HENNING v. California Restaurant Association et al., Interveners.

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Court of Appeal, Third District, California.

John F. HENNING, as Executive Secretary–Treasurer, etc., et al., Petitioners, v. INDUSTRIAL WELFARE COMMISSION, etc., et al., Respondents, California Restaurant Association et al., Interveners.

No. C004101.

Decided: June 16, 1988

Dennis W. Hayashi, of Asian Law Caucus, Inc., Oakland, Shauna Marshall of Equal Rights Advocates, Inc., John M. True, Patricia Shiu, and Christopher Ho of Employment Law Center, San Francisco, Kathryn Grannis and Fran Bernstein of the Legal Aid Foundation of Los Angeles, Los Angeles, Charles P. Scully II and Donald C. Carroll, of Law Offices of Charles P. Scully, Inc., San Francisco, Mark D. Rosenbaum of ACLU Foundation of Southern California, Los Angeles, Mark Greenberg and Carmen Estrada of Western Center on Law and Poverty, Inc., Los Angeles, Patrick O. Patterson, and Julius L. Chambers, James M. Nabrit, III, John Charles Boger, New York City, and Jon C. Dugan for petitioners. Jan T. Chilton, Donald J. Querio and John H. Feldman, III, of Severson, Werson, Berke & Melchior, San Francisco, for respondent Industrial Welfare Com'n of the Dept. of Industrial Relations of the State of Cal. H. Thomas Cadell, Jr., Chief Counsel, San Diego, for respondent, Div. of Labor Standards Enforcement of the Dept. of Industrial Relations of the State of Cal. Alan S. Levins, Michele J. Silak and Jeffrey M. Tanenbaum of Littler, Mendelson, Fastiff & Tichy, San Francisco, for intervenors California Restaurant Ass'n and California Hotel and Motel Ass'n.

The Industrial Welfare Commission (IWC) of the Department of Industrial Relations has promulgated its Order No. MW–88, which mandates in part that, effective July 1, 1988, the standard minimum wage will be $4.25 per hour for employees other than employees customarily receiving tips or gratuities of not less than $60.00 per month who may be paid not less than $3.50 per hour.   Petitioners seek a writ of mandate directing respondent IWC to vacate and treat as void so much of its Order No. MW–88 as purports to fix or allow a different minimum wage for certain tipped employees, and directing respondents Department of Industrial Relations and Division of Labor Standards Enforcement of the Department of Industrial Relations to give effect to Order No. MW–88 as to all affected employees without regard to the purported exception for tipped employees.  “ ‘[T]he issues presented are of great public importance and must be resolved promptly[,]’ ” and we shall therefore exercise our original mandamus jurisdiction.  (California Educational Facilities Authority v. Priest (1974) 12 Cal.3d 593, 598, 116 Cal.Rptr. 361, 526 P.2d 513, quoting County of Sacramento v. Hickman (1967) 66 Cal.2d 841, 845, 59 Cal.Rptr. 609, 428 P.2d 593;  see also Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 699–700, 166 Cal.Rptr. 331, 613 P.2d 579;  Rivera v. Division of Industrial Welfare (1968) 265 Cal.App.2d 576, 581, 71 Cal.Rptr. 739.)

The Legislature has delegated to the IWC the duty to review and fix the minimum wage.  Labor Code section 1173 provides that “[i]t shall be the continuing duty of the [IWC] to ascertain the wages paid to all employees in this state, and to ascertain the hours and conditions of labor and employment in the various occupations, trades, and industries in which employees are employed in this state and to investigate the health, safety, and welfare of such employees.”

Section 1173 further states that the IWC “․ shall conduct a full review of the adequacy of the minimum wage at least once every two years.   The [IWC] may, upon its own motion or upon petition, amend or rescind any order or portion of any order or adopt an order covering any occupation, trade, or industry not covered by an existing order pursuant to the provisions of this chapter.”

