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Gilb v. Chiang

July 2, 2010

DAVID A. GILB, AS DIRECTOR, ETC. ET AL., PLAINTIFFS AND RESPONDENTS,
v.
JOHN CHIANG, AS CONTROLLER, ETC. ET AL., DEFENDANTS AND APPELLANTS;
SERVICE EMPLOYEES INTERNATIONAL UNION, ETC. ET AL., INTERVENERS AND APPELLANTS.



APPEAL from a judgment of the Superior Court of Sacramento County, Timothy M. Frawley, Judge. Affirmed. (Super. Ct. No. 34200880000026CUWMGDS).

The opinion of the court was delivered by: Sims, J.

CERTIFIED FOR PUBLICATION

The main issue in this appeal is whether the California Department of Personnel Administration (DPA) has authority to direct the State Controller temporarily to defer paying state employees' salaries (except for federally-mandated minimum wages) when appropriations are unavailable due to the state Legislature's failure to enact a timely state budget. (Gov. Code, § 12440.*fn1 ) Although DPA merely sought to implement a California Supreme Court decision (White v. Davis (2003) 30 Cal.4th 528), the Controller disagrees with DPA's interpretation of the judicial opinion.

Plaintiffs DPA and its director David A. Gilb (collectively, DPA) sought declaratory and other relief against defendants State Controller John Chiang and the Office of State Controller (collectively, the Controller). Various state employee groups intervened in support of the Controller.*fn2

Despite "technical mootness" of this lawsuit after the Legislature passed the budget for fiscal year 2008-09, the trial court issued a declaratory judgment concluding DPA acted within its authority. The Controller and interveners appeal.

We shall conclude the trial court did not erroneously grant declaratory relief in a moot case. We shall also conclude the DPA has the authority to direct the Controller to defer salary payments in excess of federally-mandated minimum wages when appropriations for the salaries are lacking due to a budget impasse, because the Legislature created DPA to "manag[e] the nonmerit aspects of the state's personnel system" (§ 19815.2) and vested DPA with jurisdiction with respect to "the administration of salaries" and "other personnel-related matters" (§ 19816). If the Controller disagrees with the directive's specifics, the Controller may seek judicial resolution but may not simply disregard the DPA directive. We shall therefore affirm the judgment.

LEGAL FRAMEWORK

Although the California Legislature is required to pass a budget bill by June 15 each year (Cal. Const., art. IV, § 12, subd. (c)(3)), timely passage has become the exception rather than the rule. (White v. Davis, supra, 30 Cal.4th at p. 533.) "Until the budget bill has been enacted, the Legislature shall not send to the Governor for consideration any bill appropriating funds for expenditure during the fiscal year for which the budget bill is to be enacted, except emergency bills recommended by the Governor or appropriations for the salaries and expenses of the Legislature." (Cal. Const., art. IV, § 12, subd. (c)(4).) An appropriation is a legislative act setting aside a certain sum of money for a specified object in such manner that the executive officers are authorized to use that money and no more for such specified purpose. (White v. Davis, supra, 30 Cal.4th at p. 538.) In some circumstances, the law authorizes "continuing appropriations" that run from year to year without the need for further authorization (ibid.), but the crux of this appeal is payment of salaries for which there are no appropriations during a budget impasse between July 1, the beginning of the state's fiscal year, and the date a tardy budget bill is enacted. (White v. Davis, supra, 30 Cal.4th at pp. 533, fn. 1, 567 [appropriations for most state employee salaries traditionally have been adopted as part of the annual budget act].)

Without an appropriation, the Controller cannot pay the state's bills, including state employee salaries. (Cal. Const., art. XVI, § 7 ["Money may be drawn from the Treasury only through an appropriation made by law and upon a Controller's duly drawn warrant"]; White v. Davis, supra, 30 Cal.4th at pp. 568-569.)

Although public employment is governed by statute (White v. Davis, supra, 30 Cal.4th at pp. 564-565), public employment gives rise to obligations protected by the state Constitution's contract clause, including the right to the payment of salary which has been earned. (Kern v. City of Long Beach (1947) 29 Cal.2d 848, 853.)

In White v. Davis, supra, 30 Cal.4th 528, which involved taxpayer suits to prevent the Controller from paying state employees during a budget impasse, the California Supreme Court held that, while state employees are ultimately entitled to receive their salaries under the contract clauses of the federal and state Constitutions, "because the California Constitution [Cal. Const., art. XVI, § 7, ante] and the applicable statutes*fn3 ] establish that the Controller is not authorized actually to pay salaries to state employees in the absence of a duly enacted appropriation, that condition or qualification on the right to compensation necessarily comprises one term or condition of employment that is an integral part of a state worker's employment rights that are protected by the constitutional contract clause. Accordingly,... the state constitutional contract provision does not afford state employees the right to obtain the actual payment of salary from the treasury prior to the enactment of an applicable appropriation." (White v. Davis, supra, 30 Cal.4th at pp. 535, 571, 568-569.) Nevertheless, said the state Supreme Court, under the federal supremacy clause (U.S. Const., art. VI, § 2), the State is obligated during a budget impasse to comply with the Fair Labor Standards Act or FLSA (29 U.S.C. § 201 et seq.), which generally applies to state employees (29 U.S.C. § 203(d), (e)(2)(C), (x)), and requires the State timely to pay the federally-mandated minimum wage rate to nonexempt*fn4 employees who do not work overtime and timely to pay full salary plus overtime to nonexempt employees who do work overtime.*fn5 (White v. Davis, supra, 30 Cal.4th at pp. 574-579.)

FACTUAL AND PROCEDURAL BACKGROUND

For fiscal year (FY) 2008-09, the Legislature again failed to meet the June 15 constitutional deadline to pass a budget, and the State's budget expired on June 30, 2008.

