BILL ANALYSIS Ó AB 842 Page 1 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 AB 842 Page 2 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 AB 842 Page 3 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 AB 842 Page 4 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 AB 842 Page 5 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. AB 842 Page 6 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: AB 842 Page 7 "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 AB 842 Page 8 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 AB 842 Page 9 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 AB 842 Page 10 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 AB 842 Page 11 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 AB 842 Page 12 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 AB 842 Page 13 Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091