Department of Revenue v. Novoa, 98-2697.

• Decision Date: 12 October 1999
• Docket Number: No. 98-2697.,98-2697.
• Citation: 745 So.2d 378
• Parties: DEPARTMENT OF REVENUE, Appellant, v. Victor NOVOA, Anna Socarras Enrique Altuzarra, and Lander Carn, Appellees.
• Court: Florida District Court of Appeals

745 So.2d 378

DEPARTMENT OF REVENUE, Appellant, v. Victor NOVOA, Anna Socarras Enrique Altuzarra, and Lander Carn, Appellees.

No. 98-2697.

District Court of Appeal of Florida, First District.

October 12, 1999.

Rehearing Denied November 19, 1999.

Kevin J. ODonnell, Assistant General Counsel, Office of the General Counsel, Tallahassee, for appellant.

Jerry G. Traynham of Patterson & Traynham, Tallahassee, for appellees.

Cindy Home, Assistant General Counsel, Department of Management Services, Tallahassee, for Amicus Curiae Department of Management Services.

Robert A. Butterworth, Attorney General, and Edwin A. Bayo, Assistant Attorney General, Office of the Attorney General, Tallahassee, for Amicus Curiae The Attorney General.

PADOVANO, J.

This is an appeal from a final order by an administrative law judge invalidating an agency policy on the ground that it is an unpromulgated rule. The policy at issue applies only to employees of the Department of Revenue and it does not impair any private right established by law. Therefore, we conclude that it falls within the "internal management memorandum" exception to the definition of a rule. Because the policy is not a rule, the administrative law judge erred in determining that it should have been adopted by the rule-making process.

Employees of the Department of Revenue are not allowed to prepare tax returns or fill out other state or federal tax forms for private parties during their nonworking hours. According to the Code of Conduct for Department Employees, "[p]reparation of tax returns and other forms required by the Department of Revenue or the Internal Revenue Service, whether compensated or uncompensated, for other than family members is not permitted." DOR Code of Conduct, § 6.C.(2). This policy is also stated in a publication entitled "Disciplinary Procedures and Standards," a copy of which is furnished to all employees of the Department of Revenue. DOR Disciplinary Procedures and Standards, § II E.6. The prohibition against preparing private tax returns is well known throughout the Department but it was not adopted as a rule.

The appellees are tax auditors employed by the Department of Revenue. They filed a petition on April 14, 1998, challenging the Department's policy regarding after-hours employment on the ground that it was an unpromulgated rule. The appellees alleged that they "desire to perform professional service in their off-duty time" and that the preparation of tax returns for private parties would not "present any conflict of interest" with their work for the Department. In response to the petition, the Department maintained that its policy was exempt from the rulemaking requirements because it did not meet the definition of a rule.

Following a formal hearing on the petition, the administrative law judge determined that the policy fell within the definition of a rule, and that it was invalid because it had not been adopted in the rulemaking process. In the final order rendered on July 9, 1998, the judge found that the Department's Code of Conduct contains a literal prohibition against the preparation of private tax returns, and that the Employee Handbook distributed to all Department of Revenue Employees makes it clear that any employee who prepares a private tax return during offduty hours is subject to disciplinary measures. Based on the testimony presented at the hearing, the judge also found that the Department had never made an exception to the policy against the preparation of a tax return for compensation. Finally, the judge rejected the Department's argument that the policy at issue was an "internal management memorandum" and therefore exempt from the definition of a rule. The Department filed a timely notice of appeal to seek judicial review of the administrative order.

We begin by examining the nature of the governmental power vested in the Department of Revenue. The Department was created as a part of the executive branch of the state government by an act of the Florida Legislature. See § 20.21 Fla.Stat. (1997). As the legislature recognized, the separation of powers provision in Article II, section 3 of the Florida Constitution enables the Department of Revenue and other state agencies to exercise executive branch authority under the direction of the governor without interference by any other branch of the state government. See § 20.02 Fla. Stat.; Arthur J. England, Jr., and L. Harold Levinson, Florida Administrative Practice Manual, § 5.03 (1999).

