you've gotta meet all the substantive requirements that are in the law, and they're there because they correspond to the tax requirements. So that would be something I guess I would, you know

[Sen. Alison Clarkson (Chair)]: and, And then the challenge for us in our limited time here is that the grants, what they're trying to bend over backwards about is trying to get in so that they're eligible for some of these important grants to improve their mobile home parks. Right. We don't know the language in those grants. I mean, we could certainly have to find out whether they say tax exempt or whether they say nonprofit.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Yes. And and I I don't have any sense of the universe. I know GEC manages some of them.

[Sen. Alison Clarkson (Chair)]: I know a lot of them have He does the HDD.

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: Right.

[Sen. Alison Clarkson (Chair)]: He does. Like, we can ask animals. Yeah. Yeah. But so this that that's an assumption that they're making that nonprofit versus tax exempt. Sorry. We need to go to the floor. Any other questions for David? Cameron, thank you.

[Sen. Kesha Ram Hinsdale (Member)]: I'm happy to get back

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: in every one. Thank you. Sure. Yep. One question.

[Sen. David Weeks (Clerk)]: I've got about legislative, do something to get a hold of call, is a correction involved for any entity that was formed unto these, that is, that is, operates as a nonprofit organization. Can you allow the holder of that to change their classification and that the state will recognize that this is a corporation bond? Mean, so that You corrected error, no?

[David Hall (Director, Business Services Division, Vermont Secretary of State)]: That's how we got to the corrected error language, because if you had mandated it, if you said, shall correct the record to reflect properly its formation and structure, then all of a sudden, these entities that think they're nonprofits would wake up one day and find, oh shoot, the state just changed me to a prophet. I didn't want that. That's why it's permissive, not mandatory, first. Second, you know, at this point, because, again, it's a function of the legal framework under which they're formed, you have to actually undergo a conversion from one type of entity to another to actually become a nonprofit. And when you do that, there's all kinds of complications, taxable events even, because the ownership structure changes from Thank one kind to

[Sen. Alison Clarkson (Chair)]: you. We need to know.