Arizona s New Minimum Wage and Paid Sick Leave Law D. Lewis Clark Jr. and Laura Lawless Robertson Partners, Labor and Employment, Phoenix
Arizona s Current Minimum Wage Law Prior to 2006, state minimum wage = federal minimum wage In 2006, Arizona established a higher minimum wage (A.R.S. 23-363) Effective January 1, 2007, Arizona minimum wage set at $6.75/hour. From January 1, 2008 onward, state minimum wage increased annually as cost of living increased. Measured by the percentage increase as of August of the immediately preceding year over the level as of August of the previous year of the consumer price index (all urban consumers, U.S. city average for all items) or its successor index, with the minimum wage increase rounded to the nearest multiple of $.05. As of January 1, 2016, Arizona minimum wage = $8.05/hour. Contrast with federal minimum wage of $7.25/hour. Full-time employee at state minimum wage grosses $16,422/year. 2
Prop. 206 The Minimum Wage and Paid Time Off Initiative Also known as the Fair Wages and Healthy Families Act Introduced by Arizonans for Fair Wages and Healthy Families as an initiated state statute, or initiative statute A law that a state adopts via the ballot initiative process Groups collect signatures and once enough are collected, election officials place the measure on the ballot for a vote Strongly supported by Democratic elected officials Including Rep. Ann Kirkpatrick, Rep. Raul Grijalva, Rep. Ruben Gallego, Phoenix Mayor Greg Stanton, and Phoenix Vice Mayor Kate Gallego Backed by diverse social and civic organizations Including the Arizona Democratic Party, Chicanos Por La Causa, numerous public health and education non-profits, faith-based organizations, minority advocacy organizations, National Employment Law Project, AFL-CIO, American Federation of State, County and Municipal Employees, Arizona Building Trades & Construction Council, Pima Area Labor Federation, United Food and Commercial Workers, UNITE HERE 3
Prop. 206 Ballot Title INCREASES THE MINIMUM WAGE FROM $8.05 PER HOUR IN 2016 TO $12.00 PER HOUR BY 2020 AND ESTABLISHES THE RIGHT TO EARN PAID SICK TIME AWAY FROM EMPLOYMENT. A yes vote shall have the effect of increasing the minimum wage from $8.05 per hour in 2016 to $10.00 per hour in 2017, and then incrementally increasing the minimum wage to $12.00 per hour by the year 2020; entitles employees to earn 1 hour of paid sick time for every 30 hours worked with limits based upon the size of the employer; broadly defining the conditions under which paid sick time may be taken, including mental or physical illness, care of a family member, a public health emergency, or absence due to domestic violence, sexual violence, abuse or stalking; prohibiting various forms of retaliation against employees for exercising any rights under the law; and requiring employers to provide various notices to employees about the law. A no vote shall have the effect of retaining the existing minimum wage (along with the existing method for annually increasing the minimum wage for inflation) and retaining employers existing ability to determine their own earned paid sick leave policy. 4
Prop. 206 Ballot Summary The ballot summary was as follows: The Fair Wages and Healthy Families Initiative increases minimum wage to $10 in 2017 then gradually to $12 by 2020; provides 40 hours annual earned paid sick time for employees of large employers (24 hours for those of small employers); time accrues at one hour earned for every 30 hours worked; time may be used to address circumstances caused by illness of employee or employee s family, public health emergencies, or domestic violence; prohibits retaliating against employees using the benefit; allows for more generous paid time-off policies; and exempts employees who expressly waive the benefit under collective bargaining agreements. 5
Arguments in Favor of Prop. 206 The proposition would decrease poverty in Arizona. No one who works 40 hours a week should have to live in poverty and decide between buying groceries, medicine or paying the bills. Raising the minimum wage offers hardworking families the opportunity to put food on the table, care for their children, and creates a better future for our state. (U.S. Rep. Ann Kirkpatrick) The proposition would increase opportunities to working-class families. We feel that this wage increase is that happy medium that protects small business and helps workers who can t pay their rent at the end of the month even though they work full time. (Tomas Robles, campaign mgr. for Arizonans for Fair Wages and Healthy Families) The proposition would increase consumer purchasing-power and help small businesses. Consider the increase in purchasing power for our working families after a wage increase. Businesses, small and large, stand to gain from customers with higher wages as those customers spend more on goods and services. (Former State Rep. Phil Lopez) 6
Opponents of Prop. 206 The Arizona Chamber of Commerce and Industry launched a campaign against Prop. 206 called Protect Arizona Jobs, or Vote No on Prop 206. Arizona Chamber of Commerce pledged to raise over $1 million to oppose the initiative. Campaign donations showed the Chamber donated $30,036.78 as of Nov. 17. Contrast with total raised in support of the Proposition: $4,236,846.23. Opponents included U.S. Sen. John McCain, the Greater Phoenix Chamber of Commerce, Arizona Farm Bureau, Western Growers, conservative policy institutes, restaurant associations, and local chambers of commerce. 7
