Informal Agency Memoranda that Alter Substantive Rights Are “Rules”; Untimely Procedural Challenges Are Barred, but Timely Objectors Cannot Be Bound by Unpromulgated Changes

1. Introduction

In Martel v. Employee Retirement System (Haw. May 4, 2026), the Supreme Court of Hawaiʻi reviewed a dispute between Linda S. Martell (a per diem judge and ERS member for many years) and the Employee Retirement System, State of Hawaiʻi and its Board of Trustees (collectively, “ERS”).

For nearly a decade, ERS credited Martell with retirement service for months she worked as a per diem judge. ERS relied on a longstanding 1990 Memorandum setting criteria for per diem judges’ ERS eligibility. In 2017, after discovering the Judiciary’s personnel forms (SF-5) still designated per diem judges as 20% FTE rather than 50% FTE, ERS issued a 2017 Memorandum rescinding the 1990 criteria and stopped crediting service going forward. ERS also sent Martell a November 16, 2017 letter implementing the shift. ERS did not provide notice, hold a hearing, or conduct rulemaking under HRS chapter 91.

The key issues were:

  • Whether the 1990 and 2017 memoranda were “rules” under HRS § 91-1 (and thus subject to rulemaking procedures under HRS § 91-3).
  • Whether ERS could invoke the “internal management” or “intra-agency memoranda” exceptions in HRS § 91-1.
  • How the three-year limitations period in HRS § 91-3(f) applies where a policy functioned as a rule but was never formally promulgated.
  • Whether a procedurally invalid policy change can be enforced against a person who timely objected, even if the agency’s substantive view might be permissible.

2. Summary of the Opinion

The Supreme Court of Hawaiʻi vacated the ICA’s judgment and affirmed the circuit court’s amended final judgment. It held:

  • The 1990 Memorandum and the 2017 Memorandum were rules under HRS § 91-1; neither fit the “internal management” or “intra-agency memoranda” exceptions.
  • The 2017 Memorandum (and the November 16, 2017 implementing letter) were adopted without HRS § 91-3 rulemaking and were therefore invalid and unenforceable against Martell, who challenged them within three years under HRS § 91-3(f).
  • Although the 1990 Memorandum was also an unpromulgated rule, it remained operative because any procedural challenge to it was time-barred by HRS § 91-3(f).
  • The ICA erred by conflating substantive permissibility with procedural validity; even a “correct” interpretation cannot be enforced if implemented through unlawful procedure, and HRS § 91-14(g)(3) authorizes reversal for decisions “[m]ade upon unlawful procedure.”

Remedy: The court remanded with instructions that ERS credit Martell’s service from October 1, 2017 through December 31, 2021 for months meeting the requirements of the 1990 Memorandum “as previously interpreted.”

3. Analysis

3.1. Precedents Cited

Membership framework and ERS authority

  • Vail v. Emps' Ret. Sys. of State, 75 Haw. 42, 66, 856 P.2d 1227, 1240 (1993)
    The court used Vail to confirm that under HRS § 88-43 ERS has authority to deny ERS membership to per diem employees as a class of part-time workers. Importantly, the opinion treats ERS’s authority as distinct from the procedure required to exercise it.

