Publications & Articles May 2, 2017

Recent Changes to Arizona's Fair Wages and Healthy Families Act

In the 2016 November election, Arizona voters approved Proposition 206, also known as the Fair Wages and Healthy Families Act (“FWHFA” or “the Act”). The Act amends the Arizona Minimum Wage Act (“AMWA”) and incrementally raises the minimum wage for Arizona workers beginning on January 1, 2017 (and continuing over the next few years). Beginning July 1, 2017, Arizona workers shall accrue, and have the legal right to use, a minimum amount of “Paid Sick Time” benefits each year.

Arizona Fair Wages and Health Families Act ("FWHFA")

A. Does The Fair Wages and Healthy Families Act Apply

The new minimum wage increase applies to all Arizona employers, except small businesses, in keeping with the present coverage provisions of the AMWA. Small businesses are those that generate less than Five-Hundred Thousand Dollars ($500,000.00) in gross sales and that are not involved in interstate commerce. However, as a practical matter, the vast majority of Arizona’s businesses will be covered, exempting only the very smallest and most insulated of companies from this mandatory wage increase. On the other hand, the provisions mandating "Paid Sick Time"" for employees applies to all employers, regardless of size.

B. Minimum Wage Increase

Unless otherwise exempt from the state’s minimum wage requirements, the ACT implements incremental increases to an employee's minimum wage as follows:

  • $10.00 per hour on and after January 1, 2017 ($7.00 per hour plus tips for tipped employees);
  • $10.50 per hour on or after January 1, 2018 ($7.50 per hour plus tips for tipped employees);
  • $11.00 per hour on or after January 1, 2019 ($8.00 per hour plus tips for tipped employees);
  • $12.00 per hour on or after January 1, 2020 ($9.00 per hour plus tips for tipped employees); and,
  • Continued incremental increased based on the cost of living on January 1st of each following year.

C. Mandatory Paid Sick Time

(1) Requirements for Business Owners

If you are an employer, and do not currently have a Paid Sick Time policy or practice that meets or exceeds the requirements of the FWHFA, you must adopt a policy (or revise your policy) to comply on or before the paid sick time effective date of July 1, 2017. But, if you already have an existing policies that meets the minimum standards, you are not required to provide additional paid sick time. Even so, you should consider revising your policies to inform employees about their statutory rights and duties regarding the use of paid sick time. Your updated policy should address current legislation pertaining to paid sick time, paid sick time borrowing, and treatment of paid sick time upon your employee's separation of employment. Again, this is particularly important if existing policies do not already reflect these details. In short, most employers should update their policies, and perhaps their leave practices as well, on or before July 1, 2017.

The Act also requires that employee pay statements (or in a notice provided with employee paychecks) include the amount of an employee’s accrued paid sick time, the amount of paid sick time used by the employee, and the amount of pay an employee has received as earned paid sick time.

Regardless of whether an employer currently maintains a compliant policy or will be implementing a new policy, an employer must post notice of employees’ paid sick time rights on or before July 1, 2017, as described more fully below.

(2) Notable Provisions

(a) Denying Paid Sick Time

All employees of covered Arizona entities accrue and may use paid sick time. Paid sick time is “time that is compensated at the same hourly rate and with the same benefits, including health care benefits, as the employee normally earns during hours worked.” In using their paid sick time, employees must be paid no differently than they would pay an employee for time worked.

(b) Minimum Accrual of Paid Sick Time

Paid sick time accrues at a rate of at least one hour for every 30 hours actually worked. For employees who are exempt from overtime and minimum wage requirements of the Fair Labor Standards Act (29 U.S.C. 213(A)(1)), the statute assumes that the employee works 40 hours per week. If an exempt employee’s normal workweek is less than 40 hours, his or her paid sick time accrues based on the actual number of hours worked in that workweek.

(c) Accrual Limits

If you are an employer, and have 15 or more employees, your employees can accrue a maximum of 40 hours of paid sick time per year, unless you select a higher limit. If you have fewer than 15 employees, the maximum an employee can accrue is 24 hours of paid sick time per year, unless your select a higher limit.

Exercise caution as to leave accrued under any former leave policies. Follow a conservative approach. Employers should permit employees to retain any accrued paid sick time in their books as of July 1, 2017. Also, employers should continue to monitor developments as forthcoming regulations may address the transition year issue.

