Paid Sick Time: Employers Should Think Twice Before Trying to Satisfy PST Through PTO/Vacation Policies

This is a continuation of my series regarding problems and issues relating to Arizona’s new Paid Sick Time requirements. Here is the link to my prior article discussing how the law’s anti-retaliation provisions effectively alter at-will employment in Arizona.

Arizona’s new Paid Sick Time (“PST”) requirements go into effect on July 1, 2017. They require that employers provide a certain minimum amount of PST to employees each year—40 hours for large employers; 24 hours for small employers. Given the approaching deadline, many employers are starting to plan how they will comply with these new PST requirements.

Notably, the law allows an employer to satisfy its PST obligations through another paid leave policy, and therefore avoid the obligation to provide additional PST to employees. Thus, many Arizona employers are planning to satisfy their PST obligations through a preexisting PTO or vacation policy. At first blush, this might seem like a good and simple solution.

But in order to avoid providing separate PST, an employer’s other paid leave policy must grant at least as much paid leave that can be used: (i) for the same purposes as PST; and (ii) under the same conditions as PST. See A.R.S. § 23-372(E). These requirements create serious consequences and legal risks for employers who might try to satisfy their PST obligations through a PTO/vacation policy. Some of the more notable ones are as follows:

Would Employers Have to Provide PTO/Vacation to ALL Employees?

Most employers limit PTO/vacation to full time employees, or to employees working at least a certain number of hours per week. Many employers also limit PTO/vacation to employees who have been employed for a minimum period of time (such as one year). But PST must be made available to all employees, whether full time, part time, or temporary. PST also starts accruing immediately at the start of employment (only use of PST can be delayed for 90 days). Thus, using a PTO/vacation policy to satisfy PST would require that an employer provide PTO/vacation to all of its employees, no matter how little they work, and from the very start of employment. For most employers this would result in a significant expansion of the number of employees able to take paid PTO/vacation time.

Would Employers Have to Allow Unlimited Yearly Rollover of PTO/Vacation?

Most employers either cap how much PTO/vacation employees can roll over each year, or have a “use-it-or-lose-it” policy. Although PST yearly accrual can be limited (40 hours for large employers; 24 hours for small employers), there are no limits on the amount of earned, unused PST employees can roll over each year. For a stand-alone PST policy, the effect of this unlimited yearly rollover should be relatively minor as, although the accrued PST can grow large over time, use of PST can still be limited to 40 hours per year (or 24, depending on size of the employer). But for an employer using a PTO/vacation policy to satisfy PST, this would require that the employer have no caps or limits on rolling over accrued, unused PTO/vacation at the end of each year. For most employers this would create operational difficulties regarding the amount and/or scheduling of employee time off. While an employer could try to control this by capping yearly use of PTO/vacation (like the PST yearly use cap), creating a system where employees can accrue but not effectively use large amounts of PTO/vacation will undoubtedly cause morale problems.

Would Employers Have to Reinstate PTO/Vacation to Rehired Employees?

Most employers do not have a policy of reinstating prior accrued but unused leave upon re-hiring. But for PST, if an employee is re-hired within nine months of separation, all previously accrued PST must be reinstated and made immediately available for use. Thus, using a PTO/vacation policy to satisfy PST would require that employers give back all prior unused PTO/vacation time to rehired employees, and make it be immediately available for their use upon rehire. This would increase the costs of employers in re-hiring valuable employees.

Would Employers Be Barred From Requiring Use of Accrued PTO/Vacation Concurrently With Unpaid FMLA Leave?

Most employers require employees to use accrued PTO/vacation time concurrently with unpaid FMLA leave. However, PST must be provided to an employee with the same benefits as work time. Of course, work time does not result in a reduction of available FMLA leave (in fact, the opposite is true: work time counts towards FMLA eligibility). Thus, it appears using a PTO/vacation policy to satisfy PST would bar employers from requiring that PTO/vacation time be used concurrently with unpaid FMLA leave. This would increase the amount of available time off to employees who have an FMLA qualifying event.

Would Employers Be Limited in Disciplining/Terminating Employees Who Recently Took PTO/Vacation?

Most Arizona employees are at-will and can usually be easily disciplined or terminated irrespective of whether they recently took PTO/vacation. But as discussed in my earlier article, the new laws provide employees with huge protections from discipline or termination within 90 days of using any PST. Thus, using a PTO/vacation policy to satisfy PST would give employees these same protections against discipline or termination if they took PTO/vacation in the previous 90 days. This would further hobble employers trying to address employee performance or other problems through the disciplinary process.

Would Employers Still Have to Grant PST To Employees Who Exhausted Their PTO/Vacation Banks For Other Reasons?

The major purpose of using PTO/vacation to satisfy PST is to avoid giving employees additional paid time off beyond already available PTO/vacation leave. But this purpose may be frustrated by the rights guaranteed under the PST statutes. For instance, if an employee exhausts her PTO/vacation bank for reasons unrelated to PST (like a big vacation) but then needs time off for a qualified PST purpose (like a serious illness), the employee may assert she never actually received her paid leave as protected by the PST statutes (for her illness), and so the employer is still obligated to give the employee PST leave separate and apart from her PTO/vacation time! We will have to wait and see how the courts address this issue. But to the extent a court might side with an employee in this situation, an employer attempting to satisfy PST through a PTO/vacation policy could still end up having been found to have illegally denied the employee PST leave and be subject to a substantial award of damages, attorneys’ fees and penalties under the PST statutes (PST-related damages and penalties will be addressed in one of my further articles in this series).

Conclusion

Given the problems noted above, employers should think long and hard—and obtain legal advice—before they decide to try and satisfy their PST obligations through their PTO/vacation policies.

Employers will face a myriad of additional issues and problems in trying to comply with the new PST requirements. My upcoming articles will address other significant issues relating to PST. If you have any questions or comments, please feel free to email me at edm@rllaz.com, or call me at 520.792.4800.

Important Disclaimer: The foregoing is not legal advice and does not create an attorney-client relationship. Also, given the PST statutes are new and not yet tested, it remains to be seen whether the courts and/or agencies will apply and enforce the PST requirements in the ways discussed above.