On November 7, voters in Arizona approved Proposition 202, which establishes a state minimum wage law, creates new claims against employers, grants new rights for employees and others to inspect payroll records, and imposes new recordkeeping obligations and enforcement mechanisms.

Beginning January 1, 2007, the minimum wage in Arizona will increase to $6.75 per hour and will be adjusted annually thereafter with the cost of living.  The minimum wage increase is just the proverbial “tip of the iceberg.”  The law also includes burdensome, anti-employer provisions built into its claims and enforcement procedures that have the potential to be used as a weapon against employers by unions and disgruntled employees.

Broad Definitions and Coverage

The new state law applies to all employees and employers except: (1) any person who is employed by a parent or sibling; (2) “casual” babysitters; (3) the Arizona state government (although its political subdivisions are covered); (4) the federal government; (5) employees who regularly receive tips (they may be paid $3.00 per hour less); and (6) businesses that have less than $500,000 in gross annual revenue and that are exempt from the federal minimum wage law.
The definition of “employee” in the Act places the burden of proof on the employer to establish by clear and convincing evidence – a standard higher than in other civil litigation – that the employee was an independent contractor and not an employee.  This standard places increased risks on companies that use independent contractors and makes it possible that a person who is properly treated as an independent contractor under other employment laws could be found to be an employee under the new minimum wage law. 
Unlike the federal Fair Labor Standards Act, the new Arizona law applies only to minimum wages, not to overtime liability.
Burdensome Enforcement Procedures

The new law vests in the Industrial Commission of Arizona, or another agency designated by the Governor, the authority to issue regulations and enforce the Act.  Furthermore, the Industrial Commission may keep for its own budget the penalties that it may assess under the law.

The Act prohibits retaliation against employees or others for asserting a claim or right under the Act or assisting another person in doing so.  If an employer takes any adverse action, such as discipline or discharge, against a person within 90 days of that person engaging in activities protected by the minimum wage law, the employer is presumed to have violated the law by retaliating against the employee.  The presumption of liability may be overcome only by clear and convincing evidence that the employer took the adverse action for permissible reasons. 

The Act further allows the government or employees to file complaints against a business.  The Industrial Commission and law enforcement officers have the power to review payroll records and other business records.  Employers are also required to permit law enforcement officers to interview employees away from the work site and are prohibited from hindering any investigation. 

Employees who are not paid the minimum wage will be able to recover triple wages, interest, and attorneys’ fees.  The Industrial Commission and courts must award at least $150 per day of punitive damages for retaliation, and may award additional penalties.

Although the Act purports to establish a statute of limitations period of two years, or three years for a willful violation, the law also states that claims may encompass all violations that occurred as part of a continuing course of employer conduct, without regard to when they occurred.  This provision opens the door to claims against employers for infractions that occurred many years earlier.  Furthermore, the time period for bringing claims is extended as long as an investigation is open.
Notice, Recordkeeping and Inspection of Records

Employers must furnish their company name, address, and phone number to employees upon hire.  Employers also must post a notice about the law to be developed by the Industrial Commission.

The new law requires employers to maintain for four years payroll records showing the hours worked each day and the wages paid to all employees.  That is one year longer than federal law.  The law does not contain an exemption for salaried employees, although it would be burdensome to require employers to keep track of the daily hours of their highly paid employees who could never have a minimum wage issue.  If the employer neglects to maintain the required records, the Industrial Commission will presume that the employer violated the law and will subject the employer to a civil penalty of at least $250 for a first violation and $1,000 for each subsequent violation.

The law allows employees or their “designated representative” to inspect employers’ payroll records for that employee.  The law does not, however, create any procedures for doing so.

Conclusion, Recommendations and Additional Information

With the effective date of the new law just six weeks away, it is essential for Arizona employers to act swiftly to modify their recordkeeping policies and monitor their payroll practices to achieve compliance with the Act. 
In addition, employers should adopt procedures to deal with requests for access to payroll records by employees, their representatives, the Industrial Commission and law enforcement agencies.  Those procedures should include steps to try to maintain the confidentiality of personnel records. 
Extra care must be taken before disciplining or discharging employees who have participated in asserting minimum wage rights.  In substance, the law will require employers to prove that they had good cause to terminate any employee who is discharged within 90 days after the employee has participated in asserting a minimum wage issue.  To protect against allegations of retaliation, employers should adopt procedures that require employees to submit minimum wage complaints in writing to a specific person or persons to minimize the risk that employees will allege after termination that they had previously made verbal complaints about minimum wage issues.
Ogletree Deakins will be sponsoring breakfast briefings in Phoenix and Tucson to present more detailed information and recommendations regarding this new law and to answer any questions you may have.  An invitation will be sent to clients in the next few weeks.  In the meantime, if you have any questions about this new law or its ramifications, contact the Ogletree Deakins attorney with whom you normally work or the Client Services Department via e-mail at clientservices@ogletreedeakins.com or by phone at 866-287-2576.

Note: This article was published in the November 9, 2006 issue of the Arizona eAuthority.

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