Appeal from the Order of the Commonwealth Court dated July 23, 2008 at No. 322 MD 2008 954 A.2d 706 (Pa. Cmwlth. 2008)
The opinion of the court was delivered by: Mr. Chief Justice Castille
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
ARGUED: September 16, 2009
We consider here whether the Commonwealth Court correctly declared that Article III, Section 24 of the Pennsylvania Constitution ("Section 24"), PA. CONST. art. III, § 24, is not preempted by the Fair Labor Standards Act of 1938 ("FLSA" or "Act"),*fn1 and that accordingly, Section 24 prohibits the Governor of the Commonwealth from paying the wages of state employees who are covered by FLSA and required to work from monies in the Commonwealth's Treasury, but not yet appropriated by the General Assembly. For the following reasons, we conclude that this matter is justiciable; that under the Supremacy Clause of the United States Constitution, U.S. CONST. art. VI, cl. 2, Section 6 of FLSA preempts Section 24; and that Appellants/Cross-Appellees are entitled to the declaratory judgment they requested. Therefore, in the appeal at No. 60 MAP 2008, we reverse the Commonwealth Court's Order. In the cross-appeal at No. 66 MAP 2008, we affirm the Commonwealth Court's Order in part and dismiss the cross-appeal in part as moot.
By way of background, these cross-appeals arise from the process by which the Commonwealth's yearly budget and budget appropriations are adopted and the consequences of a failure to timely discharge those duties. The Commonwealth's fiscal year begins on July 1st of each calendar year and ends on June 30th of the next calendar year. 71 P.S. § 237(a). Article VIII, Section 12 of our Constitution directs the Governor to submit an annual budget for the General Assembly's consideration at a time set by law; Article VIII, Section 13 requires the General Assembly to adopt the budget for the ensuing fiscal year and to make operating budget appropriations. PA. CONST. art. VIII, §§ 12, 13. Under Section 24, the General Assembly's budget appropriations are an essential prerequisite to expending money from the Commonwealth's Treasury; that is, without such appropriations, state monies, for the most part, may not be spent. Section 24 provides:
No money shall be paid out of the treasury, except on appropriations made by law and on warrant issued by the proper officers; but cash refunds of taxes, licenses, fees, and other charges paid or collected, but not legally due, may be paid, as provided by law, without appropriation from the fund into which they were paid on warrant of the proper officer.
PA. CONST. art. III, § 24.
For each fiscal year, the General Assembly enacts a general appropriations act, so that state funds are available to the Executive, Legislative, and Judicial branches of the Commonwealth for the payment of, inter alia, the salaries and wages of state employees. See PA. CONST. art. III, § 11 ("The general appropriations bill shall embrace nothing but appropriations for the executive, legislative and judicial departments of the Commonwealth, for the public debt and for public schools. All other appropriations shall be made by separate bills, each embracing but one subject."). See, e.g., General Appropriation Act of 2007 ("GAA 2007") § 104(a) ("The following sums set forth in this act.are specifically appropriated from the General Fund to the several hereinafter named agencies of the Executive, Legislative and Judicial Departments of the Commonwealth for the payment of salaries, wages or other compensation and travel expenses.and for payment of any other expenses as provided by law or by this act, necessary for the proper conduct of the duties, functions and activities. set forth for the fiscal year beginning July 1, 2007..").
At the end of each fiscal year on June 30, except in limited circumstances, money that was appropriated, but not spent, committed or encumbered, lapses back to the fund from which it came. See, e.g., GAA 2007 § 1906 ("[E]xcept as otherwise provided by law.that part of all appropriations [made in this act].unexpended, uncommitted or unencumbered as of June 30, 2008, shall automatically lapse as of that date."). Accordingly, if the General Assembly does not enact a general appropriations act by July 1 of each year, except for those funds that have not lapsed, Section 24 prohibits money from being paid out of the State Treasury to the Commonwealth's Executive, Legislative, and Judicial branches, which consequently prevents the payment of wages to state employees.
In this case, the salient facts are undisputed. The Commonwealth's 2007-2008 fiscal year began on July 1, 2007, and was to end on June 30, 2008. On February 5, 2008, Governor Edward G. Rendell submitted a proposed budget for fiscal year 2008-2009 for the General Assembly's consideration. The Governor also devised a plan as to what payments of wages and salaries to Commonwealth employees the State Treasury would or would not make in the event that the General Assembly did not enact a general appropriations act by June 30, 2008.
The plan was reflected in an Interagency Agreement entered by the Office of the Governor and the State Treasury Department on May 22, 2008. In relevant part, the Interagency Agreement stated that because FLSA "requires that employers, including the Commonwealth, pay certain employees wages and salaries in a timely manner" and Section 24 "requires that '[n]o money shall be paid out of the treasury, except on appropriations made by law and on warrant issued by the proper officers[,]'" the Administration has concluded that without the enactment of an Operating Budget, (1) employees covered by the FLSA whose duties are not necessary to insure the health, safety and welfare of the citizens, cannot be permitted to perform their duties since the Commonwealth has no authority to make payments to those employees; (2) employees whose duties are necessary to insure the health, safety and welfare of the citizens must continue to perform their duties and, notwithstanding the Constitutional prohibition against payments, those employees who are covered by the FLSA must be paid in a timely manner; (3) employees not covered by the FLSA may continue to perform their duties and may be paid in arrears when an Operating Budget is enacted; and (4) employees paid from sources other than an Operating Budget may continue to perform their duties and may be paid in a timely manner.
