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 





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          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 





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               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.







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          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






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          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.]






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           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 






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          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.





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          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


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