BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 842


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          Date of Hearing:  May 6, 2015


                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT


                               Roger Hernández, Chair


          AB 842  
          (Patterson) - As Introduced February 26, 2015


          SUBJECT:  Contractors:  trust or custodial benefits plans:   
          essential health benefits


          SUMMARY:  Enacts provisions of law related to the provision of  
          health benefits by contractors on project labor agreements.   
          Specifically, this bill:


          1)Defines a "project labor agreement" to mean a prehire  
            collective bargaining agreement that establishes the terms and  
            conditions of employment for a specific construction project,  
            as specified.


          2)Provides that a contractor that bids on or has been awarded  
            work covered by a project labor agreement that provides health  
            care coverage to workers on the project, that includes  
            "essential health benefits" under the Affordable Care Act, and  
            that provides evidence of that coverage to the entity awarding  
            the contract, is exempt from a requirement to pay into a trust  
            or custodial benefit plan, designated by the project labor  
            agreement to provide health and welfare or similar benefits  
            for those workers, an amount equal to the amount that the  
            contractor would have been required to pay into that trust or  
            custodial benefit plan for health care costs for those  








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            workers.


          FISCAL EFFECT:  None.  This bill is keyed non-fiscal by the  
          Legislative Counsel.


          COMMENTS:  According to the author, this bill seeks to eliminate  
          a problem that causes an employer to make "double payments" for  
          health care coverage of employees who are sent to work on  
          certain public works projects even when the employee has  
          employer-provided health coverage that meets the standard of the  
          Affordable Care Act (ACA).


          What is a Project Labor Agreement?





          In general terms, a project labor agreement (PLA) is a  
          comprehensive pre-hire collective bargaining agreement that sets  
          the basic terms and conditions of employment for a specific  
          construction project.  This is different than the general  
          concept of a collective bargaining agreement, which is  
          negotiated between a single union and an employer or association  
          of employers.  For example, on any given construction site,  
          there may be workers covered under specific collective  
          bargaining agreements, or no agreement at all.  A PLA, on the  
          other hand, sets forth the basic terms and conditions of  
          employment for all of the employees who will be engaged on the  
          project.





          A contractor generally is not required to be a union contractor  








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          in order to bid for work on a project covered by a PLA.  Any  
          contractor, either union or non-union, that is willing to abide  
          by the terms of the agreement, may bid for work under a PLA.





          PLAs usually include an agreement by the union signatories to  
          not conduct any strikes or work stoppages, while the contractors  
          and their subcontractors agree to no lockouts during the length  
          of the construction project. Other provisions found in a project  
          labor agreement may include, but not be limited to, the  
          following:





                 A requirement that new employees, within a certain  
               period of time, pay dues to the union for representing  
               their interests before the employer ("financial core  
               members");
                 A requirement that contractors use a local, centralized  
               union job referral system or "hiring hall;"


                 Management rights, including hiring, promotion,  
               transfer, discipline or discharge of employees, and the  
               right to reject any job applicant referred by a union;


                 A uniform workday, workweek, overtime, holiday and  
               payday schedules;


                 Standardized work rules and regulations posted on the  
               job site; and









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                 Standardized and often very quick dispute resolution or  
               "grievance" procedures to resolve employee, contractor  
               and/or inter-union (jurisdictional) disputes.


          


          Debate Regarding PLAs


          


          Over the years, there has been significant debate and discussion  
          regarding the use of PLAs, particularly in public-sector  
          construction projects.





          Opponents of PLAs generally contend that PLAs increase  
          construction costs to taxpayers, are anti-competitive by  
          excluding or discouraging non-union contractors from bidding on  
          public construction projects, and are an organizing tool to  
          coerce construction workers into union membership. 





          Supporters of PLAs contend that PLAs reduce the risk of  
          construction delays (and increased costs) from worker shortages  
          or labor disputes through the no-strike provisions and  
          centralized referral systems or hiring halls. Proponents also  
          maintain that PLAs create cooperation between the construction  
          workforce and management, foster jobsite efficiencies and avoid  








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          costly delays, and offer cost savings through certainty.


          


          Author's Statement in Support of Need for the Bill





          According to the author:





            "The ACA is a mandate on individuals to obtain health  
            insurance coverage. Although employers are not required to  
            offer coverage, a penalty applies if the employer does not  
            offer minimum essential coverage or they offer such coverage  
            but it is deemed unaffordable or not meeting minimum standards  
            and an employee receives a subsidy on the Health Insurance  
            Exchange. 


            Certain project labor or community benefit agreements add  
            extra mandates that say a contractor must pay into a  
            union-operated health plan in order to bid or be awarded work  
            on that project - even if the contractor already has ACA  
            compliant health insurance coverage for their employees. 


            If the contractor does not agree to follow that rule to avoid  
            paying twice, that company is barred from working or even  
            bidding on that project.  This takes away the opportunity for  
            local contractors to provide solid, middle class jobs for  
            their employees.








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            The justification in the past by governments for these double  
            payments for health insurance coverage is that the non-union  
            plans are not deemed "quality" health plans in many cases.   


            However, since the implementation of the ACA, all employers  
            now have a clear standard of "government approved" quality  
            when it comes to healthcare plans.  A high number of  
            construction companies currently provide ACA-compliant health  
            insurance coverage for their employees that include all of the  
            ACA essential health benefits (EHBs).


            Since the ACA coverage is deemed by state and federal  
            government to constitute "quality" coverage for all Americans,  
            the policy question for the Legislature is why should  
            employers on state construction projects have to pay for  
            healthcare twice?   [This bill] would fix that loophole in our  
            construction contracting processes."


