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State snapshot

Key considerations
Which issues would you most highlight to someone new to your state?

While Arizona’s anti-discrimination statutes generally mirror federal laws, multiple municipalities now prohibit workplace discrimination based on sexual orientation and gender identity.

The Arizona Medical Marijuana Act, which legalizes the possession and use of marijuana for medical purposes, can present challenges for employers which drug test applicants and employees. An employer which requires drug testing may be made aware of an employee’s medical marijuana cardholder status and, therefore, that the employee has a medical condition.

Arizona’s blacklisting statute prohibits two or more employers from engaging in activities to prevent an employee from pursuing a useful occupation (A.R.S. § 23-1361(A)). The statute’s terms could be interpreted to prohibit common practice in other jurisdictions whereby companies execute agreements not to hire employees of the other party.

What do you consider unique to those doing business in your state?

Arizona employers face serious penalties, including having their business and operating licenses suspended or permanently revoked, for intentionally or knowingly hiring undocumented workers (A.R.S. § 23-211 and following).

Is there any general advice you would give in the labor/employment area?

Recent Arizona cases have increasingly scrutinized the scope and enforceability of restrictive covenants, including confidentiality agreements. Employers should be careful to restrict these agreements to a reasonable time and space and clearly define confidential information.

Emerging issues
What are the emerging trends in employment law in your state, including the interplay with other areas of law, such as firearms legislation, legalization of marijuana and privacy?

An initiative to legalize recreational marijuana collected enough signatures to earn a place on the 2016 Arizona ballot.

Proposals for reform
Are there any noteworthy proposals for reform in your state?

An omnibus labor and employment bill failed in 2015 that had proposed, among other things, to add provisions for family medical leave and require that employers in the service industry pay employees minimum wage before calculating their gratuity (SB 1430).

Several municipalities now prohibit workplace discrimination based on sexual orientation and gender identity, including Flagstaff, Phoenix, Tucson, Tempe, and Sedona. In 2015 Scottsdale declined to amend its anti-discrimination ordinance to include sexual orientation as a protected class.

Employment relationship

State-specific laws
What state-specific laws govern the employment relationship?

The Arizona Employment Protection Act (A.R.S. § 23-1501) deals with the termination of employment relationships, protection from retaliatory discharge, and the exclusivity of statutory remedies for employees. The act confirms the status of Arizona employees as at-will employees, unless the employee and employer “have signed a written contract to the contrary.”

Who do these cover, including categories of workers?

The Arizona Employment Protection Act governs all employees, public and private. 

Misclassification
Are there state-specific rules regarding employee/contractor misclassification?

Arizona courts look at the totality of the circumstances when determining whether an employee has been misclassified as an independent contractor.

For minimum wage purposes, Arizona follows the Fair Labor Standards Act to define whether an individual is an employee or independent contractor. Arizona courts apply an “economic realities” test, which mirrors the “economic realities” test under the Fair Labor Standards Act (A.A.C. R20-5-1205).

Arizona Revised Statutes § 23-902 (the workers’ compensation statute) provides that a written agreement between the employer and independent contractor which discloses that the contractor is not entitled to workers’ compensation benefits, among other things, can create a rebuttable presumption that the individual is an independent contractor.

Contracts
Must an employment contract be in writing?

In order to state a claim for breach of contract alleging wrongful termination, there must be a written contract either setting out the duration of the relationship or specifically limiting the employer’s right to terminate the employment relationship (A.R.S. § 23-1501). However, other breach of contract claims, such as those for unpaid wages and benefits, do not require a written contract to state a claim.

Are any terms implied into employment contracts?

The covenant of good faith and fair dealing is implied in all employment contracts in Arizona, including the implied, at-will employment relationship (Wagenseller v. Scottsdale Mem'l Hosp., 147 Ariz. 370, 383, 710 P.2d 1025, 1038 (Ariz. 1985)). However, the covenant of good faith and fair dealing “does not create a duty for the employer to terminate the employee only for good cause,” nor does it “protect the employee from a ‘no-cause’ termination” (Consumers Int'l, Inc. v. Sysco Corp., 951 P.2d 897, 902 (Ariz. Ct. App. 1997) (quoting Wagenseller, 710 P.2d at 1038)). An employer is prohibited from terminating an employee for bad cause.

