Report Title:

Small Business Bill of Rights

Description:

Establishes basic due process rights of small businesses, especially in regard to the actions of state agencies.

THE SENATE

S.B. NO.

3058

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO SMALL BUSINESS.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that small businesses make up over 95% of all businesses in Hawai`i and that small businesses employ almost 60% of the state's working population. The legislature also finds that almost all national surveys place Hawai`i at the bottom of the list of all states in terms of survival chances for small business.

Of all of the factors making it extremely difficult to develop and maintain a small business in Hawai`i, a history of arbitrary and nonresponsive actions of state administrative departments were consistently identified as the most troublesome. Small businesses are disproportionately impacted by overburdensome rules and regulations. This is even more evident when these rules and regulations are applied in an overzealous manner. Often, small businesses lack the resources to cope with challenges to their survival posed by the adverse and sometimes arbitrary actions of state regulatory agencies.

The legislature also finds that the Small Business Regulation Review Board, in reviewing Hawai`i Administrative Rules (HAR's) and in conducting hearings regarding many of the complaints of small business owners regarding the adversarial promulgation, interpretation, and enforcement of HAR's, has strongly recommended that legislation be established to identify and protect the rights of small businesses to expect fair treatment from state administrative personnel.

Specifically, the Small Business Regulation Review Board has reached consensus on several rights for small businesses that should be clearly identified in the law to afford small businesses protection against arbitrary and unilateral actions by administrative departments, as well as address the numerous roadblocks to success, which will lead to more investment and growth in Hawai`i. These rights include:

1.) A right to a timely response to an application for a permit, license or approval necessary to run the small business;

2.) A right to an automatic renewal of essential permits, licenses, or approvals, absent good cause;

3.) A right to a presumption of innocence where a violation, deficiency, or wrongdoing is alleged;

4.) A right to timely notice of an alleged violation, deficiency or wrongdoing, including when the alleged violation, deficiency, or wrongdoing is alleged by an employee;

5.) A right to a timely and impartial hearing in the event of an alleged violation, deficiency, or wrongdoing;

6.) A right to avoid penalties arising out of an alleged violation, deficiency, or wrongdoing when the small business rectifies or cures the situation within a reasonable time period;

7.) A right to have private representation paid for by the State in any action for an alleged violation, deficiency, or wrongdoing, where no liability attaches to the small business;

8.) A right to privacy regarding confidential and proprietary information;

9.) A right to insurance coverage regardless of the size of the premium; and

10.) A right to fairly compete for state procurement funds.

PART I

SECTION 2. The legislature finds that many small businesses require a permit or license to operate or conduct business. Because this is such a basic requirement of business survival, every small business should have the right to have a timely response to an application for a permit or license. The legislature finds that small businesses should expect state agencies to process and decide on an application of permits or licenses no later than thirty days from the date the application is determined to be complete by the issuing agency, and that if the completed application is not rejected for good cause within that thirty day window, the application should be automatically granted.

Further, the legislature also finds that many licenses and permits required to conduct business need to be renewed, and that many small businesses dedicate hours of time and resources to the renewal process. Renewal of these essential licenses and permits should be automatic, save for good cause.

SECTION 3. Section 91-13.5, Hawaii Revised Statutes, is amended to read as follows:

"[§91-13.5] Maximum time period for business or development-related permits, licenses, or approvals; automatic approval; extensions. (a) Unless otherwise provided by law, an agency shall adopt rules that specify a maximum time period of thirty days from the date the application is determined to be complete by the issuing agency to grant or deny a business or development-related permit, license, or approval; provided that the application is not subject to state administered permit programs delegated, authorized, or approved under a federal law that requires a longer period of time.

(b) All such issuing agencies shall clearly articulate informational requirements for applications and review applications for completeness [in a timely manner.] within thirty days after they are received from the applicant.

(c) All such issuing agencies shall take action to grant or deny any application for a business or development-related permit, license or approval within the established maximum period of time, or the application shall be deemed approved.

(d) The maximum period of time established pursuant to this section shall be extended in the event of a national disaster, state emergency, or union strike, which would prevent the applicant, the agency, or the department from fulfilling application or review requirements.

(e) The maximum period of time established pursuant to this section shall be extended to 90 days when the agency is required to hold one or more public hearings to obtain public input prior to the issuance of any business or development-related permit, license, or approval.

[(e)] (f) For purposes of this section, "application for a business or development-related permit, license, or approval" means any state or county application, petition, permit, license, certificate, or any other form of a request for approval required by law to be obtained prior to the formation, operation, or expansion of a commercial or industrial enterprise, or for any permit, license, certificate, or any form of approval required under sections 46-4, 46-4.2, 46-4.5, 46-5, and chapters 183C, 205, 205A, 340A, 340B, 340E, 340F, 342B, 342C, 342D, 342E, 342F, 342G, 342H, 342I, 342J, 342L, [and] 342P, and chapters 436B through 471, inclusive."

