California Hotel & Motel Assn. v. Industrial Welfare Com.

• Decision Date: 13 August 1979
• Docket Number: S.F. 23938
• Citation: 157 Cal.Rptr. 840,599 P.2d 31,25 Cal.3d 200
• Court: California Supreme Court
• Parties: , 599 P.2d 31, 24 Wage & Hour Cas. (BNA) 711, 88 Lab.Cas. P 55,239 CALIFORNIA HOTEL AND MOTEL ASSOCIATION et al., Plaintiffs and Appellants, v. INDUSTRIAL WELFARE COMMISSION et al., Defendants and Respondents.

Page 840

157 Cal.Rptr. 840

25 Cal.3d 200, 599 P.2d 31, 24 Wage & Hour Cas. (BNA) 711,

88 Lab.Cas. P 55,239

CALIFORNIA HOTEL AND MOTEL ASSOCIATION et al., Plaintiffs and Appellants, v. INDUSTRIAL WELFARE COMMISSION et al., Defendants and Respondents.

S.F. 23938.

Supreme Court of California, In Bank.

Aug. 13, 1979.

Concurring Opinion Sept. 7, 1979.

William K. Coblentz, Jacobs, Sills & Coblentz, Jerome B. Falk, Jr., Dirk M. Schenkkan and Howard, Prim, Rice, Nemerovski, Canady & Pollak, San Francisco, for plaintiffs and appellants.

Brobeck, Phleger & Harrison, Jean C. Gaskill, San Francisco, James L. Meeder, Santa Monica, Littler, Mendelson, Fastiff & Tichy, Fresno, Robert F. Millman, Lloyd Aubry, Jr., San Francisco, Mitchell, Silberberg & Knupp, Richard Mosk, Los Angeles, Kahn & Farley and Jan L. Kahn, Hanford, as amici curiae on behalf of plaintiffs and appellants.

Evelle J. Younger and George Deukmejian, Attys. Gen., and Carol Hunter, Deputy Atty. Gen., for defendants and respondents.

BY THE COURT. ^*

The California Hotel and Motel Association and others (the association) appeal from a judgment denying the association's petition for a writ of mandate to invalidate Order 5-76 of the respondent Industrial Welfare Commission (the commission). Order 5-76 fixes wages, hours, and conditions of employment in the public housekeeping industry, which provides meals, lodging, and maintenance services to the public. The association argues that order 5-76 is invalid because the commission did not investigate and find that wages were inadequate or that the hours or working conditions were harmful to employees in the industry, as required by Labor Code section 1178. ¹ We reject this argument. However, the association's further contention that Order 5-76 is invalid because the commission did not include an adequate statement of basis to support the order, as required by section 1177, is sound. We outline the purposes of a statement of basis, define the standard to test a statement of basis, and apply that standard to the documents in this case. We reverse the judgment and direct issuance of a writ guiding further action by the commission. ²

The commission is an administrative body within the Division of Labor Standards Enforcement, consisting of five members appointed by the Governor. ³ The commission determines the wages, hours, and working conditions of all employees, except outside salesmen, in 15 industries. ⁴

The association is a nonprofit corporation whose members are owners of hotels and motels in California, employers subject to Order 5-76.

During 1975 and 1976, the commission undertook the statutory procedures ⁵ to review and update regulations pertaining to wages, hours and working conditions of employees. During public hearings on the commission proposals, ⁶ the association presented a position paper commenting on the proposals relating to the public housekeeping industry. As a result of these proceedings, the commission adopted Order 5-76, which went into effect on October 18, 1976. ⁷ The association sought a writ of mandate (see Code Civ.Proc., §§ 1084-1094) challenging the validity of the order. The trial court found the order valid in all respects. This appeal followed. The "Investigate and Find" Issue

(Labor Code Sections 1173 and 1178 )

The association argues that section 1178 requires the commission to investigate and find that wages are inadequate, or hours and conditions of employment are prejudicial to the health, morals, or welfare of employees, before selecting a wage board to consider any such matters. ⁸ According to the association, the commission did not so investigate and find before convening a wage board to consider such matters in the public housekeeping industry. The association contends that the resulting Order 5-76 is therefore invalid.

