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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. This act confirms the status of Arizona employees as at-will employees, unless the employee and employer “have signed a written contract to the contrary” that meets certain other statutorily required criteria, including a signature by both parties.

Who do these cover, including categories of workers?

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


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. However, Arizona employers can create a rebuttable presumption that a relationship is an independent contractor relationship and not an employment relationship by having the contractor sign a Declaration of Independent Business Status (A.R.S. § 23-1601). The contractor must acknowledge each statement set forth in A.R.S. § 23-1601(b) and sign and date the declaration to establish the rebuttable presumption. Completing a declaration is optional and a party’s failure to execute a declaration does not create any presumptions and is not admissible as evidence of the lack of an independent contractor relationship (A.R.S. § 23-1601(A) and (D)). This does not supersede or replace required federal analysis under a panoply of statutes, including the Fair Labor Standards Act, nor does it replace other tests or factors looked to by other state laws. 

For minimum wage purposes, Arizona follows the Fair Labor Standards Act to determine 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 that 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.


Must an employment contract be in writing?

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.”

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 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)). Arizona employers should be acutely aware that an Arizona statute allows the court hearing any dispute discretion to award the successful party in a contract action its attorneys’ fees and costs  (A.R.S. § 12-341.01(A)).

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