SECTION 4. Chapter 91, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§91-A Automatic renewal of essential permits. Thirty days before the expiration of a business or development-related permit, license, or approval, as defined in section 91-13.5, the authority responsible for issuing the business or development-related permit license, or approval, shall give notice to the holder of the business or development-related permit, license, or approval, if the authority intends not to renew the business or development-related permit, license, or approval, and the reasons as to why. Reasons for nonrenewal must be for good cause or for reasons set forth in law. Notwithstanding any provision of the law to the contrary, absent such notice and stated reasons, at the time of renewal, the respective business or development-related permit license, or approval, shall be automatically approved and renewed upon the payment of the applicable renewal fee, if any, to the appropriate authority."

PART II

SECTION 5. The legislature also finds that one of the best ways to address the issue of historical arbitrary and nonresponsive action on the part of state regulatory agencies is to enact more due process rights in the law. Fair treatment by state administrative personnel and a change in government culture to view small business as an ally as opposed to an enemy will do much to promote small business growth and economic vitality.

Specifically, small businesses should have the right to timely and impartial hearings in the event a state regulatory agency takes an adverse action against a business, as in the case of license or permit revocation. Currently, administrative hearings are conducted by the state agency that took the adverse action and are presided over by that same agency. While that system is arguably efficient, it also denies small business a degree of due process. The legislature finds that hearings officers conducting such actions should be impartial, and should not be employed by the agency overseeing the proceeding.

More fundamentally, every small business should be considered innocent of any alleged violation, deficiency, or wrongdoing, until determined otherwise in that impartial hearing. The legislature finds that enacting this concept into the law will also help to address historical issues of overzealousness and arbitrary decisions.

The legislature also finds that the administration has adopted a "business-friendly" culture in government. Part of this culture is to have government assume a greater role in solving problems of business as opposed punishing small business. While there are some things the administration can do without legislation, another change that the legislature can enact to make government more "business-friendly" is to adopt a system where businesses can forego monetary fines and possible license or permit revocation by correcting the problems leading to the alleged violations in the first place.

SECTION 6. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter DUE PROCESS; small businesses and

administrative agencies

§ -1 Definitions. For purposes of this chapter, "small business" means any legal entity that is independently owned and operated, employs not more than fifty full-time employees, and earns no more than five million dollars in annual gross income.

§ -2 Presumption of innocence; standard. Every small business shall be considered innocent of any alleged violation or deficiency until determined otherwise in an impartial hearing. Notwithstanding any other provision of law, in order for an agency to prove an allegation that a small business has committed an act that represents a deficiency or violation of law, the agency shall prove the allegation beyond a reasonable doubt.

§ -3 Notice. (a) Every small business shall have the right to be notified, in writing, at least thirty days prior to any action by any state agency because of a deficiency or violation of the law.

(b) Every small business shall have the right to be notified, in writing, at least thirty days prior to any action by any state agency because of a claim being filed by any employee alleging a small business is not operating in a safe or reasonable work environment.

(c) If a state agency takes any action because of any alleged deficiency or violation on the part of the small business, and the state agency fails to give the small business at least thirty days notice of its intent to take such action, the action shall be nullified.

§ -4 Correction of alleged violations; avoidance of penalties. (a) Upon notice of the alleged violation or deficiency by a state agency, every small business shall have the right to cure an alleged deficiency or violation before being assessed any fine or penalty. No fine or other penalty shall be assessed to the small business if the deficiency or violation is cured within thirty days of the notice.

(b) Upon notice of the alleged unsafe or unreasonable aspect of the work environment by a state agency, every small business shall have the right to cure an alleged deficiency or violation before being assessed any fine or penalty. No fine or other penalty shall be assessed to the small business if the deficiency or violation is cured within thirty days of the notice.

§ -5 Impartial hearing. If a small business chooses to contest the deficiency or violation, an impartial hearing under this chapter shall be conducted by a hearings officer who has the authority to make determinations of liability in the event of allegations of deficiency or violations of law made by any state agency. The hearings officer may not be employed by the state agency bringing the allegations. An impartial hearing shall take place within thirty days of the small business giving written notice to the agency alleging the deficiency or violation that the small business wishes to contest the allegation. If the impartial hearing is not provided within thirty days, the alleged deficiency or violation shall be rescinded and any fine or penalty imposed shall be rescinded.

§ -6 Right to representation. Every small business shall have the right to representation by a knowledgeable advocate in any dispute with a state agency. A small business shall have the right to claim reasonable fees to offset the cost of any private representation used in the contesting of a deficiency or violation under this chapter if the small business prevails in any dispute with a state agency. For purposes of this chapter, "prevails" means any decision or action that does not impose liability upon the small business including, but not limited to, settlement of the claim.

§ -7 Small business defender. (a) There is established within the department of business, economic development and tourism a small business defender. The small business defender shall be appointed by the governor and confirmed by the senate. The director of the department shall determine the salary of the small business defender, but in no case shall the salary exceed that of the deputy director of the department. The director of the department may appoint administrative support personnel who shall assist and support the small business defender.