(d) Use of Paid Sick Time

An employee can use earned paid sick time as it is accrued. An employer is required to permit employees to use their accrued paid sick time in either hourly increments or “the smallest increment that the employer’s payroll system uses to account for absences or use of other time[,]” whichever is lower. The statute provides for the use of paid sick time in the event of an employee’s illness or injury, a family member’s illness or injury, and in other situations, summarized below:

  • An employee’s mental or physical illness, injury or health condition, or the employee’s need to seek medical diagnosis, treatment, or preventative care;
  • A family member’s mental or physical illness, injury or health condition, or the family member’s need to seek medical diagnosis, treatment, or preventative care;
  • Absences due to domestic violence, sexual violence, abuse, or stalking of an employee or employee’s family member, as these terms are defined in the statute, if the leave is to address the psychological, physical, or legal effects on the employee or the employee’s family member.
  • Closure of the employee’s workplace due to a public health emergency, or an employee’s need to care for a child whose school or place of care has been closed due to a public health emergency;
  • When an employee or employee’s family member’s “presence in the community may jeopardize the health of others” due to exposure or suspected exposure to a communicable disease; and

The Act defines “family member” broadly as a spouse or legally registered domestic partner, a grandparent, grandchild, sibling, or person who stood in loco parentis of an employee or his or her spouse or domestic partner, a biological child, adopted child, foster child, stepchild, of the employee or the employee’s spouse or domestic partner, regardless of age, a child to whom the employee or employee’s spouse or domestic partner stands or stood in loco parentis, regardless of age, and any other individual related by blood or affinity whose close relationship is the equivalent of a family relationship.

In some ways, the Act provides for broader use of paid sick time than would be permitted under the FMLA (such as in domestic violence situations), while in others, the Act provides narrower coverage than the FMLA. For example, a noticeable absence from the Act’s approved list of paid sick time uses is for the birth of a child or care of a newly adopted child. However, because the Act expressly states that it shall not be construed to preempt or conflict with federal statutes, there is no reason yet to believe that the Act would interfere with an employer’s right under the FMLA to require that an employee’s paid time o benefits, of which paid sick time would be a part, run concurrently with his or her use of FMLA leave.

While all employees must begin to accrue paid sick time under the Act on July 1, 2017, or their date of hire, whichever is later, employers may require that employees hired after July 1, 2017, wait 90 days from their date of hire before they are permitted to use accrued paid sick time.

(e) Requesting Paid Sick Time

An employee’s request for paid sick time “may be made orally, in writing, by electronic means or by any other means acceptable to the employer.” If possible, an employee’s leave request must include the expected duration of the leave. If an employee’s need to use leave is “foreseeable,” employees must make a “good faith effort” to give their employer's advance notice and schedule their absences in a way that lessens the impact on the employer's businesses, much like an employee’s obligation when using FMLA leave. For “unforeseeable leave,” employers may require that employees give notice of the leave if the notice requirements are clearly set forth in writing and that written description is disseminated to the employee. The statute does not appear to place restrictions on the procedures an employer may require for notice of unforeseeable leave, but an employer should be hesitant to place an unreasonably onerous burden on employees to give notice of unforeseeable leave.

Note that the statute does not define the terms “foreseeable,” “unforeseeable,” and “good faith effort,” so employers should continue to monitor further developments. Generally, a common-sense approach in interpreting these terms should be applied. Employers should refrain from ascribing meaning to these terms that could be viewed as unduly punitive to employees.

(f) Requesting Verification of The Reason for Paid Sick Time Use

As an employer, you may only request “reasonable documentation” that earned paid sick time is used for a proper purpose where your employee seeks to use three or more consecutive work days of paid sick time. Reasonable documentation is defined as “documentation signed by a health care professional indicating that the earned paid sick time is necessary.” Where three or more consecutive paid sick time days are used in cases of domestic violence, sexual violence, abuse, or stalking, the statute provides alternative forms of reasonable documentation that may be requested, such as a police report, a protective order, or a signed statement from the employee or other individual (a list appears in the statute) affirming that the employee was a victim of such acts. The inference to be drawn from this language is that employers may not ask for verification of the reason for an employee’s use of paid sick time if the employee uses only one or two consecutive days. Caution: Employers who currently follow a policy of requesting a doctor’s note for any single-day absences should pay close attention to this change and modify its practices accordingly.