If the IWC “․ finds that in any occupation, trade, or industry, the wages paid to employees may be inadequate to supply the cost of proper living, or that the hours or conditions of labor may be prejudicial to the health, morals, or welfare of employees, the [IWC] shall select a wage board to consider any of such matters․”  (Labor Code, § 1178;  all further statutory references to sections of an unspecified code are to the Labor Code.)   The wage board shall be “․ composed of an equal number of representatives of employers and employees, [and] shall consider the findings of the [IWC] and such other information it deems appropriate and report to the [IWC] its recommendation of a minimum wage adequate to supply the necessary cost of proper living to, and maintain the health and welfare of employees of this state, and its recommendations on such other matters related to the minimum wage on which the [IWC] has requested recommendations.”  (§ 1178.5, subd. (a).)  “Prior to amending or rescinding any existing order or adopting any new order, and after receipt of the wage board report and recommendation, the [IWC] shall prepare proposed regulations with respect to the matter under consideration.   The proposed regulations shall include any recommendation of the wage board which received the support of at least two-thirds of the members of the wage board.   A public hearing on the proposed regulations shall be held in each of at least three cities in this state, except when the proposed regulations would affect only an occupation, trade, or industry which is not statewide in scope․”  (§ 1178.5, subd. (c).)

“After receipt of the wage board report and the public hearings on the proposed regulations, the [IWC] may, upon its own motion, amend or rescind an existing order or promulgate a new order.   However, with respect to proposed regulations based on recommendations supported by at least two-thirds of the members of the wage board, the [IWC] shall adopt such proposed regulations, unless it finds there is no substantial evidence to support such recommendations.”  (§ 1182, subd. (a).)

The standard minimum wage is currently set at $3.35 per hour.   Pursuant to the statutory directives contained in section 1173 et seq., on April 18, 1986, the IWC initiated formal review of the minimum wage.   Public hearings on the adequacy of the minimum wage were conducted in San Diego, Los Angeles and Fresno in August of 1986, and in Sacramento in October of 1986.   On November 21, 1986, the IWC determined that the minimum wage may be inadequate to supply the proper cost of living.

On April 10, 1987, the IWC issued a charge to the 1987 Minimum Wage Board, directing the board, inter alia, to study, consider and make recommendations “․ as to the dollar amount of a minimum wage ‘adequate to supply the necessary cost of proper living to, and maintain the health and welfare’ of an employee in California, ․” and as to “whether or not tipped employees should remain subject to the current minimum wage of $3.35 per hour if and when there is an increase in that dollar amount․”  The chairman of the wage board submitted a report to the IWC, reflecting the board's unsuccessful attempts to obtain majority approval of any recommendation on the minimum wage for tipped employees.   Wage board representatives of employers and labor submitted separate reports and recommendations to the IWC.

On September 11, 1987, the IWC adopted proposed regulations for altering the minimum wage.   Public hearings were conducted in Los Angeles, San Francisco and Sacramento in October, November and December of 1987.

On December 18, 1987, the IWC adopted its “Order No. MW–88 Regulating the Minimum Wage,” which provides in part that:  “Every employer shall pay to each employee wages of not less than four dollars and twenty-five cents ($4.25) per hour for all hours worked, except:  [¶ ] Tipped employees may be paid not less than $3.50 per hour.   A tipped employee is an employee who is engaged in an occupation in which he or she customarily receives gratuities, as that term is defined in Labor Code Section 350(e), of not less than sixty dollars ($60.00) per month.”   Order No. MW–88 is effective July 1, 1988.

On January 22, 1988, the IWC adopted a “Statement as to the Basis upon which Industrial Welfare Commission Order No. MW–88 Regulating the Minimum Wage, is Predicated.”   In compliance with sections 1182.1 and 1183, Order No. MW–88 and the Statement were published in newspapers of general circulation and mailed to all California employers.

Pursuant to section 1188, an application for rehearing was submitted to the IWC, seeking reconsideration of the decision to establish an alternative minimum wage for tipped employees.   The IWC voted against rehearing, and the application was deemed denied as of March 20, 1988.

