Proposition 206 and what it means for Your Company

grinch-1898511_1920By Jessie Johnson

 “You’re a mean one, Mr. Grinch. You really are a heel. You’re as cuddly as a cactus, you’re as charming as an eel, Mr. Grinch. You’re a bad banana with a greasy black peel!”

The classic lyrics from The Grinch Who Stole Christmas may be stuck in the heads of Arizona employers when they think about the possible effects of Prop 206. I’m guessing (and this is just a guess) that many employers felt like they got a giant lump of coal in their stocking this year.

Back in November, Proposition 206, a measure that would increase the state’s minimum wage and require paid sick time for all employees, passed with a margin of 58%. Leading up to the vote, the proposition was touted with much fanfare about minimum wage components, but very little information about the paid sick leave component.

On December 15th, the Arizona Chamber Commerce and Industry, the Greater Phoenix Chamber of Commerce, the Tucson Hispanic Chamber of Commerce and the owners and two employees of the Valle Luna restaurant chain filed a lawsuit to try to block the new regulations from taking place. The lawsuit states that Prop 206 violates state law by not providing a funding source for the state’s increased costs, and that it ignores the “single-subject” rule by including two separate issues in a single ballot measure.

On Wednesday, December 21st, the court rejected the challenge to the Proposition. In its ruling, the court said that a delay to the pay raise “would impose a significant hardship on low-wage workers that could not be fully remedied by the payment of back wages at some point in the future if the preliminary injunction were later vacated.”

So it looks like Prop 206 will definitely go into effect on January 1st.

Joseph Kroeger from the Law Offices Snell & Wilmer visited the Lovitt & Touché Learning Academy in December for a series of seminars regarding Proposition 206, and how it will affect businesses in Arizona.

Proposition 206, aka the Fair Wages and Healthy Families Act (the “Act”) contains two main components:

  1. Raises the minimum wage
  2. All private sector employees in Arizona have a right to paid sick leave


Minimum Wage

Under the Act, Arizona’s minimum wage (currently $8.05 per hour) will increase annually, as per the schedule below:

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

In addition, starting on January 1st, 2021, the minimum wage will increase annually based on the cost of living, as measured by the consumer price index. When it comes to employees who earn tips in addition to their wages, the Act states that they can continue to earn $3.00 per hour less than the minimum wage if their employer can prove the employee is earning at or more than the minimum wage when tips are included.

Kroeger emphasized that there is another less publicized, but very important component that many employers may not know about – The Act imposes new notice and record keeping requirements:

  • Employers must post a notice of employees’ rights under the Act and must keep payroll records for at least four years.
  • The Industrial Commission of Arizona has issued a model notice poster compliant with the Act for employers to use. The Commission also posted a helpful guide for frequently asked questions.

An interesting fact is that local ordinances can (and do) provide an even higher minimum wage. For example in Flagstaff, voters approved Proposition 414, which raises the minimum wage to $12.00 per hour starting in July, 2017, and will increase to $15.00 by 2021. This means that in January of 2017, Flagstaff employees will have a minimum wage of $10.00 per hour (per Proposition 206) and will have another increase to $12.00 per hour beginning in January.

That’s all pretty straightforward, so let’s get to the more complicated piece of the Act – the paid sick leave component.


Paid Sick Leave under Prop 206

Starting on July 1st, 2017, Arizona employers must provide paid sick leave (PSL).

  • Employers with fewer than 15 employees must provide at least one hour of PSL for every 30 hours worked, up to 24 hours a year.
  • Employers with 15 or more employees must provide at least one hour of PSL for every 30 hours worked, up to 40 hours a year.
  • Exempt employees are assumed to work 40 hours per week for purposes of PSL (unless their normal work week is less than 40 hours).
  • Part-time and temporary workers are considered “employees” under Prop 2016 and are entitled to accrue PSL as well.

What about new employees? The Act specifically says that an employer may require an employee hired after July 1st, 2017 to wait until the 90th calendar day after employment begins before using accrued paid sick leave (note – they start accruing on day 1, but cannot use it for 90 days).

The Act is very broad as to the reasons why an employee may use PSL. It says they may use it for:

  • The employee’s own physical or mental illness
  • To care for the employee’s family member who has a physical or mental illness
  • A public health emergency
  • To ameliorate the effects of domestic violence, sexual violence or stalking of the employee or employee’s family member; and
  • Other circumstances

Also, employers must itemize their paycheck stubs with the following information:

  • The amount of paid sick leave available to the employee;
  • The amount of sick leave taken by the employee in the year to date; and
  • The amount of pay the employee has received as paid sick time (if any).

Employees may carry over earned sick leave to the next year, depending on the employer’s limits on how the employees use it and how they accrue it. Employers can avoid the rollover, but only if they pay out the earned sick leave at the end of the year AND grant the full allotment of sick leave for the following year, all at once.

You may be wondering if you can request proof of sickness if your employee calls out sick.  The answer is “yes”, you may request various types of documentation from the employee. For example, after 3 consecutive days of PSL use, you may ask for a doctor’s note, a signed statement from the employee or in the case of domestic abuse, you may ask for a copy of the protective order. However, you may not require that the employee disclose any details about the health condition or the details of the domestic or sexual violence, abuse or stalking.

There are also additional rules for the increments of time employees may use for PSL. An employer must permit their employees to use PSL in the smaller of (1) hourly increments; or (2) the smallest increment that their payroll system uses to account for absences or other time.

As Kroeger said, “welcome to the world of 5-minute paid sick time!” Technically, an employee could say he was 5 minutes late because he was looking for his inhaler, which could be construed as paid sick time, since it relates to a medical condition. Yikes.

Hopefully you already assumed this, but the Act does say that employers cannot retaliate against employees for use of the PSL, and they cannot count the use of PSL as an absence that leads to discipline or termination.

Speaking of termination, there is one piece of good news for employers… you do not need to pay out the employees’ remaining PSL upon termination of employment. However, if the same employee is rehired within nine months of termination, the accrued, unused PSL needs to be reinstated and the employee can use it immediately upon hire.

Also note that employers are now required to keep payroll records showing compliance with the Act for 4 years (it was previously only 3 years).

You may be wondering if your generous Paid Time Off (PTO) policy will cover the requirement for PSL. The answer to this is a little muddy. It may be acceptable, if the paid leave policy provides the same or greater amount of leave as the Act, and it is available for the employee to use under the same circumstances as described in the Act.

However, what happens if your employee uses up all their accrued PTO, but then gets sick? They are still entitled to the PSL time as outlined by the Act. This is why many employers have chosen to create a separate PSL bank and will administer it separate from their PTO bank.


Damages and Penalties for Violations

If you do not follow the parameters set by the Act, you may be responsible for civil penalties and damages, including attorneys’ fees. This could get very expensive, very fast, especially if employees join together in a class action lawsuit.

There are many questions about this Act, and only time will tell how it will all play out in 2017 for employers and employees. No matter what, employers will need to update their handbooks and policies to reflect the changes due to the Act, and make sure to post the required notices in a conspicuous place at the workplace.


Many thanks go out to Joseph Kroeger from Snell & Wilmer for taking the time to speak to us about Prop 206. If you have any questions about the new regulations, please contact your Lovitt & Touché representative.