BILL ANALYSIS Ó Bill No: SB 117 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2011-2012 Regular Session SB 117 Author: Kehoe As Introduced: January 20, 2011 Hearing Date: March 22, 2011 Consultant: Paul Donahue SUBJECT Public Contracts: Prohibitions DESCRIPTION Existing law prohibits a state agency from entering into any contract for goods or services in the amount of $100,000 or more with a contractor that does not provide the same benefits to an employee with a registered domestic partner that it provides to an employee with a spouse. This bill would additionally prohibit a state agency from entering into a contract in the amount of $100,000 or more with a contractor who discriminates based on the gender or sexual orientation of the spouses or domestic partners of employees. EXISTING LAW Under current law , a state agency may not enter into a contract for the acquisition of goods or services in the amount of $100,000 or more with a business entity which, in providing benefits to its employees, (1) discriminates between employees with spouses and employees with domestic partners, or (2) discriminates between the domestic partners and spouses of those employees. In addition, existing law : 1) Permits a state agency, provided it has taken all reasonable measures to find a compliant contractor, to SB 117 (Kehoe) continued PageB waive the requirement that a contractor provide the same benefits to a registered domestic partner employee as it does to a married employee, under specified circumstances. 2) Provides that the contractor is not deemed to discriminate if the contractor, in providing the benefits, pays the actual costs incurred in obtaining the benefit. 3) Specifies that, in the event a contractor is unable to provide a certain benefit, despite taking reasonable measures to do so, the contractor may not be deemed to have discriminated in the provision of benefits if it provides the employee with a cash payment equal to the amount that the contractor or vendor pays to provide that benefit to the spouse of an employee. 4) Provides, to the extent allowed by law, for confidentiality of information disclosed or provided by an employee or applicant for employment to verify his or her domestic partnership registration or marriage for purposes of qualifying for benefits. 5) Requires each state contract to contain a certification by the contractor that it is in compliance with the requirements of the law. 6) Specifies that, if a contractor falsely certifies that it is in compliance with the law, the contractor is subject to specific penalties unless within a time period specified by the contracting agency, the contractor provides proof that it has complied, or is in the process of complying with the law. BACKGROUND Purpose : The sponsor of this bill, Equality California, states that this bill will protect the 18,000 same-sex couples who were married in California during 2008 by expanding the law to include gender and sexual orientation of spouses. Equality California states: "The playing field for contractors needs to be leveled by ensuring that entities that discriminate are not given a competitive advantage over those who treat their employees equally. Providing the same benefits to an SB 117 (Kehoe) continued PageC employee with a domestic partner, or same-sex or opposite-sex spouse ensures that workers receive equal pay for equal work. To do otherwise is essentially to discriminate against gay, lesbian, bisexual and transgender employees." "Providing equal benefits also show respect for the diversity of employees and their individual circumstances. Additionally, treating employees fairly is a sound business practice. A non-discriminatory benefits program enables employers to attract and retain the best and most talented employees, lowers turnover and recruitment costs, and helps improve job satisfaction and performance." Equal Benefits Ordinances : Equal benefits ordinances require contractors and vendors who enter into contracts with a public entity to offer equal benefits to their employees. To comply with such a law, a government contractor or vendor that offers health insurance and other benefits to employees' spouses must offer equivalent coverage to employees' domestic partners. Several cities and counties in the United States currently have adopted equal benefits laws.<1> These laws are generally consistent with existing California law, which this bill expands to additionally prohibit the state from contracting with a business that discriminates based on the gender or sexual orientation of the spouses or domestic partners of its employees. Litigation Concerning Federal ERISA Law Preemption : A possibility exists that the provisions of this bill, and the statute that it amends, could eventually be invalidated ------------------------- <1> There are at least 13 cities and counties that have enacted equal benefits ordinances, including Berkeley, CA; King County, WA; Long Beach, CA; Los Angeles, CA; Miami Beach, FL; Minneapolis, MN; Oakland, CA; Olympia, WA; Sacramento, CA; San Diego, CA; San Francisco, CA; San Mateo County, CA; Seattle, WA; Tumwater, WA. The city of Atlanta, GA gives businesses competing for city contracts a bidding preference if they offer domestic partner benefits to employees. SB 117 (Kehoe) continued PageD on ERISA<2> preemption grounds. Although this issue is far from settled, a series of court decisions have in essence held that government entities may not contradict federal ERISA law with equal benefits laws or ordinances. In 1998, a federal district court concluded that San Francisco's equal benefits ordinance could not require airline carriers to provide equal benefits to domestic partners through ERISA-regulated benefit plans.<3> In 2004, a federal court in Maine held that a Portland ordinance that conditioned receipt of certain city funds on providing domestic partner coverage was preempted because it required employers' ERISA-covered plans to provide certain benefits.<4> Most recently, in 2006, the New York State Court of Appeals refused to compel New York City mayor Bloomberg to enforce the equal benefits law requiring certain city contractors to provide domestic partner benefits to employees. Specifically, the New York state high court ruled that the ordinance was invalid on the grounds that it was preempted by ERISA. With certain limited exceptions, the New York City ordinance would have required covered employers that enter into or renew contracts with the City of New York for work, labor, services, supplies, equipment, or materials valued at over $100,000 to provide employees with domestic partners the same benefits as they provide to employees with spouses. ------------------------- <2> Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. <3> Air Transport Assn. of America v. City & County of San Francisco (N.D. Cal 1998) 992 F. Supp. 1149 <4> Catholic Charities of Maine., Inc. v. City of Portland (D. Me. 2004) 204 WL 231778 SB 117 (Kehoe) continued PageE The NY City Council argued in this case that ERISA preemption should not apply due to a "market participant" exception to ERISA preemption since the City was merely acting as a consumer in the marketplace, and not as a regulator, but the court ruled that the ordinance attempted to prescribe the terms of ERISA benefit plans, which the U.S. Supreme Court has held to be prohibited under ERISA.