          


          ARGUMENTS IN SUPPORT


          


          This bill is sponsored by the Associated Builders and  
          Contractors, who states:













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            "While the debate over whether government can force anyone to  
            buy healthcare coverage continues on across America, no one is  
            suggesting that the government can make anyone buy healthcare  
            twice.  [This bill] would fix that loophole in our  
            construction contracting processes.   


            The cost of health insurance has also increased every year  
            since ACA was implemented. Today, an employer can expect to  
            pay well over $6,000 to $9000 dollars per employee under a  
            group health policy according to recent Kaiser Family  
            Foundation, National Small Business Association  and Covered  
            California website information and studies  Forcing a  
            contractor to pay that amount twice for all employees  
            dispatched to jobs with project labor agreements just doesn't  
            pencil out.   For every 10 employees dispatched to a year-long  
            job, like a new water project, that contractor pays out at  
            least $60,000 to $90,000 in duplicate health benefit payments.  
             


            Another example:  In Santa Clara County - the International  
            Brotherhood of Electrical Workers health plan contribution  
            costs an employer $12.98 an hour, or $26,977 per employee per  
            year.  However, the same employer may purchase an ACA "gold"  
            level plan from Covered California SHOP website for the  
            employee and dependents for approximately $4.69 an hour or  
            $9,755 per employee per year.  This plan has much lower  
            co-pays and cost sharing for hospital, surgery and emergency  
            room services, and significantly lowers maximum out-of-pocket  
            deductibles for employees and dependents." 


          Similarly, supporters of this measure state that many employers  
          provide ACA-compliant health insurance for their employees.  In  
          fact, with the employer mandate looming on the horizon, most  
          employers have already met the ACA requirements.  "To make an  
          employer pay twice for health insurance when seeking to bid or  
          work on certain projects hurts not only the job creator - but  








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          their employees as well.  After all, with ACA compliant  
          healthcare costs averaging more than $5,000 per employee per  
          year that is money that could be used to provide additional  
          benefits, new jobs or opportunities for business expansion."


          

















          ARGUMENTS IN OPPOSITION





          Opponents argue that this bill would incentivize inadequate  
          health plans and discriminate against employers who offer  
          comprehensive health care benefits.





          Writing in opposition, the State Building and Construction  








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          Trades Council states:





            "This proposal if enacted into law, would encourage a race to  
            the bottom, rather than a level playing field for businesses  
            that offer comprehensive health benefits to their employees  
            and that do not depend on public subsidies.  





            PLAs are crafted to meet a community's particular needs, and  
            they remain an invaluable tool for creating local jobs,  
            encouraging fair and open competition and maximizing taxpayer  
            dollars on public works projects.  They are recommended by  
            many construction managers as an important management tool,  
            and some contractors are reluctant to bid on a major project  
            if a PLA is not in place.  In fact, the legality of PLAs has  
            been extensively tested in both federal and state courts and  
            with respect to both public and private construction projects.  
             Their validity has been upheld in both federal and state  
            cases (including the U.S. Supreme Court and the California  
            Supreme Court).  Moreover, Presidential Executive Order 13502  
            issued on February 6, 2009, requires federal agencies to  
            consider the use of PLAs on all federal construction projects  
            of $25 million and above, and the State of California Judicial  
            Council has utilized PLAs on various projects.  





            PLAs are legally binding contracts, and the federal and state  
            constitutions preclude legislation that retroactively alters  
            the terms of existing contracts.  [This bill] violates the  








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            National Labor Relations Act (NLRA) to the extent it seeks to  
            restrict the agreements that may be made by private parties on  
            private sector PLAs.  Furthermore, this proposal is contrary  
            to the terms of every (or almost every) existing PLA covering  
            a project in California.  These PLAs collectively apply to  
            hundreds of billions of dollars in construction work.   





            [This bill] also falsely represents how PLA workers are  
            dispatched.  The vast majority of workers are dispatched from  
            union hiring halls to both union-signatory contractors and  
            otherwise non-union contractors that are signatory only to the  
            PLA.   The vast majority of those workers are union members  
            who are covered by Taft-Hartley health plans, and maintain  
            coverage because all employers must contribute to the plans.    
            The bill would allow contractors to avoid contributing to the  
            Taft-Hartley plans, which would cause union members dispatched  
            to non-union contractors under PLAs to lose their health  
            coverage.





            More importantly, [this bill] is intended to eliminate the  
            ability for workers that have minimum level of care under ACA  
            from being able to begin accruing credit towards the benefits  
            of higher quality union plans.



            In closing, [this bill] would excuse any contractor from  
            paying into the health plans negotiated under a PLA even if  
            those health plans offer a  higher level of benefits than  
            merely providing minimum essential coverage under the ACA.   
            The State Building Trades believes all workers should have the  








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            right to access the best quality coverage for themselves and  
            their families.  [This bill] would deny them that right."


          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Air Conditioning Trade Association


          Associated Builders and Contractors (sponsor)


          Associated Builders and Contractors - San Diego Chapter


          Bay Area Business Roundtable


          Central Solano Citizen/Taxpayer Group


          Greater Fresno Chamber of Commerce


          Greater Tehachapi Chamber of Commerce


          National Federation of Independent Business










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          North Coast Builders Exchange


          North of the River Chamber of Commerce


          One Sun, Inc.


          Plumbing-Heating-Cooling Contractors Association of CA


          Salinas Taxpayers Association


          Salinas Valley Chamber of Commerce


          San Luis Obispo County Builders Exchange


          Western Electrical Contractors Association




          Opposition


          California Labor Federation, AFL-CIO


          California Chapters of the National Electrical Contractors  
          Association 


          State Building and Construction Trades Council of California










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          Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091