(b) Unless otherwise specifically provided by law, and upon written request by a small business, the small business defender may represent, defend, and provide legal representation to any small business, during any adjudicatory or contested proceeding involving any civil citation issued by a state or county agency in which the small business is a party; provided that the small business shall seek its own legal representation whenever the potential remedies against the small business may include fines or penalties that exceed $25,000 or may result in the suspension or revocation of a license. The small business defender shall have the discretion to accept or refuse any case for good cause. The small business defender may also engage in the following activities:

(1) Advocate and negotiate, upon consultation with the small business regulatory review board, with federal, state, and county agencies and officials on any matter relating to and promoting the interests of small business;

(2) Conduct investigations to secure information useful in the lawful administration of any provision in this chapter;

(3) Refer any appropriate matter to the auditor or ombudsman for examination or investigation; and

(4) Do any and all things necessary to effectuate the purposes of this chapter.

(c) Each small business shall waive and release any and all claims, damages, causes of action, and any request for relief made against the small business defender or staff, the State or counties, their officers, employees, or agents, and arising from the legal representation of the small business by the small business defender provided under this section.

(d) For purposes of this section, "department" shall mean the department of business, economic development and tourism.

(e) The small business defender shall submit an annual report to the legislature detailing its activities and expenditures no later than twenty days prior to convening of each regular session."

PART III

SECTION 7. The legislature also finds that small businesses are often the holders of confidential or proprietary information that is key to their profitability and survival. To the extent that agencies enforcing regulations and rules force small businesses to disclose such information, government agencies are inadvertently harming small businesses. The purpose of this part is to protect the privacy rights of small businesses.

SECTION 8. The State, or any agency or entity thereof, shall not mandate the disclosure of confidential or proprietary information as a condition of obtaining any contract or payment under any contract with the State, or any agency or entity thereof, when the contract is to be awarded in a fixed bid or fixed price per unit basis.

For purposes of this section, "proprietary information" means information that relates to the percentage of ownership in a business.

For purposes of this section, "confidential information" means financial data regarding profitability, including the price paid for goods and services, and the amount of profit made per unit.

For purposes of this section, "small business" means any legal entity that is independently owned and operated, employs not more than fifty full-time employees, and earns no more than five million dollars in annual gross income.

This section shall not apply to the Department of Taxation.

PART IV.

SECTION 9. The legislature further finds that small businesses in Hawaii are negatively impacted by the influx of national and multinational companies when competitively bidding on procurement contracts with the state. Drawing on their economies of scale, national and multinational companies have a distinct advantage in the bidding process for procurement contracts. The state, however, has a great interest in seeing small businesses in Hawaii compete and succeed. Besides accounting for nearly 60% of all employment in the state, small businesses also pay taxes and spend profits in the state, something national and multinational companies rarely do. The capital flight that occurs when large national and multinational companies come to dominate a local economy would negatively impact the finances of the state, which would impact needed services that government historically provides, such as benefits and programs for the economically underprivileged, public safety functions, public education, and other programs tailored to meet the health, welfare, and public safety needs of the state. Thus, the legislature further finds that the prevention of capital flight is a critical government interest. It is the purpose of this part to mandate that state government set aside a percentage of procurement contract funds to be awarded to small businesses.

SECTION 10. Chapter 103D, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§103D- Set aside; small businesses. Notwithstanding any law to the contrary, the state procurement office, in conjunction with all chief procurement officers, shall set aside at least fifty per cent of all procurement contract funds to be exclusively awarded to small businesses. The procurement process for these contracts shall otherwise comply with this chapter.

For purposes of this section, "small business" means any legal entity that is independently owned and operated, employs not more than fifty full-time employees, and earns no more than five million dollars in annual gross income.

PART V.

SECTION 11. The legislature further finds that in addition to the aforementioned problems, insurance issues are some of the most problematic for small businesses in Hawaii. Small businesses are often caught in a paradox. Insurance companies will charge higher premium rates for higher risk clients. When a small business, however, takes measures to reduce risk of harm to the point where the business' risk history is exemplary, insurance companies often do not offer insurance because the insurance company cannot make profit on the premium charged. In the alternative, insurance companies offer the product at a premium rate so high that the premium comes close enough to self insurance so that the insurance company does not risk losing money in a payment situation. The purpose of this part is to prohibit insurance companies licensed to do business in this state from canceling or non-renewing policies because the premium charged would be too small.

SECTION 12. Notwithstanding any provision of the law to the contrary, any insurance company licensed to do business in the state shall not cancel or fail to renew any insurance coverage required by the state of small businesses solely because the applicable premium would be too small for the insurance company to earn a profit.

Notwithstanding any provision of the law to the contrary, no agency or department of the state shall require a small business to provide proof of insurance if the small business can reasonably demonstrate that the lack of insurance was due to a violation of this section by an insurance company.

SECTION 13. There is appropriated out of the general revenues of the State of Hawaii the sum of $ , or so much thereof as may be necessary for fiscal year 2004-2005, for the office of the small business defender.

SECTION 14. The sum appropriated shall be expended by the department of business, economic development and tourism for the purposes of this Act.

SECTION 15. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 16. This Act shall take effect upon its approval, except for section 47, which shall take effect on July 1, 2004.

INTRODUCED BY:

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