Are mandatory arbitration agreements enforceable?

Arizona Revised Statutes § 12-1501 states that a:

“written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (A.R.S. § 12-1501.)

However, Arizona statutes state that the Arizona Arbitration Act “shall have no application to arbitration agreements between employers and employees or their respective representatives.” In a unique case, North Valley Emergency Specialists, LLC v. Santana, 208 Ariz. 301 (Ariz. 2004), the Arizona Supreme Court held that this statute rendered unenforceable a compulsory arbitration agreement between an employer and its employees. However, the case is limited in its effect because the parties procedurally waived an argument that the Federal Arbitration Act pre-empted the Arizona’s Arbitration Act. The Federal Arbitration Act does not exempt from its reach most arbitration agreements between employers and employees. As a practical matter, most arbitration agreements are governed by the Federal Arbitration Act and are not prohibited based on the Arizona Supreme Court’s narrow decision in North Valley Emergency Specialists.

How can employers make changes to existing employment agreements?

An employer may require an employee to execute an amended employment agreement, provided that the agreement allows for amendment with adequate consideration. Generally, the implied promise of employment and continued employment are sufficient consideration to support a new or revised employment agreement (Mattison v. Johnston, 152 Ariz. 109, 730 P.2d 286 (Ariz. Ct. App. 1986)).

Hiring

Advertising
What are the requirements relating to advertising open positions?

Though no law specifically governs the advertising of open positions in Arizona, employers advertising such positions should be cautious not to use language that could be interpreted as discriminating against any protected class identified in the Arizona Civil Rights Act, or local or federal laws. 

Background checks
What can employers do with regard to background checks and inquiries?

(a) Criminal records and arrests

Arizona’s fingerprinting and criminal history statute provides for the exchange of criminal justice information with any individual for any lawful purpose on submission of the subject’s fingerprints and the prescribed fee (A.R.S. § 41-1750(G)(4)).

In certain banking-related professions, it is unlawful to provide a written employment reference that advises of the applicant’s involvement in any theft, embezzlement, misappropriation, or other defalcation that has been reported to federal authorities (A.R.S. § 23-1361(G)). 

However, Arizona statute states that:

“no bank, savings and loan association, credit union, escrow agent, commercial mortgage banker, mortgage banker or mortgage broker shall be civilly liable for providing an employment reference unless the information provided is false and the bank, savings and loan association, credit union, escrow agent, commercial mortgage banker, mortgage banker or mortgage broker providing the false information does so with knowledge and malice.” (Ariz. Rev. Stat. Ann. § 23-1361 (H).)

(b) Medical history

Covered entities, including employers, employment agencies, labor organizations, and joint labor-management committees, cannot conduct a medical examination or ask a job applicant whether they are disabled (A.R.S. §§ 41-1461(3), 41-1466(A)). An employer may inquire as to the ability of an applicant to perform job-related functions. After an offer of employment has been made but before employment begins, an employer may condition the employment offer based on the employee passing a medical examination if all employees are required to undergo such an examination, regardless of disability.

An employer cannot request an examination or inquire about whether one of its employees is disabled; however, an employer can make an inquiry or request an examination if it is shown to be job-related and consistent with business necessity (A.R.S. § 41-1466(C)). An employer may conduct voluntary medical exams of its employees as a part of an employee health program. The definition of a “medical exam” excludes a test to determine the illegal use of drugs (A.R.S. § 41-1466(F)).

(c) Drug screening

Arizona law does not impose any restrictions on drug and alcohol testing of employees per se. If an employer conducts drug or alcohol testing in compliance with A.R.S. § 23-493 and following, it will gain “safe harbor” protection against employee lawsuits arising from the tests or test results.

