State workers will receive their full paychecks for at least the next two months after a Sacramento judge on Friday denied Gov. Arnold Schwarzenegger's request to immediately force State Controller John Chiang to pay them minimum wage until a budget is approved.

The administration downplayed Superior Court Judge Patrick Marlette's decision that technical issues raised by Chiang need a full hearing. Still, the ruling was a boost for at least 200,000 state workers who were facing paychecks for $7.25 an hour for the July pay period.

"I was worried," said a relieved Anthony Moore, a state worker who attended the 11 a.m. hearing. "I have two kids in college. I can't live off $7.25 an hour."

Marlette said he wants to schedule a full hearing on the merits of the case by the end of August. That's speedy by judicial standards, but it also means that Chiang succeeded in adding at least two months to the clock before a court can force him to issue minimum wage checks. The controller's cutoff date for making payroll changes is approximately 10 days before the end of each month.

Chiang has said complying with state law and Schwarzenegger's minimum wage order would violate labor laws and expose California to a slew of lawsuits and heavy fines.

"I am pleased the court ruling today spared taxpayers and California's economy from further harm," he said in a press statement.

Lynelle Jolley, spokeswoman for Schwarzenegger's Department of Personnel Administration, called the ruling against the governor a "procedural stay" that ultimately doesn't prove much.

"We're still confident we'll win on the merits," Jolley said after the Friday hearing. "We already have – twice."

Sacramento labor attorney Tim Yeung agreed that Friday's ruling doesn't settle the larger question of whether Chiang's arguments are valid.

"The standard for getting a (temporary restraining order) is pretty high because you have to show irreparable harm unless the court intervenes," Yeung said. "But you can lose a TRO and still win the case later."

Marlette's Friday ruling was the latest chapter of a stop-and-start legal battle between Chiang and Schwarzenegger that stretches back to the state's last budget impasse in the summer of 2008.

Then, as now, Schwarzenegger invoked a 2003 state Supreme Court ruling to order state workers' pay withheld to the least allowed under federal law when the Legislature fails to appropriate money for payroll by the July 1 start of a fiscal year. Once a budget is in place – which could be weeks or months away this year – the employees would receive their withheld pay.

Chiang refused to comply with the 2008 order. He contended that the state's computers couldn't handle the job and that the state would risk running afoul of federal labor law if it recklessly did what the governor instructed.

Schwarzenegger sued Chiang and eventually won in Sacramento Superior Court last year, but by then the 2008-09 budget was in place with money designated for payroll. State workers had escaped minimum wage.

Chiang took his loss to Sacramento's 3rd District Court of Appeal, which also ruled against him. But the appellate court left open room for more litigation over Chiang's claims that executing minimum wage is "infeasible."

Attorneys on Friday debated whether the task really is all that tough.

Chiang attorney Steve Rosenthal said that taking payroll down and then quickly restoring it presents a monumental logistical hurdle.

"We can't lower salaries," he said. "It would take months to do. (Restoring) them would be the same. We can't switch on and off the system."

Rosenthal pointed to a consultant's study recently commissioned by the Controller's Office that indicates it could take up to four years and $11 million get the current payroll system in shape to withhold pay during a budget impasse.

The current system, he said, will make errors that expose the state to labor law violations. Employees who work overtime must receive their full pay in the same pay period, he said, but switching them to minimum wage and back again is impossible.

But "this is not a permanent situation," Rosenthal said, because the controller plans to launch a brand new payroll system in two years with more flexibility.

Marlette said that the controller's technical obstacles have to be so severe as to make withholding state wages impossible.

"But what if the order is, 'Do the best you can?' " Marlette asked Rosenthal.

"We're in impossible country," Rosenthal replied.

Administration attorney Christopher Thomas dismissed Rosenthal's arguments.

"They can do it, but they don't want to do it," Thomas said.

As proof, he noted that the controller commissioned the pay system report a few months ago, even though questions about the state's capacity to comply with state law have been around for years.

Thomas also contended the controller's report was based on a "flawed premise" that overtime worked must be compensated within the same pay period to avoid violating labor laws. Thomas said the law actually requires payment "as soon as is practical."

The controller has to follow the law to the maximum extent possible, Thomas said, instead of assuming failure and refusing to comply entirely.

Marlette recognized that one consequence of keeping the legal battle alive is that it adds time for lawmakers to pass a budget, making the matter moot – until the next budget impasse.

"Part of your concern is that we'll be perpetually unable to act," Marlette said to Thomas. "But frustrating as that is, it may be a function of the interaction of these laws."

At several points during the hearing, Marlette talked about his duty to weigh the harm of allowing Chiang to ignore the law – at least for now – with the harm that would come to the state and to state workers by compelling the controller to comply immediately.

"But there is a law," Marlette said. "It can't evaporate on the approach (that complying) is difficult."

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Call Jon Ortiz, Bee Capitol Bureau, (916) 321-1043.

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