When a global company considers establishing or enhancing operations in the USA and evaluates which particular region(s) within the USA it should invest its efforts and resources, the overarching considerations should be the fundamental soundness of the particular economy, the ability to recruit and retain personnel with appropriate skills and education, and whether the location provides a pro-business environment, including a fair and fully independent legal system that does not penalize businesses generally or those that are headquartered in other regions of the USA or the world. Arizona is one of the best locations in the USA for companies looking to expand because it provides a unique combination of all the considerations crucial to a business’s success. Arizona has exceptional universities that have national reputations in a broad range of academic disciplines, including law, business and technology. Arizona also benefits from having its university graduates – students who have come from around the country and beyond the USA – decide to remain in Arizona to start their careers. Moreover, despite having one of the USA’s largest metropolitan areas (Phoenix is the fifth largest city in the country), Arizona provides affordable housing, particularly in comparison to other major US metropolitan areas. Also, Arizona’s government is and has long been pro-business, with reasonable tax rates and a fully independent judiciary that has demonstrated fairness to employers, both domestic and foreign. These conditions provide stability, allowing companies to develop business plans that are not sidelined by unexpected political or legal developments.
These issues do not raise particular concerns unique to Arizona beyond those considerations noted above. The pro-business culture that Arizona provides and fosters, and the quality of its universities in graduating students with technical and practical skills, allows the workforce to adapt to the dramatic changes that have been experienced, and will continue to be experienced, throughout the global economy.
Arizona’s pro-business culture and the limits the state laws place on most types of claims that employees can bring against their employers have benefited companies in Arizona because employers are able to respond appropriately but thoughtfully when confronting “me too” type harassment and discrimination claims. Arizona juries have not proven to be generally receptive to claims that are either unsubstantiated by compelling evidence, or not viewed as justifying the burden on the legal system. Moreover, Arizona law largely limits the damages available to former employees, so lawyers and the employees they represent are not willing to simply gamble on an outcome that, even if favorable, is not in the nature of verdicts that are common in many of Arizona's sister states.
The decline in union membership that has been witnessed over the past 60-plus years has been particularly significant in Arizona. In 2018, Arizona ranked among the states with the lowest levels of union members (about one half of the national average). A decade earlier, Arizona had nearly double today’s level of union members – a ten-year drop far greater than experienced in most areas of the country.
The downward trend among private-sector employees will continue, and portends positive results for both employers and employees. Employers whose workforces are not unionized have far greater flexibility in every aspect of their operations, but only by providing good and rewarding jobs do employers avoid unions and maintain their economic freedom. The low density of union membership in Arizona is another key factor that should be meaningful to employers in all industries and of all sizes.
The fluctuations caused by the National Labor Relations Board’s changes to that key labor law had dramatic and unfortunate impacts on employers and employees. The changes witnessed from 2008 through 2016 were greater in both kind and degree than fluctuations seen in the past. Over the past year, however, the current board has reversed several of the changes that had been most damaging to the business community, and that trend will continue into and beyond 2020. If that trend changes in the future, Arizona employers will benefit from the low union density rate, which limits the impact of the National Labor Relations Board’s decisions.
Ultimately, the key determinant for evaluating most relationships between workers and companies is the control the company actually exercises over the worker, regardless of what a contract might say about the nature of their relationship. That reality is generally consistent across all jurisdictions in the USA. However, every jurisdiction has its own approach in evaluating the degree to which that control must be exercised, for example, to create an employment relationship, including situations where the degree of control results in the worker being jointly employed, or where the worker is solely another company’s employee, or an independent contractor. Several other states have attempted to expand the definition of what constitutes an employment relationship, some dramatically so, which exposes companies to unexpected risks that may be particularly difficult to evaluate because the information is not readily available to the entity that has not established a direct employer-employee relationship with the relevant worker(s).
Fortunately, consistent with its generally pro-business culture, Arizona largely respects the traditional understandings the common law developed to define an employment relationship. Consequently, while federal law will continue to impact all companies doing business in the USA, there are particular advantages of having operations and employees in the USA.