(d) Credit checks

Arizona's version of the Fair Credit Reporting Act (A.R.S. §§ 44-1691 and following) requires employers to disclose to applicants if the employer relies on a report issued by a consumer reporting agency in taking adverse action (e.g., 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 (A.R.S. § 44-1695(C)). This law is likely pre-empted by federal law (Loomis v. U.S. Bank Home Mortg, 912 F. Supp.2d 848, 854-55 (D. Ariz. 2012)).

(e) Immigration status

As of 2015 no Arizona law restricts an Arizona employer’s ability to inquire as to the immigration status of a prospective employee.

Arizona employers can have their business and operating licenses suspended or permanently revoked for intentionally or knowingly hiring unauthorized workers (A.R.S. § 23-211 and following). Additionally, Arizona employers must verify the employment eligibility of a new hire employee through the E-Verify program and maintain a record of verification for three years or the duration of the employee’s employment, whichever is the longer (A.R.S. § 23-214). An employer should be mindful not to inquire about national origin in complying with these laws.

(f) Social media

As of 2016 no Arizona law restricts an Arizona employer’s ability to review prospective employees’ social media information. However, employers should be mindful not to restrict employees’ social media usage in a manner that would violate the National Labor Relations Act.

Wage and hour

Pay
What are the main sources of wage and hour laws in your state?

Arizona Revised Statutes govern the following:

  • A.R.S. § 23-281 and following govern hours of labor for certain railroad, mine, laundry, and agricultural employees;
  • A.R.S. § 23-311 and following govern minimum wages for minors;
  • A.R.S. § 23-341 and following govern equal wage rates for male and female employees;
  • A.R.S. § 23-350 and following govern payment of wages, generally;
  • A.R.S. § 23-362 and following govern minimum wage and wage-related record keeping; and
  • A.R.S. § 23-391 and following govern wages and hours of public employees.

What is the minimum hourly wage?

As of January 1 2015 the minimum wage in Arizona increased to $8.05 per hour. The minimum wage did not increase on January 1 2016. The Arizona Industrial Commission has enforcement authority. The minimum wage will increase annually each successive January 1 based on any increases in the Consumer Price Index. The minimum wage statutes also include a requirement to post notices regarding employee wage rights (A.R.S. § 23-363 and following).

What are the rules applicable to final pay and deductions from wages?

When an employee is discharged, the employee must be paid the wages due to him or her within seven working days or by the end of the next regular pay period, whichever is sooner (A.R.S. § 23-353). When an employee quits voluntarily, he or she must be paid in the usual manner all wages due no later than the regular payday for the pay period during which the termination occurred. If requested by the employee, wages must be paid by mail. Wages include all non-discretionary compensation due in return for labor or services rendered by an employee for which the employee has a reasonable expectation to be paid. (A.R.S. § 23-350(7)).

An employer may deduct wages from an employee if it is required or permitted to do so by law or has the employee’s written authorization (A.R.S. § 23-352). Arizona law requires employees to annually provide written or electronic authorization to their employers if they wish to allow paycheck deductions “for political purposes” (A.R.S. § 23–361.02(A)).

If deductions are made from the employee’s final pay, employers should be mindful of wage and hour issues under the Fair Labor Standards Act and Arizona’s minimum wage laws. 

Hours and overtime
What are the requirements for meal and rest breaks?

Arizona has no specific laws regulating meal and rest break requirements. However, employers are still subject to federal regulations mandating meal and rest break periods.

What are the maximum hour rules?

Except for certain employees, no law governs maximum hours worked for private employers in Arizona.

  • A.R.S. § 23-281 and following governs hours of labor for certain railroad, mine, laundry, and agricultural employees; and
  • A.R.S. § 23-391 and following governs wages and hours of public employees.

Arizona allows a “use it or lose it” vacation time policy as long as employees have a reasonable opportunity to use the leave and it is clear that they will not be paid those wages (based on policy or practice).

How should overtime be calculated?

Arizona has a minimum wage law, but no overtime law. If the employer is covered by the Fair Labor Standards Act, federal overtime laws apply.

What exemptions are there from overtime?

Arizona has no overtime law for private sector employers.

Record keeping
What payroll and payment records must be maintained?