When agency statements are “rules” and the narrowness of exceptions

  • Kawashima v. State, 140 Hawaiʻi 139, 149, 398 P.3d 728, 738 (2017)
    Kawashima supplied the core procedural premise: to “adopt, amend or repeal” a rule, an agency “must follow” HRS § 91-3. It also provided the functional test for the internal management exception—looking to whom the directive is addressed and whether it affects “private rights.” The court distinguished Kawashima because DOE’s pay regulation was directed to DOE staff and did not declare public rights, while ERS’s memoranda were directed to the Judiciary and determined per diem judges’ benefit eligibility.
  • Green Party of Haw. v. Nago, 138 Hawaiʻi 228, 238, 378 P.3d 944, 954 (2016)
    The court relied on Green Party for two propositions: (1) both the internal management and intra-agency communications exceptions are construed narrowly; and (2) courts must prevent agencies from evading rulemaking by labeling substantive policy as “internal.” The opinion also used Green Party to rebut ERS’s attempt to define “the public” too narrowly—private rights can be affected even where the regulated class is smaller than the general population.
  • Aguiar v. Hawaii Housing Authority, 55 Haw. 478, 522 P.2d 1255 (1974)
    Aguiar was used as the closest analogue: an “internal” regulation setting eligibility criteria for a government benefit was a “rule” because it determined private rights. The court treated ERS’s retirement-credit eligibility determinations as the same kind of substantive benefit decision.
  • Crosby v. State Dep't of Budget & Finance, 76 Hawaiʻi 332, 876 P.2d 1300 (1994)
    ERS invoked Crosby to argue that memoranda sent to other agencies are intra-agency communications exempt from rulemaking. The court distinguished Crosby on the critical ground that the circular there did not bind the public or alter substantive rights; ERS’s memoranda did.
  • Rodriguez v. Mauna Kea Resort LLC, 156 Hawaiʻi 289, 295, 574 P.3d 309, 315 (2025)
    Cited for the general interpretive theme that Hawaiʻi courts disfavor form over substance—supporting the court’s insistence that labels like “memorandum” do not control whether something is a “rule.”

Procedural invalidity and unenforceability

  • Foytik v. Chandler, 88 Hawaiʻi 307, 315, 966 P.2d 619, 627 (1998)
    Provided the decisive remedy principle: rules not made under HRS § 91-3 are “invalid and unenforceable.” The court applied Foytik to render the 2017 Memorandum void as to Martell because she timely challenged it.

Rulemaking vs adjudication; limits on abrupt agency reversals

  • Flores-Case ʻOhana v. Univ. of Haw., 153 Hawaiʻi 76, 92, 526 P.3d 601, 617 (2023)
    Used to clarify the rulemaking/adjudication distinction: adjudications resolve past or present rights for specific persons; rulemaking makes future-facing policy. This supported the conclusion that ERS’s forward-looking November 2017 letter could not be defended as an adjudication to avoid rulemaking.
  • Application of Hawaiian Elec. Co., Inc., 81 Hawaiʻi 459, 468, 918 P.2d 561, 570 (1996)
    Cited for the principle that even in adjudication an agency abuses discretion when it makes a “sudden change of direction” causing undue hardship to those who relied on past policy.
  • Application of Hawaiian Elec. Co., Inc., 66 Haw. 538, 541, 669 P.2d 148, 151 (1983)
    Cited for basic adjudicatory due-process protections (e.g., examining and cross-examining witnesses), underscoring that ERS’s abrupt reversal lacked procedural safeguards even if framed as adjudication.

Remedial authority

  • Nakamine v. Bd. of Trs. of Emps.' Ret. Sys., 65 Haw. 251, 255, 649 P.2d 1162, 1165 (1982)
    Controlled the remedial posture: where an agency’s failure to follow its rules prejudices substantial rights, courts may “fashion relief” to remedy that prejudice. The court used Nakamine to justify reinstating Martell’s credited service and benefits.

Cases ERS cited but the court found inapposite to “substantive rights”

  • Rose v. Oba, 68 Haw. 422, 717 P.2d 1029 (1986) (hospital bylaws)
  • Holdman v. Olim, 59 Haw. 346, 581 P.2d 1164 (1978) (prison dress code)
  • Doe v. Chang, 58 Haw. 94, 564 P.2d 1271 (1977) (welfare fraud investigation procedures)

The court acknowledged that internal management can sometimes affect non-employees, but distinguished these cases because they did not “declare or alter substantive rights” in the way ERS’s memoranda determined benefit eligibility and stripped retirement credits.