On March 23, 1988, the instant mandamus petition was filed in this court, praying for a writ directing the IWC to vacate and treat as void so much of Order No. MW–88 as purports to fix or allow a different minimum wage for certain tipped employees and directing the Department of Industrial Relations and the Division of Labor Standards Enforcement to give effect to Order No. MW–88 as to all affected employees without regard to the purported exception for tipped employees.   On April 21, 1988, the Supreme Court denied a petition for transfer of the proceeding to that court.   On April 28, 1988, we notified the parties we were considering issuing a peremptory writ in the first instance, and that any opposition to the petition was to be filed on or before May 13, 1988.   The IWC, the Department of Industrial Relations and the Division of Labor Standards Enforcement timely filed answers to the petition.   A reply to the answer of the IWC was filed on May 11, 1988.   On May 18, 1988, we granted IWC leave to file additional authorities, and granted an application to intervene brought by the California Restaurant Association and the California Hotel and Motel Association.   A reply to the brief of intervenors was filed on May 20, 1988.

We shall conclude that promulgation and implementation of Order No. MW–88 is barred by the provisions of section 351 and shall issue a peremptory writ of mandate.

“It is settled that ‘Administrative regulations that violate acts of the Legislature are void and no protestations that they are merely an exercise of administrative discretion can sanctify them.   They must conform to the legislative will if we are to preserve an orderly system of government.’   [Citation.]  Nor is the motivation of the agency relevant:  ‘It is fundamental that an administrative agency may not usurp the legislative function, no matter how altruistic its motives are.’  [Citation.]  [¶ ]  The doctrine has been most frequently invoked to strike down administrative regulations in conflict with the statute which created the agency or which the agency is authorized to administer.  [Citations.]  But the principle is equally applicable when the regulation contravenes a provision of a different statute.  [Citations.]”  (Agricultural Labor Relations Bd. v. Superior Court (1976) 16 Cal.3d 392, 419–420, 128 Cal.Rptr. 183, 546 P.2d 687, quoted in Canteen Corp. v. State Bd. of Equalization (1985) 174 Cal.App.3d 952, 961–962, 220 Cal.Rptr. 306.)  “Administrative regulations which violate acts of the Legislature are void.   Rules adopted by an administrative agency may not exceed the scope of authority granted the agency in the relevant enabling legislation or exceed the limits of the agency's powers which other statutes may impose.”  (Selby v. Department of Motor Vehicles (1980) 110 Cal.App.3d 470, 474–475, 168 Cal.Rptr. 36.)

As last amended in 1975, section 351 provides in pertinent part:  “No employer or agent shall collect, take, or receive any gratuity or a part thereof, paid, given to or left for an employee by a patron, or deduct any amount from wages due an employee on account of such gratuity, or require an employee to credit the amount, or any part thereof, of such gratuity against and as a part of the wages due the employee from the employer.   Every such gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for․” 1

Petitioners contend that promulgation and implementation of Order MW–88 is in direct contravention of section 351, which should be interpreted to prohibit establishing a lesser minimum wage for employees receiving tips.   The IWC and intervenors assert that section 351 should not be read to restrict the IWC's general authority to prescribe minimum wages.

The IWC now interprets section 351 to regulate only employers and not the Commission, and concludes that the purpose of the statute “is perfectly consistent with the Commission's separate regulation of minimum wages for tipped employees.”   The IWC and intervenors assert that the IWC's current interpretation of section 351 is entitled to great weight and must be upheld if reasonable.

