United States: Arizona's Paid Sick Leave Law, Part III: Record-Keeping, Shifting Employment Relationships, And Tips For Drafting Policies

Arizona's new paid sick leave law—Proposition 206 or The Fair Wages and Healthy Families Act—will go into effect on July 1, 2017. Since the law passed, the Industrial Commission of Arizona (ICA) has crafted proposed regulations and a number of frequently asked questions (FAQs). This three-part blog series examines the intricacies of the ICA's current proposed regulations and FAQs. The first article in the series, " Arizona's Paid Sick Leave Law, Part I: Accrual and Usage Issues," covered issues involving paid sick time accrual and usage. Part two, " Arizona's Paid Sick Leave Law, Part II: The "Same Hourly Rate," Attendance, and Coverage Questions" examined the law's "same hourly rate" requirement, attendance policies and rewards programs under the Act, and the Act's coverage.

Part three covers the Act's notice requirements, record-keeping issues the Act presents, and obligations under the Act for shifting relationships such as successors and the transition from temporary to permanent employee. In addition, the final installment in this series provides tips for employers in drafting their compliant sick leave policies.

Notice and Record-Keeping Issues

ICA's Form Notices to Be Posted in English and Spanish

While employers may use their own notices that contain mandatory provisions called for in the Act, the ICA has created its own compliant notices in both English and , which employers may post "as is" and fulfill their notice-posting requirements.

Can Employers Dictate How Employees Provide Notice of Taking Paid Sick Time?

The Act requires employees to make a "good faith effort" to provide their employers notice of "foreseeable" leave, and even allows employers to create and publish (in advance) policies for giving notice of leave (both foreseeable and not foreseeable). Employers should be cautious not to impose unreasonable temporal requirements on notice required for PST, especially on unforeseen PST usage. 

However, the ICA has announced that employers generally cannot restrict how an employee provides notice of an upcoming leave covered under the Act. In a recently published FAQ, the ICA reiterates the language of the Act in which it "permits an employee to use any available option (orally, in writing, by electronic means, or by any other means acceptable to the employer) when requesting earned paid sick time. An employer is not permitted to interfere with an employee's right to use any of the available options." (Emphasis added). 

Exactly what constitutes "interference" likely will be the subject of further administrative interpretation or litigation. For example, employers should be well within their rights to implement rules that require employees to give reasonable notice in advance of a foreseeable PST leave. However, with unforeseeable leaves the ICA would not look favorably on any requirement that the employee must provide advance notice before taking such leave, or suffer possible adverse consequences. According to informal communications with the ICA, at most, an employer may publish reasonable requirements for how to give notice but should not punish employees if they fail to give advance notice of an unforeseeable leave. 

Furthermore, as reflected in the above-described FAQ, entirely prohibiting certain types of notice, such as "oral" notice, would be deemed improper. On the other hand, requiring an employee to notify his or her supervisor (as opposed to some other member of management or a co-worker) likely would be reasonable and not improper interference. Moreover, the Act and FAQs state: "When possible, the request to use earned paid sick time must include the expected duration of the absence." For now, employers should endeavor to have a written notice policy in place as of July 1, 2017. The policy should identify the title(s) or name(s) of whom the employee must notify of the need for PST, as well as providing a phone number and email address of the person(s) to whom notice must be given. 

The issue of appropriate notice likely will remain a bastion of uncertainty for employers and potential abuse by employees. Unfortunately, that uncertainty coupled with the legal risk of taking adverse action against employees for failure to follow notice procedures is a formula for legal risk. The Act's presumptive retaliation provision, with its potential monetary damages, penalties and attorneys' fees foreshadows a litigation roadmap of such claims.

Tracking Leave and Record-Keeping

While the ICA has yet to define the contours of a legally compliant "combined" PST/PTO policy (and may never do so), it has informally indicated that it favors such polices, provided they extend the same or better benefits and requirements as the Act. However, one key remaining unanswered question is whether an employer may use a combined PST/PTO policy without separately tracking PST hours and pay on the employee's pay stub. We have proposed the following FAQ to the ICA, which would eliminate the need for employers with fully compliant PTO policies but that do not wish to take on the additional burden of separately tracking PTO time when taken for sick leave purposes:

May an employer with a paid leave policy that meets or exceeds the Fair Wages and Healthy Families Act's requirements fulfill its record-keeping and paycheck recording duties by providing the employer's corresponding paid leave information in lieu of paid sick time data?

