The Labyrinth of ‘Underground Regulations’ in California Administrative Law

We know that California state agencies, departments, boards, commissions, and bureaus often issue guidelines, manuals, bulletins, or policy letters that have the practical force of law, but which completely bypass the formal public notice, comment, and Office of Administrative Law (OAL) review processes for regulations.

California law sets forth a statutory threshold under Government Code Section 11340.5. And OAL’s Regulations define an underground regulation. However, practitioners and the regulated community come across instances in which an agency’s seemingly “internal guidelines” or “frequently asked questions” can inadvertently become an illegal, underground regulation if they are used as standards of general application.

Recall that an “underground regulation” in California is any unadopted rule, guideline, or enforcement standard used by a state agency without going through the formal public notice and review process required by the California Administrative Procedure Act (APA) contained in the California Government Code.

There are instances of alleged or ruled underground regulations in this states. Some recent examples include:

• The Dairy Institute of California filed a formal underground regulation petition against the Department of Resources Recycling and Recovery (CalRecycle) regarding unadopted fees and program plan rules under California’s plastic pollution reduction law (SB 54).
• Tesla cross-claimed that the California Civil Rights Department (CRD) illegally adopted and enforced unwritten, broad standards as “underground regulations” rather than using formal APA rulemaking.
• A California superior court judge ruled that a Technical Advice Memorandum (TAM) issued by the Franchise Tax Board constituted an invalid underground regulation. The court rejected the state’s argument that the memorandum was a mere technical update or an acknowledgment of existing policy, determining instead that it was a major regulatory shift enacted without APA compliance.

There is a formal OAL Petition Process that sets forth how to petition the OAL to issue a determination on whether a specific agency guideline constitutes an unadopted regulation (i.e., an underground regulation).

In addition, there are several relevant, key judicial decisions that provide guidance regarding underground regulations. These appellate and Supreme Court cases (including Tidewater Marine Western, Inc. v. Bradshaw and  Armistead v. State Personnel Board) establish the legal framework for identifying underground regulations.

Once properly identified, that alleged underground regulation can serve as a powerful tool to invalidate any adverse agency enforcement action or even force a state agency into formal APA compliance.