Service Employees International Union v. Idaho Department of Health & Welfare ( 1984 )

BAKES, Justice.

For the fiscal year commencing July 1, 1981, the budget for the Idaho Department of Health & Welfare (Department) was substantially reduced because of reduced state revenues resulting from an economic recession. Several bills approved by the legislature not only reduced the level of funding for the Department, but specifically eliminated funding for positions in regional management, central office staff, and eliminated some programs in their entirety, all of which resulted in a reorganization of the Department at a reduced level of operation. In addition, while House Concurrent Resolutions provided for 7% across-the-board salary increases for state employees, no money was appropriated for those increases, and agencies which granted increases to employees were required to eliminate positions in order to fund those increases.

Employees in high job classifications where jobs were eliminated by the legislature were allowed to elect voluntary demotions in lieu of layoffs, a procedure whereby personnel with a higher number of “retention points,” points earned through merit and longevity, were allowed to accept demotion to a different position at a lower level and “bump” the employee in the lower position if he or she had fewer retention points. Appellant and several others, including labor unions representing Department employees, brought suit against the Department seeking injunctions and damages allegedly resulting from loss of merit pay increases caused by their accepting voluntary demotions in lieu of layoffs.¹ The suit, which requested certification as a class action, contained three counts. The first count alleged a violation of statutory and constitutional provisions caused by the Department’s freeze on merit pay increases. The second count alleged that employees were not consulted or given notice of the reduction in force decisions, allegedly contrary to Department policy and constitutional provisions. The third count alleged a violation of statutory and Department regulations and the equal protection clause of the fourteenth amendment of the United States Constitution, allegedly caused by the forced surrender of previously earned merit pay increases.

The trial court ordered discovery deferred until after a ruling on the defendant’s 12(b) motions to dismiss and motion for summary judgment had been made. The trial court subsequently granted the motion to dismiss filed under I.R.C.P. 12(b) on all elements of the complaint other than the equal protection claim. The trial judge then granted a summary judgment on the equal protection claim. Only plaintiff Perry Ackerman is appealing, and he is appealing only the dismissal of count three.

Through affidavits, the record contains a history of the basis for appellant’s claim. The elimination of programs and positions, and the reorganization of the Department, forced by legislative cutbacks, resulted in what is referred to as the “step D” policy. Under this policy, any employee who accepted a voluntary demotion in lieu of layoff would be installed in the new position at no higher than a “step D” level at the lower grade. The “step” level of the grade at which an employee is paid is determined by merit or longevity raises. Step D is viewed by the Department as the level of solid competence within a particular job classification or grade. Levels higher than step D within a grade represent superior accomplishments over and above competence in the position. Under the “step D” policy in the reorganization plan, an employee who accepted a reduction to a lower job, in lieu of being terminated, could be classified at no higher than a.step D level. Mr. Ackerman, appellant here, had been employed at grade 34 step G, and when he accepted a voluntary demotion in lieu of layoff he was reduced to grade 33 step D. This resulted in an 18% cut in pay for appellant. It is the step D plan that is challenged as a violation of regulations and statutory law, and of equal protection.

We begin by noting the rules governing our review. In considering the 12(b) motions to dismiss, the making of such a motion admits the truth of the facts alleged and all inferences reasonably drawn therefrom. Walenta v. Mark Means Co., 87 Idaho 543, 394 P.2d 329 (1964). All of the facts will be considered in a light most favorable to the non-moving party. Walenta v. Mark Means Co., supra; Hadfield v. State ex rel. Burns, 86 Idaho 561, 388 P.2d 1018 (1963). Doubts must be resolved in favor of the survival of the complaint. Gardner v. Hollifield, 96 Idaho 609, 533 P.2d 730 (1975). Further, the complaint should not be dismissed under this rule unless it appears that the plaintiffs can prove no set of facts which would entitle them to relief. Dumas v. Ropp, 98 Idaho 61, 558 P.2d 632 (1977); Gardner v. Hollifield, supra.

In his first argument, appellant urges that the step D policy violated rules of the Department contained in policies and procedures manual. He argues that this manual has the force and effect of law. The question thus presented is whether the Department’s manual can give rise to a cause of action because of the violation of one or more of its provisions.

