Tidewater Marine Western, Inc. v. Bradshaw
59 Cal. Rptr. 2d 186, 927 P.2d 296, 14 Cal.4th 557 (1996)
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Rule of Law:
An agency's written policy that interprets law and is intended for general application is a 'regulation' under the Administrative Procedure Act (APA) and is void if not adopted through the APA's formal rulemaking process. However, the invalidity of the agency's policy does not prevent a court from independently enforcing the underlying law or order that the policy sought to interpret.
Facts:
- Plaintiffs Tidewater Marine Western, Inc. (Tidewater) and Zapata Gulf Pacific, Inc. (Zapata) are maritime companies that transport workers and supplies to oil-drilling platforms in the Santa Barbara Channel.
- The crew members employed by Tidewater and Zapata reside in California.
- The companies compensated their crew members at a flat daily rate of pay, without providing additional compensation for overtime work.
- Beginning in 1978, maritime employees filed claims for overtime pay with the Division of Labor Standards Enforcement (DLSE).
- Initially, the DLSE assessed these claims on a case-by-case basis.
- The DLSE later developed a formal written policy stating that Industrial Welfare Commission (IWC) wage orders apply to vessel crews operating between California ports if the employees are California residents and were hired in the state.
- In 1989, the DLSE incorporated this policy into an 'Operations and Procedures Manual' to ensure uniform enforcement among its deputies.
- The DLSE created this manual internally without public notice, hearings, or input from affected parties, as required by the Administrative Procedure Act (APA).
Procedural Posture:
- In a prior action, shipping associations sued the DLSE in federal district court, which granted an injunction against enforcement of state overtime laws.
- The Ninth Circuit Court of Appeals reversed, holding that federal law did not preempt the state wage orders.
- Subsequently, employees of Tidewater and Zapata sued their employers in Santa Barbara Superior Court for retroactive overtime pay.
- In response, Tidewater, Zapata, and OMSA (Plaintiffs) filed this action in superior court against the IWC and DLSE (Defendants), seeking an injunction.
- The superior court (trial court) granted a permanent injunction barring the application of the IWC wage orders to employees working more than three miles off the coast.
- Defendants appealed to the Court of Appeal.
- The Court of Appeal reversed the trial court's judgment, holding that the DLSE's policy was a valid interpretation and not a regulation subject to the APA.
- The Supreme Court of California granted review.
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Issue:
Does a state agency's written enforcement policy, which interprets wage orders to apply generally to a class of employees, constitute a 'regulation' that is void if not promulgated in accordance with the Administrative Procedure Act (APA)?
Opinions:
Majority - Chin, J.
Yes. A state agency's written enforcement policy intended as a rule of general application to interpret the law it enforces is a 'regulation' under the Administrative Procedure Act (APA) and is void if adopted without following the APA's notice-and-comment procedures. The court reasoned that the APA broadly defines a 'regulation' to include 'every rule... or standard of general application... adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it.' The DLSE's policy manual fits this definition because it was intended to apply generally to a class of cases (maritime employment in the channel) and it interpreted the scope of IWC wage orders. The policy was not a case-specific adjudication or an informal advice letter, but a formal rule designed to ensure uniformity. The court disapproved prior cases like Skyline Homes and Bono Enterprises that had characterized similar policies as mere 'interpretations' exempt from the APA. However, the court held that while the DLSE's void policy is not entitled to deference, the underlying IWC wage orders remain valid. The court then independently interpreted those wage orders and concluded they apply to the plaintiffs' employees because the work occurs within California's broader state-law boundaries, which encompass the entire Santa Barbara Channel, and the employees are California residents paid in California.
Analysis:
This decision significantly clarifies the definition of a 'regulation' under California's APA, curtailing the ability of agencies to create 'underground regulations' through internal policy manuals. By mandating that any generally applicable, interpretive rule must undergo the formal notice-and-comment process, the court strengthened the public's right to participate in rulemaking. The decision's disapproval of prior appellate cases signals a lower tolerance for agency attempts to bypass the APA. However, the ruling also establishes that an agency's procedural failure does not create a loophole for regulated parties; courts will still enforce the underlying valid laws, ensuring that substantive legal obligations are not nullified by an agency's procedural error.
