New Year, New Laws: 2019 Brings Mini-COBRA, Nondisclosure Restrictions, and Minimum Wage Increase to Arizona

When Arizona’s fifty-third legislature ended last spring, we reported on four new laws that impact Arizona employers and employees. The legislature also passed two additional laws impacting Arizona employers. First, the so-called “mini-COBRA” statute extends qualifying event notification requirements to small employers (those with 20 or fewer employees) that provide health insurance coverage for their employees. The other law affects nondisclosure agreements by limiting their scope when the subject matter involves sexual offenses or obscenity. In addition, Arizona’s minimum wage rate increased on January 1, 2019.

Arizona’s Mini-COBRA – A.R.S. § 20-2330

The Arizona mini-COBRA law, A.R.S. § 20-2330, extends to Arizona employers with 20 or fewer employees the kinds of notification and continuation of health plan benefits requirements previously reserved only for larger employers under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA). Under the statute, a small employer’s health benefits plan issued or renewed after December 31, 2018, must allow an enrollee and any qualified dependent to continue coverage after any qualifying event. Following a qualifying event, the employer must provide timely written notification to an enrollee and his or her qualified dependents of their right to continue coverage under the employer’s health benefits plan upon termination of employment.

Fortunately, the Arizona Department of Insurance (ADOI) recently prepared a sample notice of coverage continuation form. According to the ADOI, small employers that use, properly complete, and timely issue this form are presumed to satisfy the mini-COBRA law’s notification requirements.

Enrollees must elect continuation coverage within 60 days of the date of the notice. Within 45 days of electing continuation coverage, the enrollee must submit the first premium payment and a 5 percent administrative fee. This fee is intended to compensate small employers for having to administer the program. By comparison, federal COBRA allows only a 2 percent administrative fee.

Like under COBRA, continuation coverage under the Arizona mini-COBRA law may continue for up to 18 months and may extend for an additional 11 months in cases involving a disability. Mini-COBRA coverage may end sooner than 18 months under certain circumstances, such as if the enrollee fails to pay premiums; if the enrollee becomes eligible for Medicare or Medicaid, or obtains other health coverage; or if the employer terminates the plan.

Employers may want to keep in mind that federal COBRA coverage kicks in when an employer has at least 20 employees for more than 50 percent of its business days. Also, commonly owned small businesses might be covered by federal COBRA, even if each individual unit has fewer than 20 employees. This situation is not addressed by the definition of “small employer” under Arizona’s mini-COBRA, so it remains to be seen how the ADOI and the courts will treat this situation.

A bill (Senate Bill 1035) has been introduced in the Arizona Senate this legislative session to amend the mini-COBRA law. The proposed bill would change the current the definition of “small employer” from entities with “not more than twenty eligible employees” to entities with “fewer than twenty eligible employees.” This amendment would eliminate an inadvertent overlap of mini-COBRA and COBRA coverage for employers with exactly 20 employees.

Currently, there is no penalty provision for noncompliance with the mini-COBRA; this issue has not yet been addressed by the ADOI.

Nondisclosure Restrictions – A.R.S. § 12-720

In November 2017, the Arizona legislature introduced House Bill 2020, which would have voided confidentiality clauses in employment agreements or settlement agreements that restricted the disclosure of factual information related to a sexual assault or sexual harassment.

The Arizona legislature ultimately passed a watered-down version of the bill in April 2018, which the governor signed. A.R.S. § 12-720 provides that nondisclosure agreements cannot prohibit a party from “[r]esponding to a peace officer’s or a prosecutor’s inquiry” or from “[m]aking a statement not initiated by that party in a criminal proceeding” when the factual information sought relates to sexual assault or obscenity.

This statute applies to employment-based settlement agreements and likely covers claims involving sexual harassment—to the extent the harassment rises to the level of sexual assault or obscenity under Arizona law. Unfortunately, the law does not define where that line is drawn. The statute is primarily aimed at ensuring individuals are able to provide information to law enforcement and testify in court on matters relating to a sexual assault and/or obscenity.

Minimum Wage

Finally, on January 1, 2019, Arizona’s minimum wage rate increased to $11.00 per hour. This is in line with Proposition 206, which was approved by voters on November 8, 2016. The minimum wage will increase to $12.00 per hour on January 1, 2020.