Fed. of Employees v. Dept. of Gen. Admin.

• Decision Date: 15 September 2009
• Docket Number: No. 37897-3-II.,37897-3-II.
• Citation: 216 P.3d 1061,152 Wn. App. 368
• Court: Washington Court of Appeals
• Parties: WASHINGTON FEDERATION OF STATE EMPLOYEES, Respondent, v. STATE of Washington DEPARTMENT OF GENERAL ADMINISTRATION, Appellant.

216 P.3d 1061

152 Wn. App. 368

WASHINGTON FEDERATION OF STATE EMPLOYEES, Respondent, v. STATE of Washington DEPARTMENT OF GENERAL ADMINISTRATION, Appellant.

No. 37897-3-II.

Court of Appeals of Washington, Division 2.

September 15, 2009.

Spencer Walter Daniels, Office of the Attorney General, Mitchel Roland Sachs, Attorney General Office, L & P Division, Olympia, WA, for Appellant.

Edward Earl Younglove III, Younglove Lyman & Coker PLLC, Olympia, WA, for Respondent.

VAN DEREN, C.J.

¶ 1 The Department of General Administration (GA) appeals the trial court's invalidation of three Washington Administrative Rules the GA promulgated under the authority granted to it by RCW 41.06.142¹ to ensure fair bidding procedures by state agencies seeking private contracts for services traditionally done by state civil service employees. The trial court invalidated all three rules because it concluded that the rules exceeded the GA's rule-making authority. We affirm the trial court's rulings invalidating WAC 236-51-006 and WAC 236-51-010(11) as exceeding the GA's statutory rule-making authority and affirm, on different grounds, the trial court's invalidation of WAC 236-51-225.

FACTS

¶ 2 The Washington Federation of State Employees (Federation) challenged three rules adopted by the GA under former RCW 41.06.142 (2002),² which delegates to the GA the power to establish rules "to ensure that [contract] bids are submitted and evaluated in a fair and objective manner." RCW 41.06.142(4)(d).

¶ 3 Two related rules, WAC 236-51-006³ and -010(11),⁴ the displaced employee rules, address the definition of "displaced employees" and the third, WAC 236-51-225,⁵ forbids an employee business unit (EBU) performing an existing agency contract from bidding on additional contracts unless it has agency permission to do so.

¶ 4 We must decide whether the legislature granted the GA rule-making authority under RCW 41.06.142(4)(d) to promulgate these rules. If so, we review whether the rules are consistent with the statute and are not arbitrary and capricious.

¶ 5 The parties agree on the background of this appeal. Until 2002, the state's civil service law, which was originally enacted in 1960, imposed restrictions on employees and employers that did not allow employees to engage in full-scale collective bargaining. Former ch. 41.06 RCW (1960), amended by Laws of 2002, ch. 354, §§ 201-23, §§ 232-33, § 239, §§ 241-43, amended by Laws of 2008, ch. 267, § 9; see generally Ortblad v. State, 88 Wash.2d 380, 383, 561 P.2d 201 (1977). Furthermore, former RCW 41.06.380 (1979) prohibited state employers from contracting with third parties to perform services customarily performed by civil service employees. Former RCW 41.06.380 (1979) repealed by Laws of 2002, ch. 354, § 403.

¶ 6 In 2002, the legislature adopted the personnel service reform act of 2002 (PSRA). Laws of 2002, ch. 354, § 201. Portions of the PSRA are codified in chapter 41.06 RCW and chapter 41.80 RCW. Both parties agree that the PRSA has three principal components, or three "legs." Br. of Resp't at 3.

¶ 7 First, the law grants collective bargaining rights over wages to state employees. Ch. 41.80 RCW. Second, the PSRA allows state agencies to contract with third parties for work formerly done by state employees. RCW 41.06.142. Third, amending certain provisions of chapter 41.06 RCW, the law revised certain civil service classifications for unrepresented employees. The third party contracting provisions are the subject of this appeal. RCW 41.06.142.

¶ 8 The PSRA permits state agencies to contract with private parties to perform work traditionally done by state civil service employees. RCW 41.06.142. The statute provides a framework for the contracting process. Employees "whose positions or work would be displaced by [a] contract are provided an opportunity to offer alternatives to purchasing services by contract" to the agency. RCW 41.06.142(1)(b).

¶ 9 If the agency nevertheless decides to proceed with private party contracting, the affected employees may form an EBU and compete for the contract on the same footing as private entities. RCW 41.06.142(4)(b); RCW 41.06.142(4)(c), (d), (e). If an agency awards a contract to a private party instead of an EBU, the contract must contain a provision "requiring the entity to consider employment of state employees who may be displaced by the contract." RCW 41.06.142(1)(c). Although the statute defines certain terms, such as EBU, it does not define "whose positions or work would be displaced." RCW 41.06.142(5)(a); RCW 41.06.142(1)(b).

¶ 10 RCW 41.06.142(4)(d) also delegates certain rule-making authority to the GA. Specifically, "The director of general administration, with the advice and assistance of the department of personnel, shall, by rule, establish procedures to ensure that bids are submitted and evaluated in a fair and objective manner and that there exists a competitive market for the service." RCW 41.06.142(4)(d).