The Administrative Procedures Act, I.C. §§ 67-5201 et seq., sets out the procedure for the adoption of rules by administrative agencies. Subsection (g) of § 67-5203 provides that “[n]o rule hereafter adopted is valid unless adopted in substantial compliance with this section.” The record is clear that the policies and procedures manual of the Department, which appellant alleges was violated by the Step D policy, was not promulgated pursuant to the procedural requirements of I.C. § 67-5203, and accordingly the trial court ruled, in dismissing counts one and two, that the manual did not have the force or effect of law, and therefore even if a violation of the procedure set out in the manual had occurred it could not be the predicate for a cause of action by appellant.

Appellant, on the other hand, reads I.C. § 67-5201(7)(A) as somehow creating an exception to the strict promulgation procedures of the APA, which he asserts provide for creation of a binding rule without meeting the procedural requirements outlined in the Act. He argues that there are two kinds of rules that have the force and effect of law, those that must be adopted according to the APA procedure and those that “because of a quirk in Idaho law” are exempted from those strict requirements. He points to subsection (7) of I.C. § 67-5201 which reads:

“(7) ‘rule’ means each agency statement of general applicability that implements,interprets, or prescribes law or policy, or describes the organization, procedure, or practice requirements of any agency. The term ... does not include (A) statemente concerning only the internal management of any agency and not affecting private rights or procedures available to the public____” (Emphasis added.)

Appellant misconstrues that subsection. It does not provide for two types of rules, those that must be promulgated according to I.C. § 67-5203, and those that need not. Rather, subsection (7) is a definitional term which provides that “statements concerning only the internal management of any agency and not affecting private rights or procedures available to the public ...” are not rules. Not being rules, they do not have the force and effect of law, and a violation of them does not create a private cause of action. Subsection (7) defines “rule” to be an “agency statement of general applicability that implements, interprets, or prescribes law or policy, or describes the organization, procedure, or practice requirements of any agency.” In order for such a rule to be effective it must be “adopted in substantial compliance with [I.C. § 67-5203].” The policies and procedures manual in question was not adopted pursuant to the procedural requirements of I.C. § 67-5203, and thus is not a “rule” as defined in § 67-5201(7). As such it can only validly concern “the internal management of any agency and not affecting private rights or procedures available to the public____” Not being a “rule,”, the procedures and policies manual provides only guidelines for the internal management of the Department “not affecting private rights or procedures available to the public.” See Doe v. Chang, 58 Hawaii 94, 564 P.2d 1271 (1977) (where a similar manual was held not to be a “rule” under the Hawaiian APA, but only involved internal management of employees of the Department and their actions). See also Emma Ah Ho v. Cobb, 62 Hawaii 546, 617 P.2d 1208 (1980); Island County Committee v. Dept. of Revenue, 81 Wash.2d 193, 500 P.2d 756 (1972). The Department’s agency handbook must be construed as merely an internal guideline capable of being changed by an agency head when necessary, not having the force and effect of law, and thus not giving rise to a cause of action based on an alleged violation. Since the manual does not have the force and effect of law, no cause of action can be based on its alleged violation, and the trial court was correct in dismissing appellant’s cause of action based on a violation of the manual.

Appellant also argues that the proposed reorganization violated Idaho Personnel Commission regulations and Idaho statutory law governing state employees. He asserts that these violations would give rise to a cause of action in his behalf.

‘The trial court noted, in granting the motion to dismiss, that:

“This seems to be a problem which should have been challenged pursuant to the employee grievance procedure as provided for in I.C. § 67-5309A and perhaps before the Idaho Personnel Commission under I.C. § 67-5316. The same is true for the alleged violation of the Idaho Personnel Commission Rule 14-1.1 whereby allegedly the reduction in force formula was not approved by the Idaho Personnel Commission prior to its implementation.”