In Arizona, all employment is at will unless there is a written agreement that changes the at-will status and limits the employer’s right to discharge the employee without cause. This strong at-will presumption benefits employers, primarily because it helps avoid frivolous contract-based claims that might permit exposure to far greater economic damages than the remedies Arizona law provides for civil rights (ie, discrimination and harassment) claims. In practice, employers are wise to ensure they have good reason for discharging even at-will employees, and that they can prove those reasons in court. First, employers that act without compelling justification are not likely to foster an environment of mutual loyalty and respect, while a positive work environment where employees believe they are and will be treated fairly has tremendous economic benefits for employers. Second, when employees do not understand the reasons why they have been discharged, they tend to look for reasons that might make sense to them, regardless of how baseless such an explanation might be. Often, such employees find their own “reasons” for their discharge in legally protected characteristics or classifications, and that perspective can fuel costly litigation.
Despite Arizona’s strong commitment to at-will employment, employers should protect themselves by including “at will” provisions in their offer letters, handbooks and personnel policy manuals. The offer letter should also clearly detail the relationship in terms of full or part-time status, wages and other benefits, and the parties’ understanding of whether the employee is exempt from the Federal Fair Labor Standards Act’s minimum wage and overtime provisions. Unlike many of its sister states, Arizona does not impose wage and hours obligations beyond those that exist under federal law. The lack of additional regulatory schemes is, as noted above, a significant advantage to an employer that operates in multiple jurisdictions across the USA.
Arizona requires all employers to verify employee eligibility to work in the USA through the federal government’s “E-Verify” electronic database/system. However, Arizona does not have laws or regulations that impact foreign workers beyond those imposed by the federal government.
Arizona does not have any state laws or regulations that establish different requirements or restrictions on acquiring entities or that define secondary employer status. These determinations are a function of federal labor law that governs almost all employers with US employees and operations.
Wage and Salary History
Arizona does not have a state law prohibiting inquiries into an applicant’s wage or salary history.
Arizona’s version of the Fair Credit Reporting Act, A.R.S. § 44-1691 et seq, requires employers to disclose to applicants if the employer relies on a report issued by a consumer reporting agency in taking adverse action (eg, denying employment) against the applicant. An employer may be liable if it is grossly negligent or acts willfully and maliciously with intent to harm when using information from a consumer reporting agency for an employment purpose. Employers should also remember to carefully comply with all Fair Credit Reporting Act requirements and technicalities.
Age and Other Protected Categories
The Arizona Civil Rights Act (ACRA) prohibits discrimination based on race, color, religion, sex, disability, national origin, age, or the results of genetic testing. The ACRA’s prohibitions against discrimination are consistent with federal requirements under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and the Genetic Information Nondisclosure Act (GINA) (ARS § 41-1461 et seq). While Arizona law does not strictly prohibit asking job applicants to furnish information that pertains to their race, color, religion, sex, disability, national origin, or age, such inquiries would not be recommended unless applicable to a Bona Fide Occupational Qualification (BFOQ).
Arizona does not have a state law prohibiting inquiries into an applicant’s prior arrests or criminal history. However, the Arizona Attorney General’s Office has stated that, consistent with the US Equal Employment Opportunity Commission’s guidance on the subject, such an inquiry must include a statement that “conviction will not be an absolute bar to employment.” Employers must also have a basis for denying employment based on the applicant’s prior criminal conduct that relates to the connection between such conduct and the job requirements.
Disability and Health-Related Inquiries
Employers cannot conduct a medical examination or inquire of a job applicant as to whether the applicant is disabled. An employer may inquire as to the ability of an applicant to perform job-related functions. After an offer of employment has been made and prior to the start of employment, an employer may condition the offer of employment on a medical examination if all employees are required to undergo an examination, regardless of disability.
An employer cannot require an examination or inquire about whether one of its employees is disabled; however, an employer may make an inquiry or require an examination if it is shown to be job-related in nature. An employer may conduct voluntary medical exams of its employees that are a part of an employee health program. The definition of a “medical exam” excludes a test to determine the illegal use of drugs.
The State of Arizona has long been known as an employer-friendly state. In recent years, several employee-friendly voter initiatives have been passed by voters, including an initiative granting all Arizona employees paid sick leave and an initiative approving medical marijuana usage with a rare non-discrimination in employment requirement. These state and local enactments have largely been the result of lack of federal activity (since Arizona typically follows federal law closely, as noted below). While such enactments have heightened Arizona employers’ compliance obligations and the patchwork quilt with which they must comply, Arizona remains one of the most employer-friendly states in the Western United States.