¶ 11 The GA promulgated a large number of rules affecting the operation of RCW 41.06.142. GA adopted these rules in 2004 and they became effective July 1, 2005. They include such things as prohibitions on bid evaluations by employees forming an EBU and establishing a manner for agencies to deal with complaints about the bid process. RCW 41.06.142(4)(d)(i), (ii), (iii). In early 2006, the Federation challenged WAC 236-51-225, which forbids EBUs performing an agency contract from bidding on additional contracts unless the EBU has written agency permission—known as the EBU bid rule—and the two related displaced employee rules, WAC 236-51-006 and -010(11).

¶ 12 The Federation unsuccessfully petitioned the GA director to amend or repeal these rules. The Federation then sought the Governor's review under RCW 34.05.330(3). The Governor rejected the challenge. In April 2007, the Federation filed a petition for judicial review of administrative rules and for declaratory judgment in Thurston County Superior Court. RCW 34.05.542; RCW 34.05.570(2)(b).

¶ 13 The Federation raised three challenges to the rules: (1) that they exceeded the GA's rule-making authority, (2) that they were contrary to law, and (3) that they were arbitrary and capricious. The GA certified the record of the rule-making process. The trial court concluded that the rules exceeded the GA's rule-making authority and did not reach the remaining issues.

¶ 14 The GA appeals.

ANALYSIS

I. Standards of Review

¶ 15 We will declare an agency rule invalid if it "(1) violates constitutional provisions, (2) exceeds statutory authority of the agency, (3) was adopted without compliance to statutory rule-making procedures, or (4) is arbitrary and capricious." Wash. Pub. Ports Ass'n v. Dep't of Revenue, 148 Wash.2d 637, 645, 62 P.3d 462 (2003). The Federation argues that the rules are not within the GA's statutory rule-making authority, that the rules are inconsistent with the contracting statute, and that they are arbitrary and capricious.

¶ 16 The extent of GA's rule-making authority is a question of law. Wash. Public Ports, 148 Wash.2d at 645, 62 P.3d 462.

"Certain well settled principles govern the scope of an administrative agency's rule-making authority. First, an agency has only those powers either expressly granted or necessarily implied from statutory grants of authority. Second, an agency does not have the power to promulgate rules that amend or change legislative enactments. Third, rules may `fill in the gaps' in legislation if such rules are `necessary to the effectuation of a general statutory scheme.' Hama Hama Co. v. Shorelines Hearings Bd., 85 Wash.2d 441, 448, 536 P.2d 157 (1975)."

ASARCO, Inc. v. Puget Sound Air Pollution Control Agency, 51 Wash.App. 49, 53, 751 P.2d 1229 (1988) (quoting Green River Cmty. Coll. v. Higher Educ. Pers. Bd., 95 Wash.2d 108, 112, 622 P.2d 826 (1980), modified on rehearing by 95 Wash.2d 962, 633 P.2d 1324 (1981), aff'd, 112 Wash.2d 314, 323, 771 P.2d 335 (1989)). "[A]lthough we generally accord substantial deference to agency decisions, we do not defer to an agency the power to determine the scope of its own authority." In re Elec. Lightwave, Inc., 123 Wash.2d 530, 540, 869 P.2d 1045 (1994).

¶ 17 When an agency acts within its authority, a rule is presumed to be valid and, therefore, the "burden of demonstrating the invalidity of agency action is on the party asserting the invalidity." RCW 34.05.570(1)(a). The party asserting the invalidity must show compelling reasons why the rule conflicts with the intent and purpose of the legislation. Weyerhaeuser Co. v. Dep't of Ecology, 86 Wash.2d 310, 317, 545 P.2d 5 (1976). Any rule that is "reasonably consistent" with the underlying statute should be upheld. Green River Comty. Coll., 95 Wash.2d at 112, 622 P.2d 826.

¶ 18 In addition,

A rule is arbitrary and capricious "if it is willful and unreasoning and taken without regard to the attending facts or circumstances." Wash. Indep. Tel. Ass'n v. Wash. Utils. & Transp. Comm'n, 148 Wash.2d 887, 905, 64 P.3d 606 (2003). If "there is room for two opinions, an action taken after due consideration is not arbitrary and capricious." Hillis v. Dep't of Ecology, 131 Wash.2d 373, 383, 932 P.2d 139 (1997).

D.W. Close Co. v. Dep't of Labor & Indus., 143 Wash.App. 118, 130, 177 P.3d 143 (2008). Finally, we may affirm on any ground supported by the record. Nast v. Michels, 107 Wash.2d 300, 308, 730 P.2d 54 (1986).

II. GA's Rule-making authority

¶ 19 RCW 41.06.142(4)(d) directs the GA to enact rules to "establish procedures to ensure that bids are submitted and evaluated in a fair and objective manner and that there exists a competitive market for the service." And the statute's subsections, RCW 41.06.142(4)(d)(i), (ii), and (iii), set out three types of rules for the GA to adopt with respect to fairness in the bidding process and complaints about the bidding process. But RCW 41.06.142(4)(d) expressly states that GA's rule-making authority is not...