We agree, and hold that the motions to dismiss and the motion for summary judgment were properly granted in that appellant should have taken this matter up through the appeal procedure set out in the Idaho Personnel Commission Act, I.C. §§ 67-5301 et seq., which provides that agency action first be appealed to the Idaho Personnel Commission before an appeal is taken to the district court. I.C. § 67-5316(a) provides that “[a]ny classified employee who is discharged, demoted or suspended after completing his probationary period of service, may, within thirty (30) days after such discharge, demotion, or suspension', appeal to the commission for review thereof.” Additionally, subsection (a) provides that “[a]ny employee in the classified service may, after exhausting the review procedures established within his department, petition the commission for review of his allocation to a particular class of position.” I.C. § 67 — 5316(b) provides that “[mjatters of dispute which may be brought before the commission for hearing and decision shall be limited to the discharge, reduction in rank or grade, suspensions, allocation to a particular class of any classified employee who has completed his probationary period;____” Our prior decisions all require exhaustion of administrative remedies before seeking judicial recourse. Williams v. State, 95 Idaho 5, 501 P.2d 203 (1972); Grever v. Idaho Telephone Co., 94 Idaho 900, 499 P.2d 1256 (1972); State v. Concrete Processors, Inc., 85 Idaho 277, 379 P.2d 89 (1963). These cases adopt the doctrine of “primary jurisdiction,” stating that jurisdiction lies in the administrative agency with particular expertise in the area for the initial determination, in this case the personnel commission. Lemhi Telephone Co. v. Mountain States Tel. & Tel. Co., 98 Idaho 692, 571 P.2d 753 (1977); Grever v. Idaho Telephone Co., supra. See also Swisher v. State Dept. of Environmental & Community Services, 98 Idaho 565, 569 P.2d 910 (1977) (on appeal from state personnel commission, district court may only affirm or set aside orders of commission and has no jurisdiction to take further evidence on matters not considered by the commission).

Appellant argues that exhaustion cannot be required in this case because the Idaho Personnel Commission had no jurisdiction in this matter due to a 1979 amendment to the Idaho Personnel Commission statutes, particularly I.C. § 67-5316. In 1979 the legislature amended the statute deleting the following portions.

“67-5316. PROCEDURE BEFORE THE IDAHO PERSONNEL COMMISSION. (a) Any classified employee who is discharged, demoted or suspended after completing his probationary period of service, may, within thirty (30) days after such discharge, demotion, or suspension, appeal to the commission for review thereof. Any employee in the classified service may, after exhausting the review procedures established within his department, petition the commission for review of his allocation to a particular class of position or--his-allocation to a particular pay grade or step within a pay-grade. Upon such review, both the employee and the appointing authority whose action is reviewed shall have the right to be heard publicly and present evidentiary facts. Such hearings shall be conducted in accordance with the procedure established by rules adopted pursuant to chapter 42, title 67, Idaho Code.

“(b) Matters of dispute which may be brought before the commission for hearing and decision shall be limited to the discharge, reduction in rank or grade, suspensions, allocation to a particular class or — a-par-ticular- pay grade or step within-pay— grade of any classified employee who has completed his probationary period;____”

Appellant argues that since he contests only a change in step, not class or grade, and the above changes removed “steps” from the language of the statute, the Idaho Personnel Commission no longer has jurisdiction to consider a claim such as that alleged here. Appellant’s argument fails to distinguish between the four types of actions which are appealable. I.C. § 67-5316 provides that employees may appeal to the Idaho Personnel Commission from (1) discharge, (2) reduction in rank or grade, (3) suspensions, and (4) allocation to a particular class. The stricken portions in the 1979 amendment refers only to “allocation to a particular class,” and not to “discharge,” “reduction in rank or grade,” or “suspension.” The word “allocation” is a term of art in I.C. § 67-5309B(b) referring to the action of the Department in its initial determination of the grade or step in the salary schedule to which a particular job classification shall be allocated. A reading of I.C. § 67-5316 indicates that allocation is an action entirely different from “discharge” or “reduction in rank or grade.” The meaning of the word “allocation” is further amplified by a close reading of I.C. § 67-5309B which sets forth the rules by which the commission determines the worth of each job classification and makes an initial allocation of each job classification to a pay grade in the salary schedule. Included in this statute is language governing both the initial allocation of a job classification to a particular pay grade, and the reallocation of job classifications within the salary schedule. Subsection 67-5309B(e) provides that “[i]f any employee or appointing authority believes that an error has been made in the assignment of a job classification, an appeal may be made to the personnel commission as provided in section 67-5316, Idaho Code____ Upon determination of error, the personnel commission may reassign the affected job classification to an appropriate pay grade.” Thus, “allocation” under the statute is the process whereby the personnel commission determines the class, grade and step to which a particular job classification should be given.²