Arguments Against Prop. 206 The proposition would decrease employment and increase prices for consumers. To maintain profitability, businesses forced to raise their wages beyond market rates must make adjustments elsewhere. These cuts typically lead to reduced hiring, fewer work hours for employees, diminished fringe benefits for employees, and higher prices for consumers. (Matthew Glans, Sr. Policy Analyst, The Heartland Institute) The proposition would encourage restaurants to implement more automation, putting people out of work. Twice I ve talked to groups of franchisees here in Arizona, Taco Bell and McDonalds, those places that give you the first rung on the ladder. They said, Fine. The next time you drive up to a window, you won t be talking to a person. The next time you they hand you a hamburger and French fries, it will come out a slot.' They have a certain profit margin. They cannot raise their cost of their product or people will stop purchasing it. So what are they going to do? They re going to automate. So somebody is going to have to convince me that it s good for employment in America, and I don t think it is. (U.S. Sen. John McCain) The proposition takes a one-size-fits-all approach when urban and rural areas have different costs of living. [T]his measure has the potential to eliminate more jobs than it would create. It does nothing to address local governments adopting a higher minimum wage above what this measure calls for, furthering the dangerous potential for a patchwork of wage and benefit policies across the state. (Mike Huckins, VP, Greater Phoenix Chamber of Commerce) 8
Voter Response Initiative proponents needed 150,642 signatures by July 7, 2016 to land the measure on the ballot. On July 7, 2016, Arizona Healthy Working Families submitted 275,000 signatures to the Arizona Secretary of State s office. Sponsors of the measure hired Sign Here Petitions to collect signatures for the petition to qualify for the ballot. A total of $900,981.80 (or $5.98 per signature) was spent to collect the signatures required to be on the ballot. In months leading up to November 2016 election, 61% of those surveyed supported Prop. 206. (Arizona Republic, Morrison, and Cronkite News 8/17/2016-8/31/2016) Highest support among registered Democrats, voters aged 18-35, and people with a high school diploma or less. 9
Voter Response Arizona Secretary of State http://results.arizona.vote/2016/general/n1591/results-state.html 10
Effect of New Law on Minimum Wage Employers shall pay employees no less than the minimum wage, which shall be not less than: 1. $10.00 on and after January 1, 2017 2. $10.50 on and after January 1, 2018 3. $11.00 on and after January 1, 2019 4. $12.00 on and after January 1, 2020 5. Increases on January 1, 2021 and on January 1 of successive years by the increase in the cost of living. Year Hourly Minimum Prior to New Law (anticipated) Hourly Minimum After New Law 2017 $8.15 $10.00 2018 $8.35 $10.50 2019 $8.55 $11.00 2020 $8.80 $12.00 2021 and after Increase based on COLA Increase based on COLA 11
Effect of New Law on Minimum Wage Tipped Employees: No change in tip credit! For any employee who customarily and regularly receives tips or gratuities from patrons or others, the employer may pay a wage up to $3.00 per hour less than the minimum wage if the employer can establish by its records of charged tips or by the employee s declaration for federal insurance contributions act (FICA) purposes that for each week, when adding tips received to wages paid, the employee received not less than the minimum wage for all hours worked. Compliance with this provision will be determined by averaging tips received by the employee over the course of the employer s payroll period or any other period selected by the employer that complies with regulations adopted by the [Industrial C]ommission. 12
Paid Sick Leave Requirement Prior to Prop. 206, Arizona had no law requiring that employers provide any amount of paid sick leave to employees. Same under federal law. Effective July 1, 2017, employers must provide employees earned paid sick time. Which companies are covered? Any corporation, proprietorship, partnership, joint venture, limited liability company, trust, association, political subdivision of the state, individual or other entity acting directly or indirectly in the interest of an employer in relation to an employee, but not the State of Arizona or the U.S. Arizona minimum wage law exempts small businesses, i.e., those that have less than $500,000 in gross annual revenue and that are exempt from having to pay a minimum wage under federal law. Small businesses are not excepted from the paid sick leave requirement. Who is a covered employee? Any person who is or was employed by an employer, but does not include any person who is employed by a parent or sibling, or who is employed performing babysitting services in the employer s house on a casual basis. Applies to exempt and non-exempt employees 13
Paid Sick Leave Requirement Employees of an employer with 15 or more employees shall accrue a minimum of one hour of earned paid sick time for every 30 hours worked, but shall not be entitled to accrue or use more than 40 hours of earned paid sick time per year, unless the employer selects a higher limit. Employees of an employer with fewer than 15 employees shall accrue a minimum of one hour of earned paid sick time for every 30 hours worked, but shall not be entitled to accrue or use more than 24 hours of earned paid sick time per year, unless the employer selects a higher limit. Exempt employees are presumed to work 40 hours for accrual purposes, unless the regular work week is less than 40 hours, in which case time accrues based on the normal work week. When determining how many employees a business has, all full-time, part-time, and temporary employees shall be counted. If numbers of employees fluctuate, an employer will be deemed to have 15 or more employees if it employed 15 employees or more for some portion of a day in each of 20 different calendar weeks, whether or not consecutive, in either the current or preceding year. Time off may be used as it accrues, but employer can restrict use by new hires in first 90 days of employment. 14
