Employer Takeaways From New Ariz. Paid Sick Leave Law

Law360
January 31, 2017

Law360, New York (January 31, 2017, 11:47 AM EST) -- Arizona will soon require private employers to provide employees paid sick leave under the Fair Wages and Healthy Families Act (commonly referred to as Proposition or “Prop” 206), which voters approved by a wide margin in the November 2016 elections.  Prop 206 imposes two significant requirements on Arizona’s private employers.  First, the law requires employers to increase the hourly minimum wage from $8.05 to $10.00 on Jan. 1, 2017, and provides for annual increases until the minimum wage rate reaches $12.00 in 2020.  Second, Prop 206 mandates paid sick leave (PSL) for all employees beginning on July 1, 2017.

The law imposes onerous penalties for noncompliance, so employers should move quickly to prepare for the rapidly approaching implementation deadline.  Notably, several business groups sued to stop Prop 206, but the trial court denied that request.  The business groups appealed, and the Arizona Supreme Court will review the case, but it did not stop implementation of the law.

Prop 206 Basics

Under Prop 206, an employer must provide PSL to all full-time, part-time and temporary employees beginning on July 1, 2017.  The law requires employers to (1) provide employees a minimum of one hour paid sick leave per 30 hours worked, and (2) allow employees to accrue up to at least: (a) 40 hours of PSL per year for employers with 15 or more employees, or (b) 24 hours of PSL per year for employers with fewer than 15 employees.  An employer may define the regular and consecutive 12-month “year” for purposes of accrual tracking; e.g., calendar, fiscal or rolling; presumably with prorated accrual thresholds for employees who begin work during a calendar or fiscal year-selected cycle.  Exempt employees accrue leave based on an assumed 40-hour work week unless they normally work a shorter work week, in which case, they accrue PSL based on their normal work week.

An employer must allow employees to use PSL as they accrue it except that an employer may require that employees hired after July 1, 2017, wait 90 days before using accrued PSL.  An employer may also allow employees to use “expected” PSL in advance of actual accrual if desired.  In general, unused accrued PSL carries over from one year to the next.  However, an employer can pay out accrued PSL at the end of the year, but it must then provide the employee accrued PSL at the beginning of the following year sufficient to meet the Prop 206 requirements; presumably, that means the employer must provide an immediately available number of PSL hours equal to the expected PSL hours for the coming year.  An employer need not pay accrued PSL to a departing employee (e.g., termination, resignation, retirement, etc.).

Prop 206 requires an employer to pay PSL at the same hourly rate, with the same benefits, including health care benefits, as the employee normally earns during working hours.  However, Prop 206 does not define the term “same hourly rate” for employees whose rate varies from week to week due to tips, bonuses or commissions.  Early feedback from the enforcement agency, the Arizona Industrial Commission, suggests that an employer could pay PSL at whatever base hourly rate the employer pays, exclusive of all other compensation, as long as the amount equals or exceeds minimum wage.  That early feedback may not withstand judicial scrutiny as it appears inconsistent with analogous Fair Labor Standards Act calculations.  Employers should consult with legal counsel before deciding how to pay PSL to employees with varying wages.

Interesting Highlights

An employee may use PSL for a wide variety of purposes beyond traditional sick leave, such as the employee’s or family member’s mental or physical illness, issues related to domestic violence involving the employee or a family member, or a public health emergency.  Employers may not ask employees to disclose detailed reasons for taking PSL as a condition for approving the request.  However, an employer can request “reasonable documentation” for PSL of three or more consecutive work days.  Under Prop 206, an employee can use PSL based on an oral, written, electronic or other employer-specified method of request.  Note carefully the use of the disjunctive.  Presumably, any notice will suffice, not just an employer-specified method.

If an employee requests sick time for foreseeable needs (such as a dentist appointment), the employee shall “make a good faith effort to provide notice to the employer” in advance and make a “reasonable effort” to schedule the time off “in a manner that does not unduly disrupt the operations of the employer” and, if possible, provide the expected duration of the absence.  Employers should update their policies to reflect those requirements.

In contrast, an employer can only require notice from an employee for the employee’s unforeseeable PSL needs if the employer prepares and provides to the employee a written policy that outlines the notice procedure.

An employer cannot “contract around” Prop 206, which expressly states that “no verbal or written agreement or employment contract may waive any rights under [Prop 206].”  An employer can give more PSL than required by Prop 206, but not less.

An employer must also post a notice of employee PSL (and minimum wage) rights beginning July 1, 2017 and keep relevant payroll records for four years.  Failure to do so creates a rebuttable presumption that the employer did not comply with Prop 206 in the event of a challenge.  An employer must record PSL balances on employee paychecks or on an attachment, and an employee or his/her designee may inspect the employees’ own wage/PSL records.

An employer cannot retaliate against an employee for using PSL and cannot count PSL absences against the employee.  Nor can an employer require an employee to find a replacement as a condition for receiving PSL.  If an employer takes any adverse action against an employee within 90 days of the employee using PSL, Prop 206 creates a rebuttable presumption that the employer retaliated against the employee in violation of Prop 206.  Rebutting the presumption requires "clear and convincing evidence."  Prop 206 creates civil penalties as well as treble damages and attorneys’ fees and, significantly, a private right of action or optional administrative agency litigation, which avoids the need to find a lawyer.

The Arizona Industrial Commission recently posted answers to “Frequently Asked Questions” on its website.  The commission’s website also provides a model poster that employers must display at worksites by July 1, 2017.  Employers should take careful note that the commission may view PSL questions quite differently than the courts, and Prop 206 allows for a private right of action in court.

Implementation Recommendations

Prop 206 mandates a first-ever paid sick leave requirement in Arizona.  Consequently, Arizona employers should devote adequate resources and sufficient time to auditing existing policies for potential conflicts, drafting a new PSL policy, and training both employees and managers.  In particular, employers should analyze and update existing “call-in” policies, no-fault attendance rules and “no call, no show” procedures to harmonize those work rules with the Prop 206 requirements.  Employers must also incorporate the Prop 206 record-keeping and notice requirements into the payroll department policies and procedures.

Of course, employers must also plan for additional staffing or staffing solutions to ensure uninterrupted operations during PSL absences.  Given the expanded reasons for which employees may take PSL, Arizona employers should expect higher absence rates, which will require in-depth training for managers on both how to run the business notwithstanding the absences and how not to run afoul of the many nuances of when and how employees can use PSL.

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Steve D. Wheeless is a partner in Steptoe & Johnson LLP’s Phoenix office.  He has served as lead trial counsel in connection with more than 2000 employer and union-initiated unfair labor practice allegations, labor-related civil suits and arbitration matters nationwide.  Wheeless is the management chairman of the ABA’s Developing Labor Law committee.

Sophia Alonso is an associate in the Steptoe's Phoenix office.  She has first-chair litigation experience in both US district court and National Labor Relations Board proceedings.  Alonso was a field attorney for the NLRB in the regional offices overseeing New York City, Arizona, Nevada and Western Texas.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates.  This article is for general information purposes and is not intended to be and should not be taken as legal advice.