The history of the commission's statutory authority is relevant to resolve this issue. Prior to 1972, the commission had authority to determine the wages, hours, and working conditions of women and minors, but not of men. The Legislature extended the authority of the commission to determine the minimum wage for men in 1972 ⁹ and the hours and working conditions for men in 1973. ¹⁰

The Legislature in 1973 also mandated that the commission take immediate action to implement this extended authority. The Legislature amended section 1173, outlining the duties of the commission, to provide as follows: "No rules, regulations, or policies of the Industrial Welfare Commission existing on the effective date of the amendments to this section enacted at the 1973-1974 Regular Session ¹¹ shall be extended or changed without review and hearings, upon proper notice, on the proposed changes. The commission shall forthwith undertake a full review, with hearings upon proper notice, of all such existing rules, regulations, and policies made under its jurisdiction. Such review shall be directed toward the end of accomplishing the objectives of this chapter, and updating such rules, regulations, and policies to the extent found by the commission to be necessary to provide adequate and reasonable wages, hours, and working conditions appropriate for all employees in the modern society. The commission shall amend, repeal, or otherwise modify its rules, regulations, and policies in such manner as the commission, on the basis of such review, deems necessary to comply with the objectives of this chapter." ¹²

These amendments, extending the authority of the commission and requiring full review of existing rules, regulations, and policies "forthwith," significantly increased the burdens on the commission. Prior to 1974, section 1182 required that the commission make an order fixing the wages, hours, or working conditions during the first three calendar months of the year. ¹³ However, in 1974 the Legislature found that the commission was "having extreme difficulty in complying with the current three-month time limit." ¹⁴ The Legislature therefore passed an urgency statute ¹⁵ eliminating the three-month requirement. ¹⁶

In summary, the Legislature extended the authority of the commission to determine the wages, hours, and working conditions of all employees, men as well as women and minors, except outside salesmen. But before the commission could update, extend, change, amend, repeal, or otherwise modify its previous orders, rules, regulations, or policies, which covered only women and minors, to exercise its extended authority, the Legislature required the commission to undertake a full review of such orders, rules, regulations, or policies. The Legislature perceived an urgent need for the commission to do so "forthwith." These three legislative pronouncements together relieved the commission, in the present instance, of meeting any separate requirement under section 1178 that the commission "investigate and find" that wages, hours, or working conditions were inadequate or prejudicial. Order 5-76 is the product of the 1973-1974 mandate in section 1173. ¹⁷ The commission did not promulgate the order in violation of section 1178. ¹⁸

The Statement of Basis Issue

(Labor Code Section 1177 )

The association challenges the validity of Order 5-76 on the ground that the order does not include an adequate statement of basis.

Section 1177 provides in relevant part: "Each order of the commission shall include a statement as to the basis upon which the order is predicated and shall be concurred in by a majority of the commissioners." The commission contends that the "To Whom It May Concern" provision of Order 5-76 ¹⁹ satisfies this statement of basis requirement. We now discuss the purposes behind the statement of basis requirement, set out a standard to test a statement of basis, and apply the standard to the documents in this case. ²⁰

An effective statement of basis fulfills several functions. First, the statement satisfies the legislative mandate of section 1177. ²¹ Second, the statement facilitates meaningful judicial review of agency action. ²² We shall develop this point more fully below. Third, the exposition requirement subjects the agency, its decision-making processes, and its decisions to more informed scrutiny by the Legislature, the regulated public, lobbying and public interest groups, the media, and the citizenry at large. Fourth, requiring an administrative agency to articulate publicly its reasons for adopting a particular order, rule, regulation, or policy induces agency action that is reasonable, rather than arbitrary, capricious, or lacking in evidentiary support. Fifth, by publicizing the policies, considerations and facts that the agency finds significant, the agency introduces an element of predictability into the administrative process. This enables the regulated public to anticipate agency action and to shape its conduct accordingly. Sixth, requiring an agency to publicly justify its orders, rules, regulations, and policies stimulates public confidence in agency action by promoting both the reality and the appearance of rational decisionmaking in government. ²³

A central function of a statement of basis is to facilitate judicial review of agency action. It is therefore necessary to determine the standard of judicial review that applies to a commission order fixing the hours, wages, and conditions of employment, before defining a standard to test a statement of basis.

The Legislature authorized the commission to adopt orders, rules, regulations, and policies to fix the wages, hours, and working conditions of employees in accordance with the objectives of sections 1171-1204. ²⁴ The commission thus exercised a legislative function in promulgating Order 5-76. ²⁵ The courts exercise limited review of legislative acts by administrative bodies out of deference to the separation of powers between the Legislature and the judiciary, to the legislative delegation of administrative authority to the agency, and to the presumed expertise of the agency...