California’s continuing budget problems aside, the First District Court of Appeal reaffirmed findings that the governor of California lacks the authority to furlough employees at State Compensation Insurance Fund (SCIF). The court declined the request of both sides to dismiss the case.

The court had the opportunity to avoid the work of writing a formal opinion, as the Brown administration had conceded the issue and both sides asked for the case to be dismissed and a remittitur issued, affirming the original decision. After all, it was the prior administration’s fight. But the court noted, “Because the authority of the Governor to order the furlough of State Fund employees is an issue of continuing public interest, we have declined to dismiss the appeal and shall, in the published portion of this opinion, set forth the reasons for which the trial court correctly concluded that the Governor lacks such authority.”

The decision supports Insurance Code Section 11873, which gives State Fund’s board of directors sole authority to change staffing levels at the workers’ comp carrier.

The ruling stems from the lawsuit filed by California Attorneys, Administrative Law Judges and Hearing Officers in State Employment (CASE), which represents State Fund’s in-house attorneys. The issue had gone to the California Supreme Court but was bounced back to the court of appeal.

In its opinion, the court pointed out that the Legislature’s delegation of staffing authority to State Fund’s board of directors is consistent with the carrier’s structure as a quasi-governmental agency charged with being self-sufficient.

“Defendant’s suggestion that the exemption for State Fund employees from ‘staff cutbacks’ prevents layoffs but not a reduction in hours is not sensible. Staff is ‘cut back’ whether hours are reduced or employees are terminated. The reduction in total hours worked by State Fund employees is the same whether achieved by a furlough imposed on all employees or the layoff of only some employees,” the court wrote. “Moreover, defendant’s interpretation would not achieve the announced purpose of the Governor’s executive order, to improve the state’s ability to meet its financial obligations. Any cost savings realized from a furlough of State Fund employees would accrue not to the benefit of the state’s general fund, but to the ledger account maintained for the exclusive use of State Fund.”

The case also dealt with a procedural question of whether San Francisco Superior Court Judge Peter Busch ever should have had the opportunity to hear arguments in the case. Prior to this lawsuit, CASE challenged then-governor Arnold Schwarzenegger’s furlough orders in a Sacramento Superior Court and lost. The Schwarzenegger administration argued that CASE was venue shopping and asked the San Francisco court to reject the matter. It refused.

“The legal issues resolved in the two proceedings are entirely different. In the Sacramento action the court determined whether the provisions of the Government Code or the terms of the applicable collective bargaining agreements preclude the Governor from imposing furloughs on employees of the executive branch,” the court of appeal wrote in the unpublished portion of its opinion. “In the present action, the court determined whether provisions of the Insurance Code preclude the Governor from imposing furloughs on State Fund employees, regardless of his authority with respect to employees of the executive branch. Thus, the court did not err in refusing to stay the present action awaiting the results of an appeal in the Sacramento proceedings.”

Click here for a copy of the full opinion in CASE v. Brown. A copy is also available in our Resources section under SCIF. 

 (Filed by Brad Cain in San Francisco)