3.2. Legal Reasoning

(A) Statutory structure: presumption of inclusion, limited exclusion, and the role of rules

The court began with the statutory presumption that “all state employees, including per diem workers,” are ERS members unless excluded (HRS § 88-42), and ERS’s authority to deny membership to classes of part-time/temporary employees (HRS § 88-43, as construed in Vail v. Emps' Ret. Sys. of State). ERS had exercised exclusion authority in part through a rule, HAR § 6-21-14(5) (excluding positions requiring less than one-half of full-time employment), but the rule did not specify how to apply that threshold to per diem judges—creating space for the memoranda to operate as de facto eligibility criteria.

(B) The memoranda were “rules” under HRS § 91-1

The court applied HRS § 91-1’s definition of “rule” (agency statements of general/particular applicability and future effect implementing or interpreting law or policy), and held the memoranda fit because they set eligibility criteria that governed future crediting of service—i.e., they implemented ERS policy affecting benefits.

(C) The “internal management” exception did not apply

Using the narrow construction mandated by Green Party of Haw. v. Nago and the functional test described in Kawashima v. State, the court held the memoranda were not “internal management” because they were directed to the Judiciary (not ERS staff) and, more importantly, they determined per diem judges’ eligibility for retirement benefits—an effect on “private rights.”

The court rejected ERS’s argument that per diem judges are not “the public” because ERS membership is not open to everyone. The court reasoned that every regulated class is narrower than the general population; the relevant inquiry is whether a directive affects private rights, not the size of the affected group.

(D) The “intra-agency memoranda” exception did not apply

The court again emphasized narrow construction and distinguished Crosby v. State Dep't of Budget & Finance: inter-agency communications are not exempt when they bind persons with respect to substantive rights. ERS’s memoranda did precisely that by determining benefit eligibility. Invoking Rodriguez v. Mauna Kea Resort LLC, the court stressed substance over form: calling it a “memo” does not avoid HRS § 91-3.

(E) The 2017 change was unenforceable against a timely challenger

Because the 2017 Memorandum was a rule adopted without HRS § 91-3 procedures, Foytik v. Chandler rendered it “invalid and unenforceable.” Martell’s challenge fell within the three-year period in HRS § 91-3(f), so the court held the change was void “as to her.” The November 16, 2017 letter was treated as implementing the 2017 Memorandum; it could not stand independently as an adjudication because it was forward-looking under Flores-Case ʻOhana v. Univ. of Haw., and even if treated as adjudicatory policymaking it reflected an abrupt reversal causing reliance harms under Application of Hawaiian Elec. Co., Inc..

(F) The 1990 Memorandum remained operative because HRS § 91-3(f) barred procedural attack

The opinion’s most practically significant doctrinal move concerned HRS § 91-3(f). The ICA treated the 1990 Memorandum as “equally infirm” and therefore disregarded it, effectively reverting to statutory default membership. The Supreme Court rejected that approach as inconsistent with the statute’s limitations scheme.

ERS argued the limitations bar should not apply because the 1990 Memorandum was never formally “adopted” through rulemaking. The court refused that reading because it would produce perverse incentives: the more procedurally defective the rule (i.e., adopted with no procedures at all), the longer it could be attacked, while less defective rules would gain repose. Citing legislative purpose (avoiding forcing agencies to “readopt” rules at taxpayer expense), the court held the 1990 Memorandum was “adopted” when ERS began to practice it, and the three-year window to challenge it closed long ago.

(G) Substantive permissibility does not cure procedural unlawfulness

The court identified the ICA’s “central error” as treating procedural invalidity as irrelevant if the agency’s substantive interpretation might be permissible. The opinion separated two questions: (1) whether ERS’s interpretation was substantively allowed, and (2) whether ERS followed the procedures required to implement it. Under HRS § 91-14(g)(3), courts may reverse decisions “[m]ade upon unlawful procedure,” with no carveout for substantively correct decisions. The court cautioned that allowing “correctness” to trump procedure would “gut” HRS chapter 91 by inviting agencies to skip notice-and-comment safeguards whenever they felt confident in their interpretation.

