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