BILL ANALYSIS                                                                                                                                                                                                    ”

                                                                    AB 1865

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          Date of Hearing:  May 4, 2016


                               Roger HernŠndez, Chair

          AB 1865  
          (Patterson) - As Introduced February 10, 2016

          SUBJECT:  Contractors:  trust or custodial benefits plans:   
          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 entered into on or after  
            January 1, 2017 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 and 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, in 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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          3)Provides that this bill does not apply to labor union members  
            covered by a multiemployer plan that provides health care  
            coverage who are dispatched by a federal labor union hiring  
            hall to a project awarded to a nonunion contractor.

          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  


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          A contractor generally is not required to be a union contractor  
          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  

                 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  
                 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  


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               payday schedules;

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

                 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. 


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          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  
          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  

            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. 


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            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.

            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."



          This bill is substantially similar to AB 842 (Patterson) from  


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          2015.  AB 842 failed passage in this committee.

          This bill makes two changes from the version of AB 842 heard  
          last year.  According to the author:

            "[This bill] is different in two ways, in order to address  
            concerns raised in regards to AB 842, by addressing the bills  
            impact on existing contracts and issuances where a union  
            member may be dispatched to work on a job site awarded to a  
            non-union builder. The first change is adding language to make  
            it clear that the provisions of this bill will only be  
            applicable to work covered by a PLA that was entered into on  
            or after January 1, 2017 so that there is no concern that the  
            bill will change or alter terms of existing contracts in  

            The second change from AB 842 to [this bill] will exclude from  
            the exemption those instances where a union member covered by  
            a union-operated health plan is dispatched by a labor union  
            hiring hall to a project awarded to a nonunion contractor.    
            These changes were made to be responsive and address concerns  
            raised during the AB 842 hearing."




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          This bill is sponsored by the Associated Builders and  
          Contractors (ABC California), who states:

            "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  


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            room services, and significantly lowers maximum out-of-pocket  
            deductibles for employees and dependents." 

          They and other supporters argue that this bill is a common sense  
          solution to ensure that California employers are not required to  
          pay twice for expensive health care plans on certain taxpayer  
          funded public works projects.  "Currently, taxpayer funded  
          projects covered by Project Labor Agreements require payments  
          into health programs operated by unions even if employers offer  
          existing health care benefits to their employees.  This results  
          in the double payment of health care benefits in order to avoid  
          lapse in coverage, or the discouragement of the vast majority of  
          local contractors and small business owners from competing on  
          and winning such construction projects in their communities,  
          thus taking away the opportunity to provide solid, middle class  
          jobs for employees."



          Opponents, including the State Building and Construction Trades  
          Council and the California Labor Federation, AFL-CIO state:

            "Construction is an inherently dangerous industry where  
            workers also experience the brunt of economic downturns and  
            persistently confront the underground economy.  The vast  
            majority of non-union workers do not have quality healthcare  
            coverage and unscrupulous contractors routinely break labor  


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            laws that place law-abiding contractors at a competitive  
            disadvantage creating even greater pressures and a race to the  

            [This bill] does not present a solution to any of these  
            problems, instead its basis is the relentless opposition to  
            Project Labor Agreements (PLAs) otherwise known as Community  
            Workforce Agreements (CWAs).  These labor agreements, between  
            public agencies and the Building Trades, support efforts to  
            draw more women, veterans, foster youth, people of color, the  
            formerly incarcerated or any targeted demographic group of  
            people into apprenticeship programs which offer the highest  
            level of training and provide an opportunity for a rewarding  
            career in the construction industry.  Local governments and  
            public agencies throughout California are increasingly using  
            CWAs as a valuable tool to maximize taxpayer investment and  
            create career opportunities for local residents.    

            This bill would provide a contractor that has a health plan  
            that complies with the Affordable Care Act with an exemption  
            from the obligation to make per hour  contributions to the  
            health and welfare trust required by the CWA even if the  
            contractor contributes less money per hour than the  
            contributions required by the CWA.   In an industry plagued by  
            contractors cheating workers on their wages, this bill would  
            further give an unfair competitive advantage to contractors  
            that have lesser health benefits for their employees.  
            Furthermore, this bill is preempted by the National Labor  
            Relations Act because it purports to alter the terms of purely  
            private project labor agreements.   The unions and contractors  
            that are parties to these CWAs may reach any agreements they  


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            choose about wages and benefits.  In these instances, the  
            state is not a party to these CWAs and cannot interfere with  
            the parties' negotiations.

            On public projects, this bill would undermine the prevailing  
            wage law by giving contractors that spend less money per hour  
            on health benefits a competitive advantage.   Not  
            surprisingly, there is no provision that the contractor must  
            make up the difference in cash wages.  Moreover, this bill  
            would illegally make health benefits dependent on whether a  
            worker chooses to be a 'union member.'   

            The bill states that it 'does not apply to labor union members  
            covered by a multiemployer plan authorized under Section  
            302(c)(5) of the federal Taft-Hartley Act.'   But under  
            federal labor law, under the Supreme Court's decision in CWA  
            v. Beck, 487 U.S. 735 (1988), workers covered by a union  
            collective bargaining agreement (CBA) need not become 'union  
            members.'  They can be non-members and pay agency fees  
            instead.  Therefore, a worker may regularly use the union  
            hiring hall and be dispatched to work under a union CBA and be  
            covered by a multi-employer health plan for years but choose  
            not to become a 'union member.  That is the worker's right  
            under federal labor law, and neither the union nor the  
            employers can discriminate against the worker.   Under this  
            bill, the worker could lose his or her regular health benefits  
            unless he or she became a 'union member.'  


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            Similarly, a formerly non-union worker who is dispatched to  
            work on a CWA project can choose to become a union member or  
            can instead pay agency fees.  The worker's health benefits  
            should not depend on whether the worker chooses to become a  
            union member or not because NLRA Section 8(a)(3) prohibits  
            both unions and employers from discriminating against workers  
            based on their membership status.

            Construction workers are already exposed to the perils of job,  
            and the economy as they are the first to feel downturns and  
            the last to experience the rebounds as projects often take  
            years to break ground.  Studies have found that one in six  
            California construction workers are impacted by wage theft and  
            that in 2011 alone it cost workers over $1.2 billion and  
            taxpayers another $774 million.   [This bill] is yet another  
            attempt to undermine a useful tool that lifts people out of  
            poverty and into middle class careers that offer a good  
            standard of benefits and where a worker can retire with  
            dignity and respect."  




          Air Conditioning Trade Association


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          American Fire Sprinkler Association

          Associated Builders and Contractors (sponsor)

          Associated Builders and Contractors-San Diego Chapter

          Central Solano Citizen/Taxpayer Group

          Contra Costa Taxpayers Association

          Fresno Chamber of Commerce

          Inland Empire Taxpayers Association

          Kern Citizens for Sustainable Government Board of Directors

          Kern County Black Chamber of Commerce

          Kern County Hispanic Chamber of Commerce

          NOR Chamber of Commerce

          Plumbing-Heating-Cooling Contractors Association of California

          Salinas Taxpayer Association


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          Salinas Valley Chamber of Commerce

          San Joaquin County Taxpayers Association

          Western Electrical Contractors Association


          California Labor Federation, AFL-CIO

          State Building & Construction Trades Council

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