3.3. Impact

(A) Stronger enforcement of HAPA’s anti-evasion function

The decision reinforces that agencies cannot avoid HRS § 91-3 by issuing policy through informal formats (memoranda, letters) when those statements have future effect and determine substantive rights—especially eligibility for government benefits.

(B) Clarified limits of “internal management” and “intra-agency memoranda” exceptions

The court’s functional approach makes the exceptions difficult to invoke where an agency statement: (i) is directed outside the agency’s own staff, and/or (ii) determines who receives a benefit or entitlement. This likely increases the number of circumstances in which agencies must use formal rulemaking rather than informal guidance when eligibility criteria are at stake.

(C) A consequential reading of HRS § 91-3(f): repose for long-used but unpromulgated “rules”

The holding that a rule is “adopted” when “practice” begins (for purposes of the three-year bar) provides stability to long-relied-upon administrative regimes, even if their origin was procedurally defective. But it also changes litigation strategy:

  • Regulated parties must identify and challenge informal, rule-like policies quickly.
  • Agencies cannot safely assume informal policies are immune from “rule” characterization, but after three years those policies may gain practical durability against procedural attack.

(D) Protection for timely objectors against unpromulgated policy reversals

Equally important, the opinion protects parties who challenge within three years: an agency cannot enforce a procedurally invalid new policy against them. In benefits contexts (retirement, housing, licensing), this encourages reliance on formal process and discourages abrupt, informal reversals that impose retroactive or near-retroactive harms.

(E) Procedural review remains independent of substantive review

By emphasizing that substantive permissibility does not “mend” procedural invalidity, the case bolsters judicial willingness to set aside agency actions solely for failure to comply with HAPA procedures, even where the agency might ultimately reach the same outcome through lawful rulemaking or adjudication.

4. Complex Concepts Simplified

  • “Rule” (HRS § 91-1): Not just something labeled “rule.” If an agency statement (memo, circular, letter) sets a general standard for the future—especially about eligibility or benefits—it can be a “rule.”
  • Rulemaking (HRS § 91-3): The required public process for creating/changing rules (typically notice, opportunity for comment/hearing, and formal adoption). The point is transparency, participation, and accountability—not merely getting the “right” answer.
  • Internal management exception: Narrow; covers directions mainly about running the agency internally (staff operations) and not affecting people’s substantive rights.
  • Intra-agency memoranda exception: Narrow; a memo between agencies can still be a “rule” if it binds people’s substantive rights (like benefit eligibility).
  • Rulemaking vs adjudication: Rulemaking sets forward-looking standards for a category of cases; adjudication decides specific parties’ past/present rights. Agencies cannot repackage forward-looking policy changes as “adjudication” to avoid rulemaking.
  • HRS § 91-3(f) three-year bar: Procedural challenges to rules must be brought within three years of adoption. Here, “adoption” was tied to when the agency began practicing the policy as a rule.
  • “Void as to her”: The court’s remedy is targeted—because Martell timely challenged the 2017 change, it cannot be enforced against her, and her benefits must be calculated under the operative (time-barred-from-procedural-attack) 1990 rule.

5. Conclusion

Martel v. Employee Retirement System delivers two durable administrative-law lessons for Hawaiʻi practice. First, agencies may change policy, but when policy statements function as rules affecting substantive rights—like eligibility for retirement benefits—they must comply with HRS § 91-3; informal memoranda and implementing letters will not suffice, and timely challengers cannot be bound. Second, HRS § 91-3(f) provides real repose: even an informally adopted, procedurally defective rule becomes insulated from procedural attack after three years, and courts should not erase such a rule simply because it would have been invalid if timely challenged.

The opinion thus tightens the boundary between permissible agency flexibility and mandatory public process, while simultaneously stabilizing long-settled administrative arrangements through the limitations bar—an equilibrium that will shape future disputes over informal guidance, benefit eligibility criteria, and abrupt agency policy reversals.