Department of Personnel Administration Has the Authority to Direct State Controller to Defer Salary Payments for State Employees

In Gilb v. Chiang, (— Cal.Rptr.3d —-, Cal.App. 3 Dist., July 2, 2010), a court of appeal considered “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.” The court of appeal held “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.”


The State’s budget was set to expire on June 30, 2008, but the Legislature failed to meet its constitutional deadline of June 15, 2008 to pass a budget. Governor Schwarzenegger issued an executive order on July 31, 2008, to the Department of Personnel Administration (“DPA”) and the Department of Finance to work with the State Controller “to develop and implement necessary mechanisms, including pay letters and computer programs, to comply with the California Supreme Court’s” decision in White v. Davis, 30 Cal.4th 528 (2003). In response, the Controller expressed “his intent to disregard the order and to continue to provide full pay to all state employees, using cash on hand or borrowing money.”

The DPA issued Pay Letter 08-23 in which it “instructed the Controller to reduce the paychecks of state employees pending the adoption of a budget” by paying all nonexempt employees in a specific “workweek group” the federal minimum wage, by paying the minimum salary required by the Fair Labor Standards Act (“FLSA”) to executive, administrative, and professional employees, and by paying “no salary to employees not covered by FLSA and employees covered by specified regulations.” After DPA suggested two additional options for implementing the general direction of the pay letter, Controller told DPA “he needed more time and needed help from DPA in resolving various logistical and legal issues.”

DPA file a petition for writ of mandate and a complaint for injunctive and declaratory relief in which it alleged that “the Controller intended to continue to pay state employees in violation of the California Constitution,” statutory law, White v. Davis, and the pay letter. The case was removed to federal court but the federal court remanded the case after the Legislature passed a budget in September 2008. The trial court declared that the Controller must follow DPA’s decision if DPA is acting within its fundamental authority and that DPA was acting within its fundamental authority. The court declared “the Controller is legally prohibited from paying state employees in the absence of a budget or other available appropriation, except as minimally required by [FLSA]” and that the “Pay Letter does not on its face violate FLSA.”


The court of appeal first rejected the Controller’s request to reverse the trial court’s judgment as moot. The court of appeal then concluded the “DPA has authority to issue directions to the Controller regarding deferral of employee salary payments in the event that appropriations are lacking due to a budget impasse.”

The Legislature is required to pass a budget bill by June 15 each year, but it does not always pass a budget on time. The California Constitution provides, “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.” California Constitution article IV, § 12, subdivision (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.’” In the absence of an appropriation, the Controller is unable to “pay the state’s bills, including state employee salaries.” The court noted, “Although public employment is governed by statute . . . 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.”

The California Supreme Court held in White v. Davis, a case which also involved a budget impasse, “that, while state employees are ultimately entitled to receive their salaries under the contract clauses of the federal and state Constitutions . . . 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..” However, the Supreme Court held “under the federal supremacy clause . . . the State is obligated during a budget impasse to comply with the . . . FLSA .” The FLSA, which generally applies to state employees, “requires the State timely to pay the federally-mandated minimum wage rate to nonexempt employees who do not work overtime and timely to pay full salary plus overtime to nonexempt employees who do work overtime.”

Here, the Controller argued DPA did not have express statutory authority to tell him to delay paying salaries to state employees. The court found express authority is not required and that DPA had “acted within the scope of its broad authority to manage the nonmerit aspects of the state’s personnel system.” The DPA “merely sought to implement the California Supreme Court opinion in White v. Davis.” The Controller had to comply with the White v. Davis opinion even in absence of the DPA directive. Furthermore, the Controller’s “independent duty to audit claims does not authorize him to disregard DPA’s directive.” The court opined that “[i]f the Controller believed DPA’s pay letter violated the law, the Controller should have initiated judicial resolution of the dispute rather than simply disregarding the pay letter.” The Controller “has authority over the state’s payroll systems” under California statutory law. This authority, however, “does not preclude him from also being subject to DPA decisions.”

The Controller claimed he had the right to decide whether DPA’s pay letter violated FLSA because he could be sued for violating the FLSA. The court found that “when the amount of an expenditure is set by law or entrusted to the discretion of another agency, the Controller’s authority is ministerial only.” The expenditures at issue here, those for employees’ salaries, fell within the authority of the DPA. The pay letter does not purport to adjust the employees’ salaries. The Court concluded that DPA’s pay letter is not prohibited by statutory law because it “did not conflict with any express reservation of legislative power over salary decisions.”

The court also concluded that Government Code section 19845 does not deprive DPA of authority to implement the FLSA. The court held “DPA has authority to issue directions to the Controller regarding deferral of employee salary payments in the event that appropriations are lacking due to a budget impasse.” The court also rejected Controller’s argument that “the workers must be timely paid the higher state minimum wage under the FLSA rather than the federal minimum wage” on the grounds that (1) “the state minimum wage law is part of the state law that must give way to DPA’s powers to direct the Controller regarding payment of state workers;” and (2) “nothing in the FLSA or its regulations makes state minimum wages payable as a matter of federal law.”


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