The legislature has exclusive authority to determine the extent to which the Department may adopt administrative rules, but that limitation on agency power is necessary because rulemaking is a legislative function, not an executive function. When an agency promulgates a rule having the force of law, it acts in place of the legislature. Therefore, an agency has no power to adopt a rule apart from that power which has been properly delegated to it by the legislature. See Askew v. Cross Key Waterways, 372 So.2d 913 (Fla. 1978); St. Johns River Water Management District v. Consolidated-Tomoka Land Co., 717 So.2d 72 (Fla. 1st DCA 1998). The question in this case is not whether the Department encroached on legislative power by adopting a rule without authority, but whether it has employed a policy that should have been adopted as a rule.

Section 120.54(1)(a), Florida Statutes provides that an "agency statement defined as a rule ... shall be adopted by the rulemaking procedure provided by this section as soon as feasible and practicable." A party who is substantially affected by an agency statement not adopted as a rule, may file a petition under section 120.56(4), Florida Statutes for an administrative determination that the statement is invalid as a violation of the rulemaking requirement of section 120.54(1)(a). An agency statement is invalid under these statutory provisions, however, only if it falls within the definition of a rule.

The Administrative Procedure Act identifies the agency statements that qualify as rules and those that do not. Section 120.52(15), Florida Statutes defines a rule as follows:

"Rule" means each agency statement of general applicability that implements, interprets, or prescribes law or policy or describes the procedure or practice requirements for an agency and includes any form which imposes any requirement or solicits any information not specifically required by statute or by an existing rule. The term also includes the amendment or repeal of a rule.

Section 120.52(15) then lists three general classes of agency statements that do not fall within the definition of a rule. The first of these is a statement defined as an internal management memorandum. Subsection (15)(a) provides that the term "rule" does not include "internal management memoranda which do not affect either the private interests of any person or any plan or procedure important to the public and which have no application outside the agency issuing the memorandum."

Whether the Department's policy meets the definition of a rule in section 120.52(15) depends, in a broad sense, on the kind of governmental power the Department purports to exercise. The legislative power to regulate rulemaking necessarily includes the authority to prevent an agency from employing a policy that meets the definition of a rule. It does not follow, however, that the definition of a rule should be applied so expansively that it brings all agency functions within the direct supervision of the legislature. When a dispute arises over the mandatory rulemaking provisions of section 120.54(1)(a), the court must protect the legislative power to regulate rulemaking, but the court must also ensure that the definition of a rule is not applied so broadly that it includes executive branch functions within its scope.

Based on these general principles, and our interpretation of section 120.52(15), we conclude that the Department's policy regarding after-hours employment falls within the exception for internal management memoranda. Consequently, the policy is not a rule, and the Department had no obligation to adopt it in the rulemaking process. The Department's policy does not "affect ... a plan or procedure important to the public." Members of the general public have no arguable interest in the restrictions an administrative agency imposes on its own employees. Likewise, the policy does not apply "outside the agency." Because the policy applies only to employees of the Department, no person or firm outside the Department could possibly be affected by it.

Whether the Department's policy affects the "private interest of any person" presents a more difficult question, but we conclude that it does not. The policy does have an impact on the appellees to the extent that it prevents them from earning additional income by preparing tax returns for private parties. However, the appellees have not shown that they have a protected right to prepare tax returns for additional compensation in their off-duty hours. The most that can be said of this activity is that it might not be prohibited by law.

Section 112.311(5), Florida Statutes prohibits state employees from engaging in any off-duty employment that "is in substantial conflict with the proper discharge of his or her duties in the public interest." The administrative law judge found that the appellees did not intend to engage in any activity that would conflict with their obligation to the Department of Revenue. This is not the equivalent of a finding that there was no conflict, but even so it would support only a conclusion that the activity was not prohibited by section 112.311(5). The absence of a conflict between the appellees' duty to the public as state employees and their desire to earn additional income after work does not equate to a right to engage in a particular kind of after-hours work. The appellees have not shown that any such right exists.

The administrative...