However, “[i]t is the courts of this state, not the parties, which have the obligation of interpreting statutes.”  (Western Mun. Water Dist. v. Superior Court (1986) 187 Cal.App.3d 1104, 1110, 232 Cal.Rptr. 359, citing Bodinson Mfg. Co. v. California Employment Com. (1941) 17 Cal.2d 321, 326, 109 P.2d 935;  Oakland Raiders v. City of Berkeley (1976) 65 Cal.App.3d 623, 629, 137 Cal.Rptr. 648.)  “ ‘We recognize, of course, that an administrative agency charged with carrying out a particular statute must adopt some preliminary construction of the statute as a basis upon which to proceed.   It is likewise true that the administrative interpretation of a statute will be accorded great respect by the courts and will be followed if not clearly erroneous.  [Citations.]  But such a tentative administrative interpretation makes no pretense at finality and it is the duty of this court, when such a question of law is properly presented, to state the true meaning of the statute finally and conclusively, even though this requires the overthrow of an earlier erroneous administrative construction.  [Citations.]  The ultimate interpretation of a statute is an exercise of the judicial power.’   [Citations.]”  (Merrill v. Department of Motor Vehicles (1969) 71 Cal.2d 907, 917, fn. 15, 80 Cal.Rptr. 89, 458 P.2d 33, quoting Bodinson Mfg. Co. v. California Employment Com., supra, 17 Cal.2d at pp. 325–326, 109 P.2d 935.)

We need not construe section 351, as that judicial function has been performed by the California Supreme Court.   After the 1975 amendment to section 351, the IWC denied requests “for a special, lower wage rate for tipped employees.”   The IWC expressed the following reasons for the denial:  (1) “the Legislature specifically revoked the authority it had earlier given the IWC to allow credit for tips against the minimum wage, when it amended Section 351 of the Labor Code[;]” and (2) “from enforcement experience during the time that tip credit was allowed that tips sharing was required to such an extent that the traditional tipped employees were subsidizing the minimum wages of other classifications.”

A judicial challenge to the denial of the requests for a subminimum wage reached the Supreme Court, which ruled that the orders of the IWC were “․ not invalid in failing to provide a differentiated minimum wage for tipped and nontipped employees.”  (Industrial Welfare Com. v. Superior Court, supra, 27 Cal.3d at p. 731, 166 Cal.Rptr. 331, 613 P.2d 579.)   The court adopted the IWC's interpretation of section 351, stating that:  “The employers contend that the IWC has misinterpreted the effect of the 1975 amendment to section 351, asserting that while the Legislature intended by such amendment to prohibit the IWC from allowing employers directly to deduct from an employee's wages tips that an employee actually receives, the Legislature did not intend to prohibit the commission itself from indirectly achieving a somewhat comparable result by establishing a lower minimum wage for tipped employees.   Although the tip credit practice sanctioned by the IWC in the past may have engendered particular abuse because individual employers exacted credit from their employees on an individual basis, we think that the legislative history of the 1975 bill supports the IWC's conclusion that the Legislature contemplated that the enactment would insure that tips received by an employee would not reduce an employer's minimum wage obligation, either directly or indirectly.  [¶] For example, an analysis of the 1975 bill by the Senate Industrial Relations Committee specifically states:  ‘The effect of this bill would be to require employers to pay employees at least the minimum wage regardless of the amount of tips the employees receive.’   Similarly, a memorandum on legislation drafted by the Assembly Labor Relations Committee states in part:  ‘The basis for this legislation would appear to be that tips or gratuities are given for individual excellence of service above and beyond the basic duties of employment, and as such, the employer has no vested right to consider tips a part of wages.’   In light of the legislative history, the IWC could reasonably interpret the amendment of section 351 as a legislative determination that all employees should be guaranteed a minimum wage that is not reduced by virtue of any tips an employee may possibly receive.   As already noted, the commission's interpretation of the statutes which it administers is entitled to great weight, and, in our view, the employers have not demonstrated a sufficient basis for rejecting the commission's interpretation of this provision.”  (Id., at pp. 729–730, 166 Cal.Rptr. 331, 613 P.2d 579, fn. omitted.)

The IWC and intervenors concede the IWC previously interpreted section 351 as prohibiting an alternative minimum wage for tipped employees, and that the Supreme Court upheld that interpretation of the statute.   They assert, however, that the IWC is authorized to reconsider and alter its interpretation of the statute, and that, if the revised construction is reasonable, the courts of this state are obliged to uphold the new interpretation of section 351.

