Kawashima v. State, Department of Education.
398 P.3d 728, 140 Haw. 139 (2017)
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Rule of Law:
An internal agency regulation concerning only employee compensation is a matter of internal management, not a formal "rule" subject to administrative rulemaking procedures, and thus does not have the force and effect of law. Additionally, a statute requiring interest on late payments to contractors for goods and services does not apply to state employees' claims for back wages.
Facts:
- In 1976, the Hawai'i Board of Education (BOE) adopted School Code Regulation 5203, which linked the hourly pay rate for part-time temporary teachers (PTTs) to the per diem pay rate for substitute teachers.
- In 1996, the state legislature enacted Hawai'i Revised Statutes (HRS) § 302A-624(e), which legally mandated a specific formula for calculating substitute teachers' per diem pay.
- For several years, the Department of Education (DOE) failed to pay substitute teachers the full per diem amount required by HRS § 302A-624(e).
- Because the PTTs' hourly pay was linked by Regulation 5203 to the underpaid substitute teachers' per diem rate, the PTTs also received a lower hourly wage than the regulation prescribed.
- In January 2005, the DOE issued a new version of Regulation 5203, delinking PTT pay from the substitute teacher rate and establishing new flat hourly rates.
- In 2006, the BOE retroactively ratified the DOE's 2005 changes to the PTT pay rate.
- The DOE's changes to Regulation 5203 in 2005 and 2006 were not made through the formal public rulemaking procedures outlined in HRS Chapter 91.
Procedural Posture:
- Substitute teachers (Garner plaintiffs) filed a class action against the State of Hawai'i Department of Education (DOE) in the state circuit court (trial court) for underpayment of wages.
- The circuit court granted partial summary judgment for the teachers on their per diem wage claims.
- On interlocutory appeal, the Intermediate Court of Appeals (ICA) affirmed the per diem wage ruling but held the teachers were not entitled to prejudgment interest under one specific statute.
- On remand, the Garner circuit court ruled that the teachers were entitled to hourly back wages and interest on all back wages under a different statute, HRS § 103-10.
- Part-time teachers (Kawashima plaintiffs) filed a separate class action in state circuit court. That court awarded them hourly back wages but denied their request for interest.
- The State appealed the adverse rulings in both Garner and Kawashima, and the Kawashima teachers cross-appealed the denial of interest.
- The Supreme Court of Hawai'i accepted transfer of both appeals and consolidated them for review.
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Issue:
Does a state agency's internal pay regulation have the force of law, and does a statute requiring interest on late payments for goods and services apply, to entitle part-time teachers to hourly back wages and interest?
Opinions:
Majority - Recktenwald, C.J.
No. A state agency's internal pay regulation does not have the force of law, and a statute requiring interest for contractors does not apply to employee wage claims. Regulation 5203 is not a 'rule' under HRS chapter 91 because it falls within the exception for regulations concerning 'only the internal management of an agency and not affecting private rights of or procedures available to the public.' The regulation is directed at DOE staff and operations, not the general public, and any public interest in teacher salaries is too indirect to trigger formal rulemaking requirements. Since it is not a rule, the DOE was free to amend it without following Chapter 91's procedures, and the teachers have no contract claim for hourly back wages based on the original regulation. Furthermore, the teachers are not entitled to interest under HRS § 103-10. The legislative history and purpose of that statute indicate it applies to 'contractors selling goods and services' or 'businesspersons,' not to state employees seeking back wages. Waivers of sovereign immunity must be strictly construed, and this statute does not unequivocally apply to employee wage claims.
Analysis:
This decision clarifies the important distinction between an agency's internal management policies and formal, legally binding 'rules' under administrative law. It grants state agencies significant flexibility to alter internal operational matters, including non-statutory employee compensation, without undergoing the burdensome formal rulemaking process. The ruling narrows the scope of what constitutes a 'private right' of the public sufficient to trigger these formal procedures, distinguishing internal employment matters from issues like voting or public benefits that have a direct external impact on the public. It also reinforces the principle of strict construction for waivers of sovereign immunity, particularly regarding interest claims against the state.