On July 31, 2008, Governor Schwarzenegger issued an executive order for DPA and the Department of Finance (DOF) to work with the Controller to develop and implement necessary mechanisms, including pay letters*fn6 and computer programs, to comply with the California Supreme Court's White v. Davis opinion. The Controller declared his intent to disregard the order and to continue to provide full pay to all state employees, using cash on hand or borrowing money.

On August 5, 2008, DPA issued Pay Letter 08-23, instructing the Controller to reduce the paychecks of state employees pending the adoption of a budget, as follows: (1) Pay all nonexempt state employees in a specific "workweek group" (§ 19843) the federal minimum wage (except specified departments expected to need overtime work for critical services); (2) Pay all Executive, Administrative, and Professional (EAP) employees (Workweek Group E), except those covered by specified federal regulations, the minimum salary required by FLSA to preserve the EAP exemption; and (3) Pay no salary to employees not covered by FLSA and employees covered by specified regulations.

On August 7, 2008, DPA proposed two additional options for implementing the general direction of Pay Letter 08-23 and asked the Controller to respond. On August 11, 2008, the Controller responded he needed more time and needed help from DPA in resolving various logistical and legal issues, e.g., (1) how to adjust for tax withholdings and other deductions when salary payments are split, and (2) development and modification of new and existing computer programs.

On August 11, 2008, DPA filed a "PETITION FOR WRIT OF MANDATE (CCP § 1085); COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF," alleging the Controller intended to continue to pay state employees in violation of the California Constitution, various statutes, White v. Davis and DPA's pay letter.*fn7 DPA asked for mandamus and injunctive relief to compel the Controller to comply with the pay letter. DPA also asked for declaratory relief, for the trial court to declare the Controller is legally required under state law to refrain from paying state employee salaries in the absence of a budget or other available appropriation, except as minimally required by FLSA. The pleading alleged: "An actual controversy has arisen and now exists between [the parties] concerning their respective rights and obligations under the California Supreme Court decision of White v. Davis.... [DPA] contend[s] that the Controller violates state law by paying state employees' salaries in the absence of a budget or other available appropriation, except as minimally required by federal law. [DPA is] informed and believe[s] that Respondents/Defendants dispute these contentions."

Employee unions and individual employees intervened in support of the Controller (fn. 2, ante) and removed the case to federal court. After the state Legislature finally passed the budget in September 2008, the federal court remanded the matter to state court.

Without amending its pleading, DPA filed an amended memorandum asking the state court to order the Controller "to make any and all necessary adjustments to the state payroll system so the Controller will be prepared to comply with the law during the next budget impasse."

The Controller filed an opposition arguing (1) the case was moot, (2) DPA lacked authority over the Controller in this context, (3) the undisputed evidence showed that deficiencies in the current payroll systems made it impossible or unfeasible for the Controller to do as DPA asked, and (4) DPA's pay letter "may run afoul" of the FLSA by calling for payment of the federal minimum wage ($6.55 per hour), whereas the FLSA states it does not excuse noncompliance with a higher minimum wage established by a state. (29 U.S.C. § 218(a);*fn8 29 C.F.R. § 541.4.*fn9 ) The Controller asserted a pending upgrade of the payroll system (the "21st Century Project" mandated by section 12432*fn10 ) had stalled and in any event would not solve the difficulties in complying with the pay letter. Intervenor CASE (fn. 2, ante) filed an opposition, arguing (1) the pay letter failed to differentiate between the general fund and special funds subject to continuing appropriations, and (2) requiring employees to work without pay impaired constitutional rights under the state and federal contract clauses.

DPA replied in part that (1) the Controller did not declare impossibility but only unfeasibility; (2) the law does not recognize an unfeasibility defense, and (3) the Controller did not show adequate efforts to comply with the pay letter.

A hearing was held on documentary evidence and oral argument. The Controller's counsel pointed to his evidence of unfeasibility (affidavits) and said, "We are not trying at this point to try to adjudicate the merits of it. The question really is: Is it a valid claim that requires adjudication?" The Controller asked to "go forward with the unfeasibility defense" and said, "what we are asking Your Honor is to reconsider [the tentative ruling that unfeasibility as opposed to impossibility was not a defense] and either make a determination on our feasibility or if fact finding is required, make the requisite fact finding."

On March 18, 2009, the trial court issued a written ruling resolving substantive issues despite technical mootness of the case. The court concluded (1) DPA had authority and standing such that the Controller was legally obligated to comply with the pay letter; (2) the DPA's instructions were legally correct; (3) the defense of impossibility incorporates unfeasibility due to extreme difficulty or expense; (4) the Controller failed to make a sufficient showing of impossibility; and (5) even if the current payroll system was deficient, the Controller failed to show that a sufficient fix was impossible before the next budget impasse. Regarding CASE's opposition, the trial court agreed its ruling must be limited to state employees whose salaries are not subject to continuing appropriations or self-executing constitutional mandates.

The trial court rejected the Controller's argument that the FLSA mandated state minimum wages where states set wages higher than the federal minimum. The cited authorities did not "federalize" state minimum wage laws but merely established that the FLSA did not preempt state minimum wage laws. The court declined to address other FLSA claims, which could not be determined in the abstract.

On April 13, 2009, the trial court issued a formal judgment stating an attached copy of its written ruling explained the court's reasoning and:

"1. The Court hereby declares that the Controller must follow the decisions of the [DPA] so long as DPA is acting within the fundamental authority delegated to it by the Legislature;

"2. The Court hereby declares that DPA's Pay Letter was within its fundamental authority;

"3. The Court hereby declares that the Controller is legally prohibited from paying state employees in the absence of a budget or other available ...


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