“ ‘Like courts, agencies may overrule prior decisions or practices and may initiate new policy or law through adjudication․  Probably deliberate change in or deviation from established administrative policy should be permitted so long as the action is not arbitrary or unreasonable.   This is the view of most courts.’ ”  (Weiss v. State Board of Equalization (1953) 40 Cal.2d 772, 776–777, 256 P.2d 1, quoting Davis, Administrative Law, § 168;  accord, Bank of America v. City of Long Beach (1975) 50 Cal.App.3d 882, 892, 124 Cal.Rptr. 256;  Carrick v. City & County of San Francisco (1962) 202 Cal.App.2d 402, 407–408, 20 Cal.Rptr. 878.)   In construing legislation, an agency's “․ change in interpretation is not prohibited even though different results on the same set of facts in two different time periods is the result.”  (Placentia–Linda Community Hosp., Inc. v. Zaretsky (1980) 107 Cal.App.3d 850, 854, 166 Cal.Rptr. 7, citing Weiss v. State Board of Equalization, supra, 40 Cal.2d 772, 256 P.2d 1.)   As stated by the United States Supreme Court, “An administrative agency is not disqualified from changing its mind;  and when it does, the courts still sit in review of the administrative decision and should not approach the statutory construction issue de novo and without regard to the administrative understanding of the statutes.”  (National Labor Relations Board v. Local Union No. 103, International Association of Bridge, Structural and Ornamental Iron Workers (1978) 434 U.S. 335, 351, 98 S.Ct. 651, 660–661, 54 L.Ed.2d 586, 599.)

Here, however, more has occurred than the IWC merely “changing its mind.”   The IWC's revised interpretation of section 351 is contrary to an intervening judicial determination adopting the IWC's original construction of the statute.   And, while “[a]dministrative agencies are not bound by their own prior construction of a statute[, t]hey are [not] free to reject prior constructions which have ․ been endorsed by the courts.”  (Crounse Corporation v. Interstate Commerce Commission (6th Cir.1986) 781 F.2d 1176, 1186, cert. den., ––– U.S. ––––, 107 S.Ct. 290, 93 L.Ed.2d 264;  accord, Mesa Verde Construction Company v. Northern California District Council of Laborers (9th Cir.1987) 820 F.2d 1006, 1013, rehg. en banc granted, 832 F.2d 1164;  Royal Development Company, Ltd. v. National Labor Relations Board (9th Cir.1983) 703 F.2d 363, 369.)  “If [an agency] is affirmed by an opinion that approves the decision below as being the only one possible, rather than as a correct one within the realm of agency discretion, [the agency] will be precluded from changing the rule because the doctrine of stare decisis will lead to judicial reversal of its decision.”  (Winter, Judicial Review of Agency Decisions:  The Labor Board and the Court (1968) Sup.Ct.Rev. 53, 72–73, quoted in part in Royal Development Company, Ltd. v. National Labor Relations Board, supra, at p. 369, fn. 4.) 2

Certainly section 351 is not reasonably susceptible to both of the IWC's constructions of the statute;  the section could not both prohibit and not prohibit the IWC from establishing an alternative lesser minimum wage for tipped employees.   Relying on its reading of the legislative history, the Supreme Court has expressly upheld the IWC's initial construction of the statute, ruling that the IWC did not misinterpret the statute when it concluded that section 351 prohibited the establishment of a lower minimum wage for tipped employees.  (Industrial Welfare Com. v. Superior Court, supra, 27 Cal.3d at pp. 729–730, 166 Cal.Rptr. 331, 613 P.2d 579.)   Since 1975, there has been no modification of the statutory language or legislative history of section 351.   The IWC's initial and revised constructions of the statute are mutually exclusive.   A fortiori, the Supreme Court opinion must be read to disapprove and reject the IWC's revised construction of the statute.