(g) Carry-Over Caps

Employee are permitted to carry over unused, accrued paid sick time to the next year. However, they cannot use this carried-over amount to increase their maximum use caps for that year. For instance, if employee John carries over ten hours of unused accrued paid sick time to the following year, and accrues an additional 40 hours, he would still not be permitted to use over a total of 40 (or 24, depending on the size of the employer) hours of paid sick time per year.

Employers should continue to monitor whether limitations on carryover are discussed in any forthcoming regulations.

(h) End-Of-Year Payout Option

While the Act does give an employer the option to pay out unused, accrued paid sick time to employees at the end of the year, this option is not without its drawbacks. The Act requires that, if an employer exercises its pay-out option, it must then “provide the employee with an amount of earned paid sick time that meets or exceeds the requirements of [the Act] that is available for the employee’s immediate use at the beginning of the subsequent year.” This perplexing requirement seems to diminish an employer’s incentive to exercise this option by accelerating the employee’s paid sick time accrual for the subsequent year and requiring that the employer provide the employee with a “full” bank of accrued hours for the employee’s immediate use at the beginning of that year, as opposed to requiring that the employee gradually accrue these hours as usual.

(i) Borrowing Paid Sick Time

The statute permits an employer, in its discretion, to allow an employee to borrow paid sick time from a subsequent year before it is earned; however, there is no provision in the statute speaking to an employer’s ability to recover borrowed paid sick time if the employee in question separates from employment before he or she actually accrues the borrowed paid sick time. While we are hopeful that this grey area will be addressed in forthcoming regulations, employers would be prudent to ensure they are complying with A.R.S. § 23-352(2) in the event they decide to recoup such borrowed paid sick time from employees’ wages, and understand that, in the absence of legislative guidance on this issue, doing so is not without risk.

(j) Paid Sick Time Upon Conclusion of Employment

Employers are not required to pay unused, accrued paid sick time to employees whose employment terminates for any reason, including involuntary termination, voluntary resignation, layoff, or death. However, if an employer rehires a separated employee within nine (9) months, all paid sick time that the employee had accrued at the time of his or her separation must be reinstated.

(k) Notice Requirements

The Act provides that in addition to the information that must now be included with an employee’s pay statement (see Section 3(a) above), employers must give employees written notice informing them, at a minimum, of the following:

  • Employees’ entitlement to earn paid sick time and the rate at which employees will accrue paid sick time;
  • The terms of use of paid sick time as provided by the Act;
  • That retaliation against employees requesting or using paid sick time is prohibited;
  • Employees’ right to file a complaint if paid sick time use is unlawfully denied or retaliated against; and
  • The contact information for the Commission where questions about rights and responsibilities under the Act can be answered.

Under the Act, such notices must be provided by the statute’s effective date of July 1, 2017, or the date of hire, whichever is later, and must be in English, Spanish, and “any language that is deemed appropriate by the commission.” Civil penalties apply for failure to post such a notice. Sample notices in each language will be provided by forthcoming regulation prior to the Act’s effective date. It also appears that employers must also post notices, as will be specified, notifying employees of their rights under the Act.

The Act provides that in addition to the information that must now be included with an employee’s pay statement (see above), employers must give employees written notice informing them, at a minimum, of the following:

  • Employees’ entitlement to earn paid sick time and the rate at which employees will accrue paid sick time;
  • The terms of use of paid sick time as provided by the Act;
  • That retaliation against employees requesting or using paid sick time is prohibited;
  • Employees’ right to file a complaint if paid sick time use is unlawfully denied or retaliated against; and
  • The contact information for the Commission where questions about rights and responsibilities under the Act can be answered.

Under the Act, such notices must be provided by the statute’s effective date of July 1, 2017, or the date of hire, whichever is later, and must be in English, Spanish, and “any language that is deemed appropriate by the commission.” Civil penalties apply for failure to post such a notice. Sample notices in each language will be provided by forthcoming regulation prior to the Act’s effective date. It also appears that employers must also post notices, as will be specified, notifying employees of their rights under the Act.

C. Actions Employers Should Take Now

Arizona employers should update their policies concerning paid time off, sick days, leaves of absence and attendance to reflect the 2017 changes under the Fair Wages and Healthy Families Act and be prepared to comply with the paid sick time requirements as of July 1, 2017. If employers will require employees to follow special procedures for requesting sick time off, such requirements must be specifically detailed in a workplace policy and distributed to all employees.

