Arizona Chamber of Commerce & Industry, et al. v. Kiley (State, et al) (Arizona Supreme Court Case No. CV-16-0314-SA, filed August 2, 2017)

The Arizona Supreme Court, in a unanimous opinion, denied a state constitutional challenge to Proposition 206, “The Fair Wages and Healthy Families Act”–an initiative approved by Arizona voters in the November 2016 election, which increased the minimum wage and established mandatory earned paid sick leave. The business groups and organizations challenging the law argued it violated the Arizona Constitution’s Revenue Source Rule, Separate Amendment Rule, and Single Subject Rule. The supreme court disagreed, holding the law complied with all three of these constitutional provisions.

Proposition 206

Proposition 206 increases Arizona’s minimum wage incrementally over a three-year period and then requires annual increases tied to the consumer price index. It also generally requires employers to provide mandatory sick leave to employees. The proposition’s minimum wage provisions went into effect on January 1, 2017, and the sick leave provisions went into effect on July 1, 2017. The State of Arizona, the federal government, and certain small businesses are exempt from Proposition 206’s requirements.

The Revenue Source Rule

The Revenue Source Rule is found in article 9, section 23 of the Arizona Constitution. Under this rule, “An initiative or referendum measure that proposes a mandatory expenditure of state revenues for any purpose, establishes a fund for any specific purpose, or allocates funding for any specific purpose must also provide for an increased source of revenues sufficient to cover the entire immediate and future costs of the proposal. The increased revenues may not be derived from the state general fund or reduce or cause a reduction in general fund revenues.”

The supreme court determined Proposition 206 does not violate the Revenue Source Rule because the proposition “does not explicitly propose a mandatory expenditure of state revenues, establish a fund, or allocate funding,” nor does it expressly require state action that inherently requires a non-discretionary expenditure of state revenues, without providing an independent funding source. The court first observed the proposition does not apply to state employees, so it does not affect the state’s payroll. And although the new law requires the Industrial Commission of Arizona to promulgate guidelines or regulations to implement and enforce the law’s earned paid sick time provisions, and to create model notices for employers to use in providing notice to employees about those provisions–tasks the supreme court acknowledged would require “a mandatory expenditure of state revenues” within the meaning of the Revenue Source Rule–the supreme court ruled Proposition 206 provides a funding source for these tasks by amending Arizona law to permit the imposition of civil penalties on employers that fail to pay earned sick time to employees. Lastly, the supreme court disagreed with the proposition’s challengers that any potential increase in the expenditures of other state agencies that might indirectly result from Proposition 206 would be sufficient to constitute a violation of the Revenue Source Rule because Proposition 206 does not explicitly or inherently require the expenditures.

The Separate Amendment Rule

The Separate Amendment Rule is found in article 21, section 1 of the Arizona Constitution. It requires that when more than one proposed amendment to the state constitution is submitted for approval in an election, the proposed amendments “shall be submitted in such manner that the electors may vote for or against such proposed amendments separately.” Proposition 206’s challengers asserted the proposition violates the Separate Amendment Rule by addressing two separate topics: minimum wage and earned paid sick time. The supreme court disagreed, holding the Separate Amendment Rule, by its plain terms, “only applies to proposed constitutional amendments, whereas Proposition 206 proposed statutory changes,” making the rule inapplicable in this case.

The Single Subject Rule

The Single Subject Rule is found in article 4, part 2, section 13 of the Arizona Constitution. It provides: “Every act shall embrace but one subject and matters properly connected therewith, which subject shall be expressed in the title; but if any subject shall be embraced in an act which shall not be expressed in the title, such act shall be void only as to so much thereof as shall not be embraced in the title.” The supreme court has long recognized this rule “applies only to acts by the legislature; it does not apply to initiatives.” The supreme court declined the invitation by Proposition 206’s challengers to revisit this precedent and apply the rule to initiative measures like Proposition 206.

To read the full text of the Arizona Supreme Court’s opinion in the case, click here.