A state appellate court on Friday sided with the Schwarzenegger administration in its attempt to temporarily impose the federal minimum wage on tens of thousands of state workers.
It was not immediately clear how the ruling would affect Gov. Arnold Schwarzenegger's order a day earlier to pay 200,000 state workers the federal minimum of $7.25 an hour as the state wrestles with a budget crisis.
The state controller, who cuts state paychecks, has refused to comply with the order. The office declined to comment because it is still reviewing the ruling.
Friday's ruling affirms a lower-court decision in favor of the administration in a lawsuit filed two years ago after the governor's first attempt to impose the minimum wage.
The latest ruling from the California 3rd District Court of Appeal in Sacramento concludes that state Controller John Chiang cannot ignore the minimum wage order from the state Department of Personnel Administration.
It says "the DPA has the authority to direct the controller to defer salary payments in excess of federally mandated minimum wages when appropriations for the salaries are lacking due to a budget impasse."
But Chiang said in a news release that he interpreted the court ruling to mean that his office would not have to comply with the executive order if it was practically infeasible to do so.
"I will move quickly to ask the courts to definitively resolve the issue of whether our current payroll system is capable of complying with the minimum wage order in a way that protects taxpayers from billions of dollars in fines and penalties," Chiang said in the statement.
The Republican governor issued the order this week on the first day of the new fiscal year because the state remains without a budget, as lawmakers remain far apart on ways to close California's $19 billion deficit.
Lynelle Jolley, spokeswoman for Schwarzenegger's personnel department, said the ruling means the controller's office must follow the minimum wage order.
"This underscores the fact that everyone loses when we have a budget impasse. Every day the Legislature fails to deliver a budget costs the state $50 million," Schwarzenegger spokesman Aaron McLear said.
Workers will receive full back pay once a budget is passed. In the meantime, state employees such as Rhonda Smith say they will be hurting. They are just ending more than a year of three-day-a-month furloughs that cut their pay by 14 percent.
"It's a little scary," said Smith, 39, who joined the Department of Water Resources three weeks ago. "I've got bills, rent, insurance, a car. I like to have groceries at home. I don't know what this is going to do."
She said the believed the governor was using state workers as pawns in trying to negotiate a budget deal.
"If I wanted a minimum-wage job, I wouldn't have gone to school and gotten the training. I would have gotten a job at Subway or some place else," Smith said.
Representatives of several state employee unions did not immediately respond to a request for comment.
Schwarzenegger's minimum wage order will not affect all of California's 250,000 government employees. The 37,000 state workers represented by unions that recently negotiated new contracts with the administration will continue to receive their full pay. The contracts, including one with California Highway Patrol officers, contain pay cuts and pension reforms.
Salaried managers who are not paid on an hourly basis would see their pay cut to $455 a week. Doctors and lawyers who work for the state will not be paid at all until a budget is signed because minimum wage laws do not apply to those professions.
Schwarzenegger is pushing for minimum wage based on a 2003 California Supreme Court ruling. In White vs. Davis, the court held that state employees do not have the right to their full salaries if a state budget has not been enacted. At the same time, the state cannot ignore federal wage laws.
The governor issued a similar order during a budget impasse two years ago, but it never took effect because Chiang refused to go along with it. That refusal prompted Schwarzenegger to sue the controller, leading to Friday's ruling.
It was not immediately clear whether Chiang will appeal the latest ruling to the California Supreme Court.
Chiang has maintained that the minimum wage order is illegal, even in the face of court decisions indicating the opposite.
He has taken in more than $190,000 in campaign contributions from labor groups representing state employees and other unionized workers so far in his 2010 re-election bid. Those donations accounted for about 22 percent of all his contributions, according to campaign reports through May 22.
Chiang also has said California's computerized payroll system cannot handle the change, specifically because it cannot cut some checks at full pay and others at minimum wage.
He said his office is working on a system upgrade that will be ready in 2012.