In addition to modifying payroll and sick time policies to ensure compliance with the Act, it should be noted that employers are also required to give employees, beginning July 1, 2017, notice of the following: (a) that the employee is entitled to paid sick time and the amount of paid sick time; (b) the terms of the employee’s ability to use paid sick time; (c) that retaliation against an employee who used paid sick time is illegal; (d) that the employee can file a complaint if the employer will not allow the employee to use his or her paid sick time, or if the employer retaliates against the employee for using his or her paid sick time; and (e) the contact information for the Arizona Industrial Commission (AIC) where parties can inquire about their rights and responsibilities under the law. Furthermore, along with each paycheck, employees must receive an accounting of how much paid sick time they have available, how much has been used, and how much sick time they have been paid. The AIC is expected to develop a model notice employers can use to comply with the notice requirements.

D. No Retaliation or Penalties

The Act provides that it is “unlawful for an employer or any other person to interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right protected” by the Act. In sum, much like the ADA and FMLA, the FWHFA carries with it provisions against discrimination and retaliation for requesting or using paid sick time, or any other exercise of rights provided by the Act. Also, like the FMLA, the Act prohibits employers from counting the use of paid sick time “as an absence that may lead to or result in discipline, discharge, demotion, suspension, or any other adverse action.” There is a presumption that any adverse employment action taken within 90 days of an employee’s exercise of rights under the Act is retaliatory unless there is “clear and convincing” evidence that the action was taken for other lawful reasons. This is a stark contrast to many “no fault” attendance policies that track all absences (whether paid or unpaid) and convert them into adverse points unless the absences are ADA or FMLA-related. Under this new law, any paid sick time day counts as a protected absence and cannot be used or counted toward disciplinary action.

The Act applies the AMWA’s preexisting enforcement mechanisms to the new paid sick time provisions. Among other things, those enforcement mechanisms permit employees, as well as State agencies, to file lawsuits to assert their paid sick time rights. In addition to the prospect of defending civil lawsuits, employers may face investigations by the State of Arizona or its political subdivisions, including inspections and monitoring, and civil penalties, for violations of the Act.

E. Miscellaneous Provisions

  • Waiver by Other Employment Contract. The statute expressly provides that “no verbal or written agreement or employment contract may waive any rights” under the Act. As a result, employers are prevented from negotiating lesser paid sick time rights with employees in employment contracts, and employers should carefully consider the terms to be included in all agreements with employees.
  • Replacements. Notably, an employee may not be required to find “coverage,” or a replacement worker, for his or her use of Paid Sick Time.
  • Recordkeeping. The Act requires employers to add to their existing Arizona Minimum Wage Act record keeping obligations details of an employee’s paid sick time use and accrual for four years. There is a rebuttable presumption that an employer who fails to maintain such records did not pay statutorily earned paid sick time.
  • Successor Employers. If an employer “succeeds or takes the place of an existing employer,” all employees of the original employer whose employment continues with the new employer must be permitted to retain their accrued paid sick time as though no change in ownership had occurred.
  • Collective Bargaining Agreements (“CBAs”). If employees are covered by a CBA that is in effect as of July 1, 2017 (the Act’s effective date), the Act will not apply to those CBA-covered employees until the CBA’s “stated expiration date.” CBAs entered into after July 1, 2017, may contain a waiver of employees’ paid sick time entitlements under the Act if the waiver is “express” and “clear and unambiguous.”
  • Transfers. If an employee is transferred to a separate division, entity, or location, but “remains employed by the same employer,” the employee is entitled to retain all earned, accrued paid sick time in his or her bank.
  • Nondisclosure. Under limited circumstances, Employers may require verification of paid sick time use in certain circumstances, but they may never require an employee to divulge details about the nature of a health condition or domestic violence, sexual violence, abuse, or stalking situation to justify a paid sick time request.
  • Confidentiality. An employer must treat any health or other verification information it obtains from an employee as confidential and “may only disclose it to the affected employee or with the affected employee’s permission.” Unfortunately, the law is silent as to an employer’s obligation to release this information if requested by subpoena or other court order, or if requested in a government investigation. We are hopeful that this issue will be addressed in forthcoming regulations.

For additional information on complying with the 2017 minimum wage and paid sick time changes, please contact us by calling 480-558-1700. You can schedule an appointment, or send us an email