The IWC and intervenors contend the Supreme Court has not construed section 351, but only ruled that the IWC's original interpretation of the statute was “reasonable.”   However, we read the Industrial Welfare Commission v. Superior Court opinion as fulfilling the Supreme Court's duty “ ‘․ to state the true meaning of the statute finally and conclusively [.]’ ”  (See Merrill v. Department of Motor Vehicles, supra, 71 Cal.2d at p. 917, fn. 15, 80 Cal.Rptr. 89, 458 P.2d 33;  quoting Bodinson Mfg. Company v. California Employment Com., supra, 17 Cal.2d at p. 326, 109 P.2d 935.)   Of course, this intermediate appellate court, much less the IWC, is not accorded any prerogative to overrule the Supreme Court's construction of the statute.   (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.)

Accordingly, we must continue to construe section 351 to prohibit the IWC from establishing an alternative lesser minimum wage for tipped employees.   Therefore promulgation and implementation of Order No. MW–88 directly contravenes section 351, and, to that extent, the Order must be vacated and treated as void.  (See, e.g., Agricultural Labor Relations Bd. v. Superior Court, supra, 16 Cal.3d at pp. 419–420, 128 Cal.Rptr. 183, 546 P.2d 687;  Canteen Corp. v. State Bd. of Equalization, supra, 174 Cal.App.3d at pp. 961–962, 220 Cal.Rptr. 306;  Selby v. Department of Motor Vehicles, supra, 110 Cal.App.3d at pp. 474–475, 168 Cal.Rptr. 36.)   This conclusion obviates the need to consider other issues presented by the parties.

Having complied with the procedural requirements delineated in Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 203 Cal.Rptr. 626, 681 P.2d 893, we are authorized to issue a peremptory writ of mandate in the first instance.

Let a peremptory writ of mandate issue directing respondent Industrial Welfare Commission of the Department of Industrial Relations to vacate and treat as void so much of its Order No. MW–88 as purports to fix or allow a different minimum wage for certain tipped employees, and directing respondent Department of Industrial Relations and Division of Labor Standards Enforcement of the Department of Industrial Relations to give effect to Order No. MW–88 as to all affected employees without regard to the purported exception for tipped employees.   This decision is final forthwith.  (See Cal.Rules of Court, rule 24(d).)

FOOTNOTES

1.   Prior to the 1975 amendment, section 351 prohibited an employer from collecting, taking or receiving gratuities paid, given to or left for an employee “except to the extent that may be permitted by a valid regulation of the Industrial Welfare Commission, ․” Pursuant to that authorization, the IWC promulgated Industrial Welfare Order 5–68, which provided in part that:  “Amounts may be credited as part of the minimum wage for gratuities received by any woman or minor engaged in an occupation in which the employee customarily and regularly receives more than twenty dollars ($20) per month in gratuities.   The credited amount shall in no case exceed 20 cents per hour.”

2.   Insofar as it can be read to compel a contrary conclusion, we decline to follow International Association of Bridge, Structural and Ornamental Iron Workers, Local 3 v. National Labor Relations Board (3d Cir.1988) 843 F.2d 770.  “[T]he decisions of the lower federal courts ․ are not binding on this court.”  (Cowan v. Myers (1986) 187 Cal.App.3d 968, 985, 232 Cal.Rptr. 299, cert. den. (1987), ––– U.S. ––––, 108 S.Ct. 140, 98 L.Ed.2d 97, citing People v. Bradley (1969) 1 Cal.3d 80, 86, 81 Cal.Rptr. 457, 460 P.2d 129;  Debtor Reorganizers, Inc. v. State Bd. of Equalization (1976) 58 Cal.App.3d 691, 696, 130 Cal.Rptr. 64.)   Moreover, the federal authorities on this issue are not in harmony.  (Compare Mesa Verde Construction Company v. Northern California District Council of Laborers, supra, 820 F.2d 1006.)

PUGLIA, Presiding Justice.

BLEASE and CARR, JJ., concur.