Paid Sick Leave Requirement 15 or more employees 14 or fewer employees Accrual Cap Use One hour of earned paid sick time for every 30 hours worked, beginning on July 1, 2017 or first day of work, whichever is later OR Employer may provide all earned paid sick time an employee is expected to accrue in a year at the beginning of the year. 40 hours total, unless employer selects higher limit 40 hours total, unless employer selects higher limit; time off can be used at it accrues. Employer may restrict use during first 90 calendar days of employment. One hour of earned paid sick time for every 30 hours worked, beginning on July 1, 2017 or first day of work, whichever is later OR Employer may provide all earned paid sick time an employee is expected to accrue in a year at the beginning of the year. 24 hours total, unless employer selects higher limit 24 hours total, unless employer selects higher limit; time off can be used as it accrues. Employer may restrict use during first 90 calendar days of employment. 15
Paid Sick Leave Requirement Unused, earned paid sick time shall be carried over to the following year, subject to the 24- or 40-hour limitations on usage. Alternatively, an employer may pay an employee for unused earned paid sick time at the end of the calendar year and provide the employee with an amount of earned paid sick time that meets or exceeds the requirements of the law that is available for the employee s immediate use at the beginning of the subsequent year. Example: Employer with more than 15 employees provides statutory minimum of earned paid sick time, i.e., employees can accrue up to 40 hours per calendar year. Employee uses 20 hours in 2017. 2017 2018 Rollover option Employee has accrued 40 hours, uses 20 hours in 2017, has a balance of 20 hours at year-end, which is rolled over to 2018. Cash-out option Employee has accrued 40 hours, uses 20 hours in 2017, has a balance of 20 hours. At year-end, employer pays employee for unused paid time off at regular hourly rate of pay x 20. Employee begins the year with 20 rolledover hours, begins to accrue additional time off on Jan. 1 at a rate of 1 hour per 30 hours worked until 40-hour cap reached. Employee begins the year with 40 hours of paid sick leave on Jan. 1. Accrual? 16
Paid Sick Leave Requirement If employee is transferred to a separate division, entity, or location but remains employed by the same employer, employee retains all accrued earned paid sick time and is entitled to use it without interruption. If there is a separation from employment and the employee is rehired within 9 months, previously accrued but unused paid sick time shall be reinstated, with accrual of additional paid sick leave beginning immediately at the recommencement of employment. If a different employer succeeds an existing employer, all employees of the original employer who remain employed are entitled to all earned paid sick time accrued under the original employer, and are entitled to use earned paid sick time previously accrued. Employers may, in their direction, lend earned paid sick time in advance of accrual, but they are not required to do so. No obligation to pay employees for unused, accrued, earned paid sick time upon termination, resignation, retirement, or separation from employment. 17
Use of Paid Sick Leave Four Circumstances An employee s mental or physical illness, injury or health condition; an employee s need for medical diagnosis, care, or treatment of a mental or physical illness, injury or health condition; an employee s need for preventive medical care. Examples Doctor s visits (routine or illness) Colds/flus/viruses/headaches Broken bones/sprains Vaccinations Physical therapy Counseling No limitation to serious health conditions, as defined under FMLA, or to disabilities, as defined under ADA 18
Use of Paid Sick Leave Four Circumstances Care of a family member with a mental or physical illness, injury or health condition; care of a family member who needs medical diagnosis, care, or treatment of a mental or physical illness, injury or health condition; care of a family member who needs preventive medical care. Family member defined Regardless of age, a biological, adopted or foster child, stepchild, or legal ward Regardless of age, a child of a domestic partner Regardless of age, a child to whom the employee stands in loco parentis, or as to whom the employee stood in loco parentis when the individual was a minor A biological, foster, stepparent or adoptive parent or legal guardian of an employee or an employee s spouse or domestic partner A person who stood in loco parentis when the employee or employee s spouse or domestic partner was a minor child A person to whom the employee is legally married under the laws of any state, or a domestic partner of an employee registered under the laws of any state or political subdivision A grandparent, grandchild or sibling (whether of a biological, foster, adoptive, or step relation) of the employee or the employee s spouse or domestic partner; Any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship. 19