Arizona employers must maintain and preserve the payroll records of their employees in a safe and accessible location at the place of employment or at a central record-keeping office. If the records are stored at a central record-keeping office they must be made available to the Industrial Commission within 72 hours of a request for inspection (A.A.C. R20-5-1209). Payroll records include all time and earning cards indicating the amount of time worked, all wage-rate tables or schedules, and all records in support of additions or deductions from wages paid (A.A.C. R20-5-1210(A)). Payroll records should also contain information indicating each individual hourly employee’s:

  • full name;
  • home address;
  • date of birth;
  • occupation;
  • time of day and day of the week that the employee’s workweek begins;
  • regular hourly rate and explanation of basis of pay, including commissions or any other basis of pay;
  • hours worked each working day and working week;
  • total daily or weekly straight-time wages due for hours worked during the working day or week, exclusive of overtime compensation;
  • total overtime pay and calculation of overtime pay;
  • total additions to or deductions from wages paid each pay period;
  • total wages paid each pay period; and
  • date of payment and pay period covered by payment (A.A.C. R20-5-1210(B)).

An employee or designated representative can inspect any payroll records pertaining to the employee (A.R.S. § 23-364(D)).

According to the Arizona Administrative Code R20-5-1210(C)-(E), salaried employees, employees on a fixed schedule, and employees that customarily and regularly receive tips are subject to slightly varying reporting requirements from those above. Specifically, the payroll records of salaried employees must contain sufficient detail to permit a determination that the salary received exceeds the minimum wage (A.A.C. R20-5-1210(C)). Arizona employers with salaried employees who are exempt under the Fair Labor Standards Act must maintain:

  • “records containing the basis on which wages are paid in sufficient detail to permit a determination or calculation of whether the salary received exceeds the minimum wage required under the Act, including a record of the hours upon which payment of the salary is based, whether full time or part time.”

Discrimination, harassment and family leave

What is the state law in relation to:
Protected categories

(a) Age?

The Arizona Civil Rights Act prohibits workplace discrimination on the basis of age (40 years or older; A.R.S. § 41-1463). A private employer is covered by the act 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 (A.R.S. § 41-1461(6)). Because the Arizona Civil Rights Act applies to employers with 15 or more employees, and the Age Discrimination in Employment Act applies to employers with 20 or more employees, an individual claiming age discrimination might have a cause of action against an employer under the Arizona Civil Rights Act, but not under the Age Discrimination in Employment Act.

(b) Race?

The Arizona Civil Rights Act prohibits workplace discrimination on the basis of race, color, and national origin (A.R.S. § 41-1463). If an employee believes that he or she has been discriminated against, he or she has 180 days to file a complaint with the Arizona Civil Rights Division. However, because Arizona is a “dual filing” state, any charge filed within 300 days of the alleged discrimination will be deemed timely filed with the Equal Employment Opportunity Commission.

(c) Disability?

The Arizona Civil Rights Act prohibits workplace discrimination on the basis of a physical or mental disability (A.R.S. § 41-1463). 

(d) Gender?

The Arizona Civil Rights Act prohibits workplace discrimination on the basis of gender (A.R.S. § 41-1463). While the act’s jurisdiction is generally limited to employers with 15 or more employees, claims for sexual harassment under the act may be brought against employers with as few as one employee.

(e) Sexual orientation?

Arizona does not prohibit workplace discrimination on the basis of sexual orientation or gender identity. However, several municipalities within Arizona prohibit such discrimination, including Flagstaff, Phoenix, Tucson, Tempe, and Sedona. 

(f) Religion?

The Arizona Civil Rights Act prohibits workplace discrimination on the basis of religion (A.R.S. § 41-1463). 

(g) Medical?

The Arizona Civil Rights Act prohibits workplace discrimination on the basis of physical or mental disability.

(h) Other?

Discrimination based on gender generally includes discrimination related to maternity and pregnancy.

Harassment
What is the state law in relation to harassment?

Though the Arizona Civil Rights Act generally applies to private employers with 15 or more employees, an employee may bring a charge for sexual harassment against employers with one or more employees in the current or preceding calendar year.

