Arizona voters recently passed AZ Prop 206 – the Fair Wages & Healthy Families Act – by a significant margin. Prop 206 increases the minimum wage in Arizona to:

• $10.00 per hour on January 1, 2017
• $10.50 per hour on January 1, 2018
• $11.00 per hour on January 1, 2019
• $12.00 per hour on January 1, 2020

After 2020, Arizona’s minimum wage will increase according to increases in the cost of living. Prop. 206 preserves an employer’s right to pay $3.00 per hour less than the minimum wage to an employee who customarily and regularly receives tips or gratuities. Arizona’s minimum wage is higher than federal minimum wage and Arizona employers must pay the higher wage.

Economists have legitimate disagreements about whether Prop 206 will actually help lower-paid workers. Some say that employers will simply find other ways to reduce the employee’s earnings by not allowing them to work overtime or reducing their hours or even eliminating jobs. Others say that an increase in the minimum wage is long overdue. Personal opinions aside, employers must comply or face serious consequences. An employee who is not paid minimum wage can recover twice the amount of unpaid minimum wage and a mandatory award of attorney fees and court costs.   

Paid Sick Time Requirement

The more groundbreaking (and complicated) part of Prop 206 is its Paid Sick Time (PST) component. Arizona law does not currently require any employers to provide any form of sick time for their employees. While many employers already offer some form of sick leave, the new statute imposes certain minimum requirements. Under Prop 206, private employers and municipalities will be subject to the following requirements, starting on July 1, 2017:

Amount of Leave: Employees will accrue 1 hour of leave for every 30 hours worked, subject to the following limitations based on employer size:

15+ employees: Leave accrual capped at 40 hours per year.

1-14 employees: Leave accrual capped at 24 hours per year.

Leave starts accruing on the later of employee’s hire date or the effective date of the law.  Prop 206 applies to almost every full-time, part-time and temporary employee.

Carryover: Employees may carry over unused sick leave to the next calendar year, with usage capped at 24 and 40 hours respectively, based on employer size. At the employer’s option, it can pay out accrued, unused leave at year’s end, in lieu of carryover, but only if the employer provides the employee with the full amount of annual leave required at the beginning of the next year.

Leave Usage: Employees can use leave as accrued, except that employers may require employees hired after July 1, 2017 to wait until the 90th calendar day after commencing employment to use any leave. If rehired within 9 months of a separation from employment, all accrued unused leave is reinstated.

Permitted Uses: There are very liberal uses that can be made of PST leave:

• All health care reasons:  Leave can be taken for any of the employee’s healthcare purposes.  In other words, the employee can take the paid leave for diagnosis, care, or treatment of any mental or physical illness, injury, or health condition. 
• Care of a family member. The leave time is available not just for the employee but also for the employee to take care of any family member.  The statue defines such people broadly to include children (including adopted, foster, step, etc., regardless of age), spouse, registered domestic partner, child or parent of the employee’s spouse or domestic partner, parent, grandparent, grandchild, or sibling.
• Various legal reasons: Leave can also be taken for legal reasons, such as specified purposes related to the employee’s or employee’s family member’s domestic or sexual violence, abuse, or stalking, or for closure of employee’s place of business, closure of a child’s school or place of care by order of a public official for any health-related reason.
• Documentation may be required.  If the PST leave is for 3 or more days, the employer may require the employee to provide documentation to support that the reason for the leave was a proper purpose. The documentation may be a note from a physician or if the leave was for legal reasons, documentation to prove the legal reason existed.

Exemptions: Some employers do not need to provide PST.  Excluded from coverage are:

• Small employers, defined as a business:
  • with gross annual revenues of less than $500,000; and
  • not engaged in interstate commerce or the production of goods for interstate commerce.
• Federal government employees; and
• State of Arizona employees (municipal and county employees are not exempt).

Existing Policies: An employer’s current paid time off policies (“PTO”) may satisfy the requirements of Prop 206 if they allow employees to accrue and use leave on terms that are at least equivalent to the minimum requirements of the act.

Posting and Notice: Employers must post notices of their employees’ right to leave entitlement by July 1, 2017, in English, Spanish and any other language required by the Industrial Commission of Arizona (“ICA”), with model notices to be provided by the ICA. Employers must provide, with the employee’s paycheck, the amount of paid leave used, available, and paid.

Employees must generally provide advance notice: Employees must make a good faith effort to notify employers before taking foreseeable leave and state the expected duration of the leave (if possible). In seeking such leave, employees “shall make a reasonable effort to schedule the use of earned paid sick time in a manner that does not unduly disrupt the operations of the employer.”

For unforeseeable leave, employers may still require notice in any way the company wishes if contained in a written policy disseminated to employees.  If there is no employer policy, requests may be made orally, in writing, electronically, or by other means acceptable to the employer.

Payout on Termination: Not required, but allowed.

Additional Provisions:

• Retaliation is prohibited. An adverse action taken within 90 days of an employee’s protected activity raises a “rebuttable presumption” of unlawful retaliation that can only be rebutted by clear and convincing evidence of permissible reasons for the action.
• Employers cannot impose any policy that results in discipline for use of paid leave.
• Employers may, but are not required to, loan leave to an employee before it is accrued.
• Leave can be used in the smallest increment the employer’s payroll system uses to account for other absences or use of time.
• For leave of 3 or more consecutive days, employers may require reasonable documentation) that leave was used for a permissible purpose.
• Employers must retain records of paid sick leave accrual and usage for 4 years and provide records to employees on reasonable request.
• Failure to maintain records creates a rebuttable presumption that the employer violated the law.

Penalties and Remedies:

• Employees can file an administrative action with the Arizona Industrial Commission or the employee could instead file a civil action in court.
• Damages: For failure to provide or pay for earned sick time, employees may recover:
  • the amount of sick time owed;
  • interest;
  • an additional amount equal to twice the earned sick time;
  • attorneys’ fees and costs of suit for prevailing plaintiffs; and
  • possible remedies, include an injunction to prevent it from happening again.
• For retaliation, employers are liable for an amount set by the ICA or court sufficient to compensate and deter future violations, but at least $150 for each day the violation continued or until final judgment.
• There is a 2-year statute of limitations, unless the conduct is “willful,” in which case 3 years.
•  Penalties for recordkeeping, notice, or posting violations are:
• $250 for first violation;
• at least $1,000 for each subsequent or willful violation; and
• special monitoring and inspection.

Conclusion

Prop 206 represents a significant change in Arizona law. Arizona has a minimum wage that is higher than the federal minimum wage, and most every employer must pay it beginning in January 2017. Also, employers must provide paid-time off that is at least equal to the statutory minimum, starting in July 2017. Employers need to understand all of their new obligations and comply. Otherwise, they face serious consequences. Employees would also do well to understand their new rights.

For more information:

• The entire statute can be found here.
• The Industrial Commission’s website can be reached here.
• Information about the federal minimum wage, which is less demanding than Arizona, can be found here.