Use of Paid Sick Leave Four Circumstances Closure of the employee s place of business by order of a public official 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 by order of a public official due to a public health emergency, or care for oneself or a family member when it has been determined by the health authorities having jurisdiction or by a health care provider that the employee s or family member s presence in the community may jeopardize the health of others because of his or her exposure to a communicable disease, whether or not the employee or family member has actually contracted the communicable disease. Same broad definition of family member applies to this circumstance as in preceding slide. 20
Use of Paid Sick Leave Four Circumstances Absence necessary due to domestic violence, sexual violence, abuse, or stalking, provided the leave is to allow the employee to obtain for the employee or the employee s family member: (a) medical attention needed to recover from physical or psychological injury or disability caused by domestic violence, sexual violence, abuse or stalking; (b) services from a domestic violence or sexual violence program or victim services organization; (c) psychological or other counseling; (d) relocation or taking steps to secure an existing home due to the domestic violence, sexual violence, abuse or stalking; or (e) legal services, including, without limitation preparing for or participating in any civil or criminal legal proceeding related to or resulting from the domestic violence, sexual violence, abuse or stalking. Statute incorporates by reference the definitions of abuse, domestic violence, sexual violence, and stalking in the Arizona criminal code. Same broad definition of family member applies 21
Use of Paid Sick Leave Employees may request use of earned paid sick time orally, in writing, by electronic means, or any other acceptable means. When possible, the request should include the expected duration of the absence. If the use of earned paid sick time is foreseeable, employees should make a good faith effort to provide notice of the need for such time to the employer in advance of the use of the earned paid sick time and 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. An employer that requires notice of the need to use earned paid sick time where the need is not foreseeable shall provide a written policy that contains procedures for the employee to provide notice. If an employer has not provided the employee a copy of its written policy for providing notice, it cannot deny the use of earned paid sick time based on non-compliance with the policy. 22
Use of Paid Sick Leave An employer may not condition use of earned paid sick time on the employee finding a replacement worker to cover the hours when the employee will be absence. Earned paid sick time may be used in the smaller of hourly increments or the smallest increment that the employer s payroll system uses to account for absences or use of other time. For earned paid sick time of three or more consecutive days, an employer may require reasonable documentation that the earned paid sick time was used for a covered purpose. Documentation of victim status must be kept confidential. Employer may not require an explanation of the details of the covered crime. Examples: Doctor s note that paid sick time was necessary; Police report regarding covered crimes; Protective order; Injunction against harassment; Court order to appear in connection with civil/criminal proceedings; Signed statement from a victim services organization, provider, or witness advocate affirming employee is receiving services; Signed statement from an attorney, clergy member, medical or other professional that employee is a covered crime victim; Employee s own written statement that he/she or a family member is a covered crime victim. 23
Retaliation Prohibited It shall be unlawful for an employer or any other person to interfere with, restrains, or deny the exercise of, or the attempt to exercise, any right protected by the law. An employer shall not engage in retaliation or discriminate against an employee or former employee because he/she exercised rights protected under the law. It is unlawful for an employer s absence control policy to count earned paid sick time used as allowed by the law as an absence that may lead to or result in discipline, discharge, demotion, suspension, or any other adverse action. Taking adverse action against a person within 90 days of engaging in a protected right under the law raises a presumption that the action was retaliation, which may be rebutted by clear and convincing evidence that the action was taken for permissible reasons. 24
Notice Requirements Employers shall give employees written notice of the following at the commencement of employment or by July 1, 2017, whichever is later: Employees are entitled to earned paid sick time and the amount of earned paid sick time, the terms of its use guaranteed under the law, that retaliation against employees who request or use earned paid sick time is prohibited, that each employee has the right to file a complaint if earned paid sick time as required by the law is denied by the employer or the employee is subjected to retaliation for requesting or taking earned paid sick time, and the contact information for the Industrial Commission where questions about rights and responsibilities under the law can be answered. The notice must be in English, Spanish, and any other language deemed appropriate for the employer by the Industrial Commission. Employees must inform employees of the amount of earned paid sick time available to the employee, the amount of earned paid sick time taken by the employee to date in the year, and the amount of pay the employee received as earned paid sick time, either in or on an attachment to the employee s regular paycheck. These records must be maintained for four years. Failure to do so will raise a rebuttable presumption that the employer did not pay the minimum wage or earned paid sick time. 25