While restrictive covenants are generally disfavored in Arizona (recall, after all, it is the land of opportunity and the wild, wild West), restrictive covenants are regularly enforced where they are reasonable in time and geographic scope to ensure a protectable interest is adequately protected. Restraints of six months and even up to one year have generally been found reasonable, depending on the circumstances. As to geographic scope, employers must strike a balance between the employee’s right to work in his or her chosen profession with the employer’s business location, the type and character of the business, and the covenants in their entirety. Arizona employers can show legitimate, protectable interest in customer relationships, non-public confidential information, and trade secrets. Arizona courts will “blue pencil” an agreement, meaning courts will sever grammatically severable, unreasonable provisions, but they will not rewrite provisions or agreements as a whole. To avoid such a potentially costly challenge, however, using a reasonable scope when drafting is imperative. Reasonableness includes factors such as common practices within the employer’s industry, the particular specialty of the employment at issue, the employer’s business location or geographic scope of the employee’s work, the length of employment after the agreement is signed, the circumstances of the discharge, and the length of time required to hire and train a replacement.
In addition to the use of restrictive covenants, Arizona employers enjoy additional protection under Arizona’s Uniform Trade Secrets Act (UTSA). The Arizona UTSA prohibits the misappropriation of information that constitutes a trade secret. Employers should be cautious not to require confidentiality agreements as a back door non-compete unless the same reasonableness tests for restrictive covenants are also utilized to scrutinize such terms. Arizona law also protects certain personal data, including prohibiting the intentional communication of an individual’s Social Security number to the general public, printing an individual’s Social Security number (or sequences of five or more numbers identifiable as part of a Social Security number) on any card required for the individual to receive products or services, requiring transmission of a Social Security number over the internet unless encrypted or secured, and requiring a Social Security number to access an internet website unless a password or other authentication is also used.
The Arizona Civil Rights Act reads nearly identically to federal civil rights laws like Title VII, the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, and the Age Discrimination in Employment Act, in that the ACRA prohibits discrimination based on race, color, religion, sex, disability, national origin, age, or the results of genetic testing.
All employers operating in Arizona with 15 or more employees are covered. If an employer has one or more employees, it can face a sexual harassment claim under the ACRA. Arizona law also closely tracks the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) in protecting members of the armed forces working for private employers, including the military reserves.
Arizona does deviate from these core federal laws in several key regards. First, the Arizona Medical Marijuana Act protects medical marijuana cardholders and designated caregivers (who may cultivate marijuana plants) from discrimination in employment. Second, “whistleblowers” who reasonably believe an Arizona law or constitutional provision has been or will be violated and were terminated for reporting their belief may have a claim for retaliation or discrimination under the Arizona Employment Protection Act. Third, five major Arizona cities (Phoenix, Flagstaff, Tucson, Sedona and Tempe) have enacted local ordinances protecting against discrimination based on sexual orientation, gender identity and, in some cases, gender expression. Federal law continues to evolve on whether such protections are afforded under Title VII and employers are well advised to remain acutely aware of this nuance.
Arizona employers must furnish a place of employment free from recognized health hazards that are likely to cause death or serious physical harm to employees, which includes prohibiting smoking around workplaces. Arizona employees, however, retain the right to bring guns to work, presuming they are left in personal vehicles in locked compartments.
The Arizona Division of Occupational Safety and Health (ADOSH) operates under an approved plan with the US Department of Labor to retain jurisdiction over occupational safety and health issues within Arizona, excluding mining operations, Indian reservations, and federal employees.
Employers may not discharge or discriminate against any employee because he or she filed a complaint with ADOSH or participated in any such proceeding. Likewise, an employer cannot retaliate against an employee for filing a workers’ compensation claim.