Petition for Review in the Nature of a Declaratory Judgment ("Petition"), Exhibit D, Interagency Agreement at 2-3. Therefore, as to the payment of payroll obligations in the event that no budget was enacted by June 30, the Interagency Agreement provided:
From and after July 1, Treasury shall make timely payments for wages and salaries to (a) Commonwealth employees necessary to insure the health, safety and welfare of the citizens of Pennsylvania who are covered by the FLSA, and (b) Commonwealth employees paid from sources other than an Operating Budget. Commonwealth employees not covered by the FLSA and not paid from sources other than the Operating Budget shall be paid in due course, in arrears, following the enactment of an Operating Budget. The Administration shall not submit requests to Treasury for payments to any employees other than those listed in clauses (a) and (b) of this paragraph prior to enactment of an operating Budget.
On June 6, 2008, Secretary of Administration Naomi Wyatt sent the Interagency Agreement to Commonwealth agency heads and informed them of the responsibility to categorize agency employees according to the principles stated therein and to assign one of four codes to each employee as follows:
Code 1 - FLSA Covered Critical: Positions who perform functions essential to protect the health, safety and welfare of the public. Examples include State Police Officers, Corrections Officers, nurses in veterans' homes and state hospitals, and emergency management personnel. These employees will work and will be paid on time.
Code 2 - FLSA Covered Non-Critical: Position[s] performing important work, but which are not critical to the health, safety and welfare of citizens. Examples include clerks who process drivers' licenses and motor vehicle renewals, maintenance staff at state parks who maintain, repair and renovate buildings, financial examiners who review records for compliance with regulations, Civil Service staff who conduct civil service testing. These employees will be furloughed.
Code 3 - FLSA Exempt: These are employees who are not covered by the wage and hour provisions of the federal Fair Labor Standards Act. Generally, these are executives, employees in policy positions, attorneys and employees in similar positions. These employees will work but will not be paid until after a budget has been passed.
Code 4 - Special Funded: Positions not affected by a budget impasse because they are paid from special funds that are permanently or continually appropriated via their enabling acts and that do not fall under the General Appropriations Act.. These employees will work and will be paid on time. Id. at 1-2 (emphasis in original).
In June of 2008, in accordance with the Interagency Agreement, Commonwealth agencies began preparing to furlough those employees who were categorized as "FLSA Covered Non-Critical." Appellants Richard Conway, Samuel Deitch, Randy Lash, and Robenna Mitchell, all Commonwealth employees, were categorized as "FLSA Covered Non-Critical" and informed that they might be furloughed on July 1, 2008, if the General Assembly did not pass a budget for the upcoming fiscal year.
On June 19, 2008, these individuals and Council 13, American Federation of State, County and Municipal Employees, AFL-CIO, Pennsylvania Social Services Union, Local 668 of the Service Employees International Union, Federation of State Cultural, and Educational Professionals, AFT, Local 2382, three unions representing approximately 16,000 state employees who were also assigned to the "FLSA Covered Non-Critical" category (collectively, the "Union Parties"), filed the underlying Petition and an Application for Summary Relief*fn2 in the Commonwealth Court's original jurisdiction against the Commonwealth, Governor Rendell, Secretary of Administration Wyatt, Mary A. Soderberg, the Commonwealth's Secretary of Budget, and Robin L. Wiessmann, the Commonwealth's Treasurer.
The Union Parties asserted that Section 6 of FLSA*fn3 preempts Article III, Section 24 of the Pennsylvania Constitution. Therefore, according to the Union Parties, the view held by the Governor and others in the Administration that Section 24 bars the Commonwealth from continuing to employ and pay all FLSA-covered employees, if a general appropriations act is not enacted by the start of the Commonwealth's new fiscal year, was erroneous as a matter of law. While the Union Parties did not challenge the classifications that had been made of Commonwealth employees or the Governor's authority to furlough employees, they requested a declaratory judgment that "Article III, Section 24 does not prohibit the Commonwealth from continuing to employ and pay all FLSA nonexempt Commonwealth employees in the event that the Pennsylvania Legislature fails to pass a budget by July 1, 2008." Petition at 19.
On June 23, 2008, the Commonwealth, the Governor, the Secretary of Administration, and the Secretary of Budget (collectively, the "Executive Parties") filed a joint Answer and New Matter to the Petition and an Answer to the Application for Summary Relief. On that same day, the Treasurer, represented separately, filed an Answer and New Matter to the Petition and Answer to the Application for Summary Relief. On June 25, 2008, the Executive Parties filed a Cross-Application for Summary Relief, asking that the Commonwealth Court dismiss the Petition as non-justiciable or, alternatively, that the court:
(1) find that when appropriations have not been enacted into law as required by Section 24, the Governor has the authority.to temporarily furlough employees he determines are critical to maintaining the basic health, safety and welfare of the public where the Commonwealth otherwise would be legally liable under the FLSA or [Council 13, American Federation of State, County, and Municipal Employees, AFL-CIO v. Casey, 626 A.2d 683 (Pa. Cmwlth. 1993)] to make payments for salaries and wages for which there are no appropriations; and (2) declare that there is no state law that obligates or allows the Governor to permit Commonwealth employees to report for work to earn compensation, which under the FLSA and Casey would result in the Commonwealth's obligation to pay fully and on time, notwithstanding the fact that there are no ...