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The DIR’s Promulgation of Regulations is Not Subject to APA Notice and Hearing Requirements

Vector Resources, Inc. v. Baker (2015) 237 Cal.App.4th 46

Defendant Christine Baker (Baker), Director of the Department of Industrial Relations (DIR), issued a decision determining that Vector Resources, Inc. (Vector) had failed to pay the appropriate prevailing wages to it employees who worked on public works projects for the San Diego Unified School District, specifically that Vector failed to pay a higher shift differential for work performed in shifts that began after 12:00 p.m.

Baker based her decision on regulatory language found in a document posted on the DIR website entitled “Important Notice to Awarding Bodies and Other Interested Parties Regarding Shift Differential Pay in the Director’s General Prevailing Wage Determinations” (Important Notice) which was augmented by additional regulatory language in another document the parties referred to as “the Stamp.”

Vector filed a declaratory relief action, challenging the ruling on the grounds that documents upon which Baker had relied was not promulgated in compliance with the notice and hearing requirements of the Administrative Procedure Act (APA).[i]

Vector argued that the DIR merely determines prevailing wage rates but does not fix or set the rates. The trial court granted summary judgment in Baker’s favor and against Vector, holding that the disputed regulations were exempt from APA rulemaking requirements.[ii]

The court of appeal affirmed, holding that the Important Notice and Stamp articulated the type of regulation, as provided for in Government Code section 11340.9(g), that “establishes or fixes rates, prices, or tariffs,” and therefore were exempt from the APA notice and hearing requirements. The appellate court further pointed to Labor Code sections 1773 and 1773.9 to show that there was no semantic difference between “establishing” and “determining” a prevailing wage rate, and that the DIR Director had the authority to fix, i.e., establish, rates for each craft, classification, or type of work.

As such, the court of appeal held that the DIR “establishes [and] fixes rates” within the meaning of Government Code section 11340.9(g), and that the Important Notice and Stamp constituted a regulation that “established” rates within the meaning of the exemption. The appellate court further held that the Important Notice and Stamp were exempt from APA requirements under Labor Code section 1773.5, subd. (d),[iii] which specifically exempts DIR Director determinations relating to shift rates from the APA, construing the term “shift rate” in Section 1773.5(d) to mean shifts outside of normal working hours.

At a minimum, the court of appeal held, the documents related to shift differential pay (compensation for shifts outside of normal working hours) even if they did not directly establish or fix such rates, which the court held they did.

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[i]  Gov’t Code § 11340, et seq.; see §§ 11346.4, 11346.5 (notice requirements), § 11346.2, subds. (a), (b) (publication of proposed regulatory action and statement of reason), §11346.8 (opportunity for interested parties to comment), §§ 11346.8, subd. (a), 11346.9 (obligation to respond in writing to public comments), and §§ 11347.3, subd. (d), 11349.1, 11349.3 (an agency must forward all materials the agency relied upon in the regulatory process to the Office of Administrative Law for review of the proposed regulation “for consistency with the law, clarity, and necessity” (quoting Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 568).

[ii] See Gov’t Code § 11340.9, subd.(g).

[iii] Lab. Code § 1773.5(d): “The director shall have quasi-legislative authority to determine coverage of projects or types of work under the prevailing wage laws of this chapter. A final determination on any administrative appeal is subject to judicial review pursuant to Section 1085 of the Code of Civil Procedure. These determinations and any determinations relating to the general prevailing rate of per diem wages and the general prevailing rate for holiday, shift rate, and overtime work, shall be exempt from the Administrative Procedure Act