The conduct alleged by the appellant in this case does not fall within the term “allocation” as that term is defined in 1.C. § 67-5309B. Appellant alleges that in order to prevent being discharged entirely he voluntarily elected a reduction from grade 34 step G, to grade 33 step D. Thus, the Department’s action was either a “discharge” caused by the program elimination or reduced funding by the legislature, or a reduction in rank or grade within the meaning of I.C. §§ 67-5316(a) and (b), and accordingly an appeal should have been taken to the Idaho Personnel Commission. Appellant argues that he is not contesting the reduction in grade, merely the reduction from step G to step D. However, the Department action must be viewed as a whole, and not segregated into pieces. Appellant would have been discharged because of the agency reorganization. Faced with that discharge, appellant chose to assert his rights under the Idaho Personnel Commission’s rules permitting him to voluntarily elect a demotion from grade 34 step G, to grade 33 step D. The fact that appellant accepts the reduction from grade 34 to grade 33, but contests the reduction from step G to step D, does not change the fact that the agency action was to reduce him from grade 34 step G, to grade 33 step D. Accordingly, we hold that the agency action was appealable to the Idaho Personnel Commission as either a “discharge” or a “reduction in rank or grade.” Appellant having failed to exhaust his administrative remedies, the district court correctly dismissed the complaint.

Our decision is further buttressed by the nature of the determinations appellant seeks to have made in this case. Appellant asserts violations of the Idaho Personnel Commission rules, and statutes dealing with the Idaho Personnel Commission and public employees. Thus, the personnel commission was the appropriate agency to make a determination of the interpretation of those rules and statutes, and should make the initial decision on whether those rules and statutes have been violated. Appellant’s proper remedy was to seek review of the Department’s action in the personnel commission, and the district court properly dismissed this action. Cf. Swisher v. State Dept. of Environmental & Community Services, 98 Idaho 565, 569 P.2d 910 (1977).

Appellant also alleges error in the order of the trial court denying a motion to compel discovery. Because the control of discovery is within the discretion of the trial court, there was no error in the trial court’s suspension of discovery since the motion to dismiss raised purely legal issues which were capable of resolution without a complicated foray into the facts.

Our disposition of this ease makes it unnecessary for us to address appellant’s constitutional claims. Exhaustion of administrative remedies is generally required before constitutional claims are raised. See Davis, Administrative Law Treatise, § 26:6; W.E.B. Dubois Clubs of America v. Clark, 389 U.S. 309, 88 S.Ct. 450, 19 L.Ed.2d 546 (1967).

The judgment of the trial court is affirmed. Costs to respondent. No attorney fees on appeal.

DONALDSON, C.J., and SHEPARD and HUNTLEY, JJ., concur.

1 . We do not address the question of whether the appellant may voluntarily accept a demotion in lieu of being totally laid off and nevertheless contest the demotion, since neither the district court below nor the parties here have addressed that issue.

2 . The 1949 amendment pointed out by appellant merely limited the appeal right for an alleged wrongful allocation to a particular class of positions which I.C. § 67-5302 defines as "a group of positions sufficiently similar as to the duties performed, degree of supervision exercised or required, minimum requirements of training, experience or skill, and other characteristics, that the same title, the same tests of fitness and the same schedule of compensation may be applied to each position in the group,” rather than the particular pay grade or step within a pay grade of an employee. Thus, it is apparent by the amendment that the legislature intended that in allocating particular job classifications to class, grade, and step, only those actions of the agency in allocating a particular job classification to a class would be appealable, but not the allocation to a particular pay grade or step within a pay grade.