Violations/Legal Remedies The Industrial Commission is authorized to enforce the law. Violations of the notice, posting, or recordkeeping requirements of the law may result in a civil penalty of at least $250 (first violation) and at least $1,000 for each subsequent or willful violation, with or without special monitoring and inspections. Any person may file an administrative complaint with the Commission charging that an employer has violated the law with respect to any employee or other person. The Commission will only disclose an impacted employee s name with the employee s consent. 26
Violations/Legal Remedies A civil action to enforce the law may be brought in court by a law enforcement officer or any injured private party within two years of the last violation, or within three years in the case of a willful violation, which time is tolled during an investigation by the Industrial Commission. Employers who fail to adhere to the law shall be required to pay the employee the balance of wages or earned paid sick time owed, including interest, and an additional amount equal to twice the underpaid wages or earned paid sick time. Any employer who retaliates against an employee or other person in violation of the law shall be required to pay an amount sufficient to compensate the employee and deter future violations, but not less than $150 for each day the violation continued or until legal judgment is final. A prevailing plaintiff shall be entitled to reasonable attorneys fees and costs of suit. 27
Legal Challenge to Prop. 206 December 15, 2016: Arizona Chamber of Commerce and Industry, Greater Phoenix Chamber of Commerce, Tucson Hispanic Chamber of Commerce, Greater Flagstaff Chamber of Commerce, the Arizona Licensed Beverage Association, and owners and employees of restaurant Valle Luna file a lawsuit to overturn Prop. 206. Not a single-subject initiative Fails to account for state costs from the general fund 28
Legal Challenge to Prop. 206 Judge Daniel Kiley (Maricopa County Superior Court) denied Plaintiffs request for a temporary restraining order enjoining the law from going into effect on Jan. 1, 2017. Judge Kiley held a hearing on December 20, 2016 to hear arguments on whether a preliminary injunction should issue, enjoining the law from going into effect. On December 21, 2016, Judge Kiley denied the motion for preliminary injunction, finding that the groups raise legitimate legal questions, but that those questions do not outweigh the burden employees would face if minimum wage increase is delayed: The court must consider the hardship that will be visited upon employees at the bottom of the income scale by a delay in the implementation of the Act many of whom struggle on a daily basis to make ends meet. 29
Legal Challenge to Prop. 206 Plaintiffs appealed the denial of the motion for preliminary injunction. On December 28, 2016, the Arizona Supreme Court (now expanded to 7 members, including two recent Gov. Ducey appointees) agreed to take up the case. Gov. Ducey publicly opposed the measure. 30
Legal Challenge to Prop. 206 On December 29, 2016, the Arizona Supreme Court issued a one-sentence order denying a request to stay implementation of Prop. 206. Justice Clint Bolick wrote the statement; the two recent Ducey appointees did not participate in the decision. Although the request to stay the law was denied, the Court will decide whether to take up the underlying issue of the measure s constitutionality in due course. Arizona Chamber of Commerce & Industry called the ruling a setback. Final ruling not anticipated for several months. 31
Recommendations for Employers Make adjustments to minimum wage for Arizona employees! $10.00 minimum wage, retroactively effective to January 1, 2017. Ensure payment is accurate in next payroll run. Consider whether to repeal wage increases if Arizona Court of Appeals or Arizona Supreme Court ultimately find the law unconstitutional. Difficult to take back pay adjustments Morale Review 2017 budgets to ensure availability of funds to pay employees at least $10/hour, and account for adjustments at higher end of pay scale for employees earning above the minimum wage. Ensure that tip credit rules are being adhered to and difference is paid accordingly, if applicable. 32
Recommendations for Employers Delay implementation of sick leave changes in light of July 1 effective date Consider and prepare for any modifications to existing sick leave policies that may be necessary, including whether to implement rollover or cash-out options, weighing costs/benefits while there is time. Ensure that payroll department or third-party payroll provider is equipped to provide the required notices on paystubs, if law is implemented. Plan for manager/hr training regarding the reasons for which employees can take paid sick leave, how to request use of paid sick leave, and confidentiality obligations regarding information obtained in the process of vetting requests for leave. Develop (but do not yet roll out) a written policy regarding the use of paid sick leave, incorporating non-retaliation provisions, and consider the most effective method for disseminating the policy. 33
Questions? Lew Clark 602.528.4065 lew.clark@squirepb.com Laura Lawless Robertson 602.528.4137 laura.robertson@squirepb.com 34