An employee may bring a constructive discharge claim without prior written notice in the event of outrageous conduct by the employer or a managing agent of the employer, including:

  • sexual assault;
  • threats of violence directed at the employee;
  • a continuous pattern of discriminatory harassment; and
  • other similar kinds of conduct, if the conduct could cause a reasonable employee to feel compelled to resign (A.R.S. § 23-1502(F)).

The safe harbor provision gives certain protections to an employer against constructive discharge claims if the employer complies with the statute’s notice posting requirements and the claimants fail to comply with the requirements of A.R.S. § 23-1502.

Employers may obtain injunctions against workplace harassment pursuant to A.R.S. § 12-1810.

Family and medical leave
What is the state law in relation to family and medical leave?

Arizona does not have its own family and medical leave act. Arizona prohibits employers from refusing to permit a member of the military or National Guard from taking a leave of absence to comply with active duty orders or attend camps, maneuvers, formations, or armory drills (A.R.S. § 26-168(A)).

Arizona also provides a right to leave work to employees who have been victims of crimes, so that they may attend a hearing or obtain an order of protection (A.R.S. § 13-4439).

Privacy in the workplace

Privacy and monitoring
What are employees’ rights with regard to privacy and monitoring?

Employees of private employers have limited privacy rights at work. Employers generally have the right to review and monitor employees’ work spaces, computers, email and internet use, and phones. Employers should be mindful not to restrict employees’ privacy in a manner that would violate the National Labor Relations Act.

Although the Arizona Constitution provides a right to privacy, courts have interpreted this right to apply only to public employers (Ariz. Const. Art. II, § 8).

It is a crime in Arizona to knowingly photograph, videotape, film, record, or secretly view another person without their consent in certain places, including restrooms and locker rooms (A.R.S. § 13-3019).

Are there state rules protecting social media passwords in the employment context and/or on employer monitoring of employee social media accounts?

As of 2015, no Arizona law restricts an Arizona employer’s ability to review potential employees’ social media information. However, employers should be mindful not to restrict employees’ social media in a manner that would violate employees’ Section 7 rights under the National Labor Relations Act.

Bring your own device
What is the latest position in relation to bring your own device?

Employees of private employers have limited privacy rights at work. Employers generally have the right to review and monitor employees’ work spaces, computers, email and internet use, and phones. However, employers should be aware that the National Labor Relations Act prohibits employers from engaging in unlawful surveillance of employees’ union activities and other protected concerted activities.

Off-duty
To what extent can employers regulate off-duty conduct?

The Arizona’s Medical Marijuana Act prohibits employers from discriminating against registered marijuana cardholders. Exceptions exist for employers which could lose funding or licensing under federal law as a result of their employees’ marijuana use. Employers can prohibit cardholders from possessing medical marijuana on company premises or from being impaired at work. Additionally, employers may restrict employment of cardholders in so-called “safety sensitive” positions.

Gun rights
Are there state rules protecting gun rights in the employment context?

A private employer cannot prohibit an employee from lawfully transporting or storing a firearm in his or her vehicle that is both:

  • in the employee’s locked and privately-owned motor vehicle, or in a locked compartment in the employee’s privately-owned motor vehicle; and
  • not visible from the outside of the motor vehicle (A.R.S. § 12-781).

The prohibition does not apply if:

  • possession of the firearm is prohibited by federal or state law;
  • the vehicle is owned or leased by the employer and is used by an employee in the course of employment; or
  • the employer is a defense contractor located on a military base (A.R.S. § 12-781)(C).

Trade secrets and restrictive covenants

Intellectual Property
Who owns IP rights created by employees during the course of their employment?

In the absence of an enforceable assignment-of-inventions agreement, an employer may not have an interest in any intellectual property that an employee creates or invents, even if the employee was on company time during the creation or invention. Employers interested in securing enforceable rights to intellectual property created or invented by their employees should enter into assignment-of-inventions agreements with their employees. Arizona has adopted its own version of the Uniform Trade Secrets Act (A.R.S. § 44-401 and following).

Restrictive covenants
What types of restrictive covenants are recognized and enforceable?