Numerous postings are required under Arizona law and must be prominently displayed in the workplace. In addition to routine wage and hour postings, unique Arizona posting requirements include E-Verify, paid sick leave, constructive discharge and the Smoke-Free Arizona Act, as well as Arizona minimum wage. Few Arizona policies are required if an employer elects to have a handbook; however, Arizona employers should be acutely aware of their Arizona obligations, such as voting leave, even if not elucidated in a handbook or standalone policy, as well as the benefits to having certain policies specific to Arizona, such as a drug and alcohol testing policy that meets the statutory requirements for having a safe harbor from related claims.
There is no information relevant to this section.
In Arizona, virtually all employment wrongful termination claims are subject to the Arizona Employment Protection Act (AEPA), ARS § 23-1501, which deals with the termination of employment relationships, protection from retaliatory discharge, and the exclusivity of statutory remedies for employees. The statute also defines and regulates wrongful discharge claims based on alleged violations of “public policy.”
The AEPA confirms the status of Arizona employees as at-will employees, which the statute describes as “contractual.” In order to supersede the at-will presumption, there must be express written language that communicates a different term of employment either (i) in a written contract signed by the employer and employee, or (ii) in a handbook or manual distributed by the employer that expressly states its intent to be a contract of employment.
The AEPA defines the sources of public policy that can form the basis for claims for wrongful discharge in violation of public policy. Tort claims for wrongful discharge in breach of public policy can be based only on the public policy set forth in the Arizona Constitution and Arizona statutes. Public policy tort claims do not exist independently of the provisions of a statute. If a statute provides a remedy to an employee for a violation of the statute, the remedies provided to an employee are the exclusive remedies for a violation of the public policy arising out of the statute. However, employees may bring wrongful termination in breach of public policy tort claims if a termination is in violation of the public policy of a statute that does not already provide a remedy to an employee.
Arizona also has a statute for alleging “constructive” wrongful discharge. To establish constructive discharge, employees must present evidence of objectively difficult or unpleasant working conditions to the extent that a reasonable employee would feel compelled to resign (ARS § 23-1502(A)). The statute also imposes other technical requirements to establish a viable claim.
Under ARS § 12-541(3), an action for breach of either a written or oral employment contract must be initiated within one year after the cause of action accrues. ARS § 12-541(4) also sets forth a one-year statute of limitations for a wrongful termination claim against an employer.
The Arizona Civil Rights Act prohibits discrimination based on race, color, religion, sex, disability, national origin, age, or the results of genetic testing. The ACRA’s prohibitions against discrimination are consistent with federal requirements under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Genetic Information Nondiscrimination Act (ARS § 41-1461 et seq). A private employer is covered by the ACRA if it has 15 or more employees on each working day in each of 20 or more calendar weeks in the current or preceding calendar year (ARS § 41-1461(6)). However, the ACRA specifically provides that if an allegation involves sexual harassment, an “employer” may include employers that have one or more employees in the current or preceding calendar year, rather than only those employers with 15 or more employees.
Claims filed under the ACRA must be timely filed either with the Civil Rights Division of the Arizona Attorney General’s Office (ACRD) or the Equal Employment Opportunity Commission (EEOC) (these agencies have a joint cooperation agreement that allows either to investigate claims under both statutes). Filing with at least one of these agencies is a jurisdictional prerequisite to bringing a civil action in state or federal court. The ACRD does not hold hearings or other adjudicative proceedings; it makes determinations based on submitted position statements and administrative discovery.
Arizona has a minimum wage law modeled after the federal minimum wage statute. Unlike the federal minimum wage statute, the Arizona minimum wage currently is USD11.00 per hour and will increase to USD12.00 per hour by January 2020. Arizona does not have an overtime statute for private employers (so only federal law governs payment of overtime in Arizona). However, it is not uncommon for plaintiffs to seek remedies for unpaid overtime through Arizona’s wage payment statute. That statute requires, among other things, timely payment of all non-discretionary “wages” on regular paydays, and payment within seven days following involuntary termination from employment. Failure to meet those requirements may result in the court awarding, at its discretion, three times the amount of unpaid wages.
In addition to being able to bring claims in state superior court, claims for violations of the Arizona minimum wage statute and wage payment statute may be filed with the Industrial Commission of Arizona, Labor Department.