Yes. The Act requires employers to record on the employee's regular paycheck (i) the amount of earned paid sick time available to the employee, (ii) the amount of earned paid sick time taken by the employee to date in the year, and (iii) the amount of pay the employee has received as earned paid sick time. However, employers with paid leave policies that meet or exceed the Fair Wages and Healthy Families Act's requirements may fulfill their record-keeping obligations by recording equivalent or more favorable earned and used paid time off (PTO) benefits on their employees' paystubs and payroll records. For example, an employer with a PTO policy that is more generous than the benefits required under the Act, may fulfill its paycheck recording obligations by including the following information on each affected employee's paper or electronic paycheck paystub: (i) the amount of earned PTO available to the employee, (ii) the amount of earned PTO taken by the employee to date in the year, and (iii) the amount of pay the employee has received as earned PTO. Similarly, such employers can fulfill their payroll record-keeping obligations under R20-5-1210.B.13 and 14, by maintaining and preserving records of each affected employee's earned PTO accrued and used each pay period and current earned PTO balance.

Shifting Employment Relationships

Successor Employers

When a different employer succeeds or takes the place of an existing employer, under A.R.S. § 23-372 (D)(6), employees of the original employer who remain employed by the successor are entitled to all earned paid sick time they accrued when employed by the original employer, and are entitled to use the earned paid sick time they previously accrued. According to the FAQs, the ICA will follow existing Arizona case law concerning liability assumption in asset-only transactions. 

Exactly what constitutes a "successor" employer under Arizona common law extends beyond the scope of this article. However, for businesses contemplating purchasing the assets of another business and hiring at least some of the predecessor's employees, those buyers should keep in mind that an asset purchase alone will not necessarily insulate the purchaser from the Act's successor liability. Under common law principles, although asset sales usually do not result in the purchaser acquiring the debts and liabilities of the seller, successor liability might be found if one or more of the following factors are present: 

  1. there is an express or implied agreement of assumption (of debts or liabilities);
  2. the transaction amounts to a consolidation or merger of the two corporations;
  3. the purchasing corporation is a mere continuation [or reincarnation] of the seller; or
  4. the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.

A crucial factor in determining if a successor corporation is a mere continuation or reincarnation of a predecessor corporation is whether there is a substantial similarity in the ownership and control of the two corporations (e.g., identical directors, officers, stockholders, goods and services, and location). Also, the sufficiency of the consideration paid for the assets purchased is viewed as a significant factor in determining "mere continuation" or "reincarnation." 

Prudent business purchasers should take into account the potential value of accrued PST as part of their due diligence, and any agreement for the purchase of an Arizona business with employees should include an acknowledgement of who is responsible for accrued PST in the event of any legal claims for recovery of such benefits.

Temporary Agency to Permanent Employees

What happens when an employer has a contingent workforce through a PEO and eventually directly hires members of that contingent workforce? The ICA has not formally weighed in on this question, but informally has indicated that it would look closely at the contents of the contract between the PEO and employer to determine what the parties intended to occur in the event such a transition occurs. Therefore, employers should review their PEO contracts to ensure that PST benefit issues are addressed in those agreements. In the absence of such clarity in a PEO contract, a best practice is to confer with the PEO company before permanently hiring a temp to determine if there is any accrued, unused PST. If there is, the employer should consider either "transferring" that accrual or frontloading the employee's PST bank.

Tips for Drafting and Revising Your Compliant Policy 

All employers should review their applicable leave policies (e.g., paid sick leave, PTO, or otherwise) to ensure compliance with the law. Employers electing to keep or implement a separate paid sick time policy may wish to include clear definitions of permissible usages and other related definitions from the statute itself to give clarity and avoid claims. Employers should adhere to the options for notice guaranteed in the statute, but supplement them with additional options and information. Such notices must be furnished in writing in order to hold any employee accountable for compliance. Employers also should craft their strategies not only for the remainder of 2017 but also for 2018 and beyond, as separate issues involving proration and defining benefit years face them now.

Policies should warn employees no retaliation will be tolerated and provide internal resources to address any concerns, especially while the nuances of the law are fleshed out in the coming months and years. For multi-state employers seeking a multi-state PST policy, keep a careful eye out for the Arizona nuances, some of which are even more detailed and nuanced than California's various laws!

Finally, for employers with more generous PTO plans, you have work to do before July 1 and after as well. Be sure to get your notices up and tracking and reporting systems up to speed, including possibly identifying and tracking "sub buckets" of PST within the PTO allotment.  This could help avoid the inference of retaliatory action and make payment at the same hourly rate less risky if you have concerns. Employers should ensure their attendance control policies and other procedures do not deter use of protected PST now wrapped into PTO, whether through language requiring notice for all leave or requiring no excessive absences. More developments on combination PTO/PST plans will undoubtedly evolve given the number of employers sticking with their PTO programs (sometimes at employees' requests!), so employers have to keep a keen eye out for those developments and changes.

Part one and part two of this three-part series can be found on Ogletree Deakins' Leaves of Absence and State Developments blogs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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