Proposition 206, the minimum wage and paid sick time referendum that decisively passed in last month’s election with over 58 percent of votes cast, may never become effective if a newly filed lawsuit proves successful. In the meantime, the Industrial Commission of Arizona (ICA) issued their initial FAQs in a newly-released document, Frequently Asked Questions (FAQs) About Minimum Wage and Earned Paid Sick Time designed to provide guidance for employers and employees on both the new minimum wage and the paid sick time (PST) provisions. While helpful in summarizing and organizing the law’s multiple components, the FAQs break no new ground. Also, they admit that the model notices the ICA is supposed to prepare (i.e., the ones employers must post in order to stay in compliance with the new law) are still “currently being developed.” 

Of course, none of the changes Prop. 206 is set to bring about will occur if the Arizona Chamber of Commerce and Industry and a number of other chambers of commerce, employers, and individuals are successful in their lawsuit filed in Maricopa County Superior Court seeking to nullify Prop. 206 on constitutional grounds. A preliminary injunction hearing is set for December 16 before Judge Daniel Kiley.

In a nutshell, the lawsuit alleges that Prop. 206 violates two Arizona constitutional principles. The first is the so-called “Revenue Source Rule,” which calls for any new law or initiative that mandates expenditures or allocates funding for any purpose to simultaneously provide for a revenue source to offset that increased expenditure or funding. The second is the so-called “Separate Amendment Rule,” which requires that all amendments to the Arizona constitution be limited to discrete, related topics. The lawsuit astutely points out that Prop. 206 tackled a number of distinctly unrelated topics—namely increasing the minimum wage and creating mandatory paid sick time. However, the lawsuit also seemingly concedes that the doctrine in question is limited to constitutional amendments, not ordinary legislation and referendums. So it appears that to be successful on this argument, the plaintiffs must convince the court to read the Separate Amendment Rule broadly enough to encompass more than just constitutional amendments. 

As for the Revenue Source Rule, the plaintiffs likely will need to demonstrate that the rule against so-called unfunded mandates extends beyond direct-impact legislation (such as laws that require the government to engage in proactive measures that cost money to fulfill), to include legislation that indirectly causes government to spend revenue—such as increasing the cost of providing Arizona Health Care Cost Containment System (AHCCCS) benefits due to increased hourly rates paid to contractors with which the state does business. Buckle up and stay tuned. This is going to get messy.