In addition to federal laws prohibiting retaliation and/or whistleblowing (eg, under Title VII, the ADEA, FLSA, FMLA, etc), the AEPA includes protection for private employees who engage in whistleblowing activities. Whistleblowing is protected only if (i) the employee “blows the whistle” in a reasonable manner, (ii) the employee has information or a reasonable belief about a violation of state law and (iii) the employee discloses information about the illegal activity to either a managerial representative of the employer that the employee reasonably believes has authority to act regarding the information or to a public agency.
Like the EEOC, which provides a nationwide mediation and conciliation program through its district offices, the ACRD also maintains a mediation program for ACRA claims filed with that agency. Typically, if an employment discrimination charge is filed in the Phoenix area or Northern Arizona, the charge is funneled to the Phoenix District office of the EEOC. Consequently, any mediation or conciliation of that charge will be handled through the EEOC. If the charge is filed in the Tucson area or South-Eastern Arizona, the matter is usually funneled to the ACRD, which will direct and conduct any mediation or conciliation of the matter.
Arizona follows federal law with respect to collective actions and class/collective action waivers.
Damages for successful wrongful termination claims (ie, those brought under the AEPA) are typically those available at common law. For example, available breach of employment contract remedies include back pay, front pay (in lieu of reinstatement), compensatory damages, and attorneys’ fees for the successful party. Available damages for employment tort claims under the AEPA (eg, public policy, whistleblower, and retaliation claims) include back pay, front pay (in lieu of reinstatement), compensatory damages, pain and suffering, emotional distress damages, injunctive relief, and punitive damages (there are no caps). However, attorneys’ fees usually are not available for tort claims in Arizona, unless the plaintiff can successfully demonstrate that the claim(s) “arose” out of a contract (some courts have held, but not always, that fees are available because the claims arose out of the employment relationship).
Unlike Title VII, relief for claims brought under the ACRA are limited to “equitable” remedies. This means that only back pay, reinstatement (ie, possible front pay in lieu thereof), injunctive relief, and attorneys’ fees are available. This is true even for claims of sexual harassment alleged under the ACRA.
As previously noted, under the Arizona wage statute (A.R.S. § 23-350 et seq), treble damages are available for failure to timely pay wages. However, the court retains sole discretion to award or withhold such damages. Also, under the Arizona minimum wage statute, liquidated damages are available for non-payment of the Arizona minimum wage.
Like most US courts, Arizona courts generally apply the contracting parties’ choice of law, unless the chosen law has no relation to the parties or to the parties’ contract, or the parties’ choice would offend the public policy of the State of Arizona. This is particularly true where parties of relatively equal bargaining power (ie, both represented by legal counsel) select the law of the state to govern their contract, even if that state is other than Arizona. Also, the Arizona Supreme Court has held that when the parties in an employment relationship attempt to avoid statutory rights or remedies (such as through contractual language that limits an employee's rights or an employer's liabilities), Arizona courts are likely to enforce such agreements unless the statute expressly prohibits or voids such contractual provisions. For example, because Arizona’s wage payment statute includes no language prohibiting the parties from contractually resolving by express language the damages available for failure to pay wages under that statute, the Arizona Supreme Court found such a waiver valid; ie, the parties had chosen the law of Texas to govern the employment relationship, and Texas law is more employer-friendly than Arizona in regards to claims for failure to pay wages.
Most US courts will enforce contractual Arizona "choice of law" provisions if there is a valid agreement with an effective choice of law provision, if the choice of law provision is applicable and reasonably related to the lawsuit, and if the chosen law is not in violation of the public policies of any interested states. However, an Arizona choice of law provision in an employee’s contract may be disregarded in a jurisdiction with state-specific statutes expanding discrimination-protected classes, guaranteeing paid leave or daily overtime, or banning certain restrictive covenants (such as in California).
This exception is especially true where the employee has little or no connection with Arizona (such as where the employer is based in Arizona but its employees work and reside outside of Arizona). Indeed, Arizona case law supports the principle that statutory enactments are presumed to be confined to operation within Arizona in the absence of an express statement in the law to the contrary. For example, according to one federal District Court in Arizona, the Arizona wage payment statute did not apply to an Oregon citizen who worked in an Oregon office of an Arizona-based company because he was not employed in Arizona. Similarly, courts around the country subscribe to the principle that when a contractual choice of law provision incorporates state law, it also incorporates the presumption against extraterritorial application contained within that state law.