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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)).

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