Although restrictive covenants are recognized in Arizona, courts may disfavor non-compete agreements. Courts apply a rule of reasonableness to determine whether a non-compete is enforceable. In assessing reasonableness, courts look specifically to:

  • time limits;
  • geographic restrictions; and
  • limitations on the scope of protected activity.

Non-competes involving doctors are even more closely scrutinized (Valley Med. Specialists v. Farber, 194 Ariz. 363, 982 P.2d 1277 (Ariz. 1999)).

When seeking to enforce a non-compete in Arizona, the burden is on the employer to prove a legitimate, protectable interest. Arizona courts have held that an employer has a legitimate, protectable interest in customer relationships, confidential information, and trade secrets. However, this interest is balanced against any interest that the employee may have in the customer relationship. Although employers have a protectable interest in their confidences, employers must be careful not to define confidential information too broadly, such as by including public information or information learned generally through the employee’s employment.

Non-compete
Are there any special rules on non-competes for particular classes of employee?

To be reasonable in scope, a restrictive covenant must:

  • not exceed what is reasonably necessary to protect the employer’s legitimate business interest;
  • not unreasonably restrict the employee’s rights; and
  • be reasonable as to time and geography.

In determining reasonable scope, the court may consider several factors, including:

  • 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.

Arizona courts will “blue pencil” restrictive covenants, meaning that they will eliminate grammatically severable, unreasonable provisions, but will not rewrite restrictions. Carefully crafted “step-down” provisions are permissible and may allow courts to sever overbroad provisions while enforcing reasonable ones. 

Labor relations

Right to work
Is the state a “right to work” state?

Arizona is a right-to-work state and employers cannot penalize employees (including by denying employment) because of non-membership in a labor union (A.R.S. § 23-1302). It is also unlawful for an employee, labor organization, or officer, agent, or member thereof, to threaten or interfere with a person, his or her immediate family, or property to compel or attempt to compel him or her to join a labor organization, strike, or leave his or her employment (A.R.S. § 23-1304).

Unions and layoffs
Is the state (or a particular area) known to be heavily unionized?

Arizona’s union membership rates in the private sector rose from 5.0% in 2013 to 5.3% in 2014, which is below 2014’s national average of 6.6%. While Arizona had much higher unionization rates a few years ago, peaking at 8.8% in 2007 and 2008, it is still typically one of the least unionized states in the country. The public sector has much higher unionization rates.

Employers should be aware that Arizona falls under Region 28 of the National Labor Relations Board, which is presently one of the most aggressive regions in the country for employers with unionized and non-unionized workforces. 

What rules apply to layoffs? Are there particular rules for plant closures/mass layoffs?

Arizona has no Worker Adjustment and Retraining Notification Act or specific law which governs plant closures or mass layoffs.

Discipline and termination

State procedures
Are there state-specific laws on the procedures employers must follow with regard to discipline and grievance procedures?

Arizona has no state-specific laws on the procedures that employers must follow with regard to discipline and grievances.

At-will or notice
At-will status and/or notice period?

The Arizona Employment Protection Act provides that Arizona employees are generally at-will emlpoyees (A.R.S. § 23-1501(A)(2)).

What restrictions apply to the above?

To challenge termination of employment under the Arizona Employment Protection Act, an employee can proceed under four theories of liability:

  • termination in breach of written contract, setting out that the employment relationship will remain in effect for a specified time or expressly restricting either party’s right to terminate the employment relationship;
  • termination in violation of Arizona statute, including the Arizona Civil Rights Act;
  • termination in retaliation for refusing to violate the Arizona Constitution or Arizona statute; or
  • for public employees, where the employee has a right to continued employment under either the United States Constitution or the Arizona Constitution.

Final paychecks
Are there state-specific rules on when final paychecks are due after termination?

When an employee is discharged, he or she must be paid the wages due to him or her within seven working days or at the end of the next regular pay period, whichever is sooner (A.R.S. § 23-353(A)).

An employer which violates Arizona wage statutes can be liable for treble damages (A.R.S. § 23-355). An employer has an affirmative defense to treble damages if it can establish that there is a good faith dispute regarding the amount of unpaid wages.