<5> On the "market participant" exception argument, the court held that the law did not meet the requirements for the exception.<6> The court noted that a state or municipality would be deemed a regulator, which rendered the exception inapplicable because the city used "its bargaining leverage as a means of attaining policy ends." In order for the "market participant" exception to apply, "the state must have no interest in setting policy." The court then concluded that the ordinance in question was "designed to induce contractors to treat domestic partners and spouses equally," and, accordingly, found the ERISA exception did not apply. However, ERISA does not regulate "soft benefits," such as family medical leave and bereavement leave, and it appears clear that government entities can require companies to offer such benefits to the domestic partners of their employees.<7> ------------------------- <5> See Shaw v. Delta Airlines, Inc. (1983) 463 U.S. 83, 96-97 <6> The court decided this issue by relying on 2 decisions of the US Supreme Court: Building & Constr. Trades Council v. Associated Bldrs. and Contrs. of Massachusetts/Rhode Island, Inc. (1993) 507 U.S. 218 and Wisconsin Department of Industry, Labor and Human Relations v. Gould Inc. (1986) 475 U.S. 282 <7> See S.D. Myers, Inc. v. City and County of San Francisco (9th Cir. 2001) 253 F.3d 461, holding that San Francisco's requirement that city contractors provide "soft" domestic partner benefits to out-of-state employees working on San Francisco contracts does not violate the "dormant" Commerce Clause. ÝThe court also held that S.D. Myers lacked standing to challenge the application of ERISA law.] SB 117 (Kehoe) continued PageF Los Angeles Equal Benefits Ordinance : The City of Los Angeles has adopted an equal benefits ordinance prohibiting companies that contract with the city from discriminating in the provision of "soft" or "Non-ERISA Benefits" between employees with domestic partners and employees with spouses, and/or between the domestic partners and spouses of such employees. The ordinance defines "Non-ERISA Benefits" to mean any and all benefits payable through benefit arrangements generally available to the contractor's employees which are neither "employee welfare benefit plans" nor "employee pension benefit plans," as those terms are defined in ERISA. In light of the foregoing, the author and the Committee may wish to discuss these ERISA-related issues in the context of Section 10295.3 of the Public Contract Code and the extensions to that law contained in this bill. Support : the California Commission on the Status of Women notes that it supported AB 17 (Kehoe), which prohibited state agencies from entering into specified contracts with businesses that discriminate between employers with spouses and those with domestic partners. Employee benefits account for 25% to 40% of an employee's compensation. Providing the same benefits to an employee with a domestic partnership, or same-sex or opposite-sex spouse ensures that workers receive equal pay for equal work. The California Employment Lawyers Association believes that all employees should be treated equally, and are entitled to work with dignity under the protection of the laws of this state. Employers who discriminate should not be given an unfair competitive advantage over employers who play fair and follow our laws. The Gray Panthers and the Professional Engineers in State Government agree that employers who discriminate should not be given unfair competitive advantages. PRIOR LEGISLATION AB 17 (Kehoe) Chap. 752, Stats. 2003. Prohibits state agencies from entering into any contract for goods or services in the amount of $100,000 or more with a contractor that does not provide the same benefits to an employee with a registered domestic partner that it SB 117 (Kehoe) continued PageG provides to an employee with a spouse.<8> AB 25 (Migden) Chap. 893, Stats. 2001. Expanded California domestic partnership law by conferring on registered domestic partners various rights, privileges and standing granted by the state to married couples. Domestic partners now enjoy (1) the right to bring an action for wrongful death, (2) the right to receive continued health care coverage as a surviving beneficiary of the decedent, (3) the right to make health care decisions for an incapacitated partner, (4) the right to adopt a partner's child as a stepparent, (5) the right to file a claim for disability benefits a partner in the same manner as a spouse may file such a claim, and (6) the right to be nominated and appointed as conservator of an incapacitated partner. AB 25 also required benefits policy carriers of public agency employers to provide the same benefits to employees whether they are married or have domestic partners, and the same benefits to the employees' spouses or domestic partners.<9> AB 26 (Migden) Chap. 588, Stats. 1999. Recognized domestic partnerships in California, and specified the manner by which such partnerships may be formed, registered, and terminated. It provided certain rights to domestic partners, such as hospital visitation rights and health benefits to domestic partners of public employees. SUPPORT: California Commission on the Status of Women California Employment Lawyers Association ------------------------- <8> AB 1080 (Kehoe) Ý2002] was a substantially identical bill that died in the Assembly pending concurrence in Senate amendments. <9> In 2002, the following bills were enacted: AB 2216 (Keeley), granting a domestic partner inheritance rights if his or her partner dies without a will; AB 2777 (Nation) added Los Angeles, Santa Barbara and Marin Counties to those permitted to offer death benefits to surviving domestic partners of county employees; SB 1575 (Sher) added domestic partners to those exempted from the prohibition on receiving from a will or trust that one helped to draft; and SB 1661 (Kuehl) granted six weeks of paid family leave to employees to care for a sick spouse or domestic partner. SB 117 (Kehoe) continued PageH California National Organization for Women Gray Panthers Association of California Networks Professional Engineers in California Government OPPOSE: None on File DUAL REFERRAL: Senate Judiciary Committee FISCAL COMMITTEE: No **********