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If you are a member or manager of an Arizona limited liability company (or professional limited liability company), your obligations may be significantly expanded under a law that begins to take effect as early as August of 2019. This article summarizes the impact of the new law relating to fiduciary duties of members and managers, and provides some thoughts as to how you can understand and manage those obligations.
Fiduciary Duties Defined
A fiduciary, in simple terms, is a person who owes to another person certain duties, such as good faith, trust, special confidence, and candor. In the business context, fiduciary duties help ensure that each officer, director or manager of a business is acting in a manner that is consistent with the company’s objectives and the interests of other owners. Under Arizona law directors and officers of corporations, and members of a partnership have long been deemed to owe fiduciary duties to the corporation or partnership. Until relatively recently, it had been unclear whether managers or members of Arizona LLCs owe fiduciary duties to the company and the other members. There had not been a statute addressing the issue, and Arizona case law had generally been interpreted so as not to impose fiduciary duties on LLC members unless the Operating Agreements imposes such duties on the members.
Imposition of Fiduciary Duties on Members or Managers of LLCs
On April 10, 2018, Arizona Governor Ducey signed the Arizona Limited Liability Company Act (ALLCA). ALLCA will apply to all Arizona LLCs formed after August 31, 2019; on August 31, 2020, Arizona’s current LLC law will expire, and ALLCA will apply to all Arizona LLCs, regardless of their date of formation. One notable change brought about by ALLCA is the imposition of fiduciary duties on members and managers of Arizona LLCs. Under ALLCA, fiduciary duties will be imposed on members and managers if: (1) the LLC does not have a written Operating Agreement, or (2) if the LLC has an Operating Agreement that is silent on the subject of fiduciary duties.
For Members in a Member-Managed LLC
Under ALLCA, members of a member-managed LLC will owe a duty of loyalty and a duty of care to the LLC and to the other members; in addition, the members will be obligated to act in a manner consistent with a contractual obligation of good faith and fair dealing. See A.R.S §29-3409.
For Managers in a Manager-Managed LLC
Similarly, a manager of a manager-managed LLC will owe the LLC and the members essentially the same duties of loyalty and care as the members in member-managed LLCs owe to the company and to one another. A manager must also discharge his or her duties and obligations under the ALLCA in a manner that is consistent with the obligation of good faith and fair dealing. In a manager-managed LLC, the members will not owe fiduciary duties to one another solely because they are members of the LLC; the existence and scope of any fiduciary duties of a member in a manager-managed LLC will depend on the extent to which the member controls or participates in the management of the company.
Eliminating or Altering Fiduciary Duties in the Operating Agreement
An Arizona LLC can depart from certain ALLCA provisions in the LLC’s Operating Agreement, and with the exception of a few items, the LLC’s Operating Agreement will supersede the provisions of the ALLCA. A.R.S. §29-3105; See A.R.S. §29-3409(F) and A.R.S. §29-3409(N). This means that certain of the duties imposed under the statute can be expanded, limited or eliminated by the Operating Agreement. The Operating Agreement cannot, however, eliminate the managers’ or members’ contractual obligation of good faith and fair dealing, or the duty to refrain from willful or intentional misconduct.
To ensure that any fiduciary duties imposed on you as a member or manager of an Arizona LLC are aligned with your interests as a member or manager, you should consider whether you want to be bound by the provisions of ALLCA relating to fiduciary duties. If you want to modify or eliminate those duties, to the extent permissible under ALLCA, please contact us or another legal adviser.
This article is made available for informational purposes only and is not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
 Arizona law recognizes an implied covenant of good faith and fair dealing in every contract; this covenant obligates parties to a contract to act in good faith, and in a manner that is consistent with fair dealing.
The Americans with Disabilities Act (ADA) requires employers to provide reasonable accommodations to qualified individuals with a disability, unless doing so would trigger significant operational difficulties or expenses for the employer. Employees on leave for a disability may request reasonable accommodations in order to return to work. The employee may make the request, or the request may be outlined in a doctor’s note releasing the employee to return to work with certain restrictions.
When an employer becomes aware of an employee’s need for a possible accommodation, it is the duty of the employer to discuss the accommodation needs with the employee. Employers run afoul of the ADA when they impose “100% healed or recovered” policies. These policies refer to a practice mandating an employee be released to work without any restrictions before she may return to work. For example, if an employee is on medical leave for a surgery to address a disability and the employee’s physician releases her to work with a 20-pound lifting restriction, the employer cannot refuse to allow the employee to return to work with the lifting restriction if the employee’s essential functions do not require lifting 20 pounds. To do so would violate the ADA.
In May 2016, the Equal Employment Opportunity Commission (EEOC) issued guidance entitled “Employer-Provided Leave and the Americans with Disabilities Act.” Since issuing that guidance, the EEOC has been targeting employers with 100% Healed Policies. Recently, the EEOC set its sights on Corizon Health Inc., and Corizon LLC, (Corizon), nationwide health care companies that operate in Phoenix, Arizona.
On September 19, 2018, the EEOC filed suit against Corizon in the District of Arizona. The EEOC suit alleges Corizon violated federal law by discriminating against employees with a 100% healed policy. The EEOC states Corizon required employees with disabilities to be 100% healed or to be without any medical restrictions before they were allowed to return to work. The EEOC states this practice is a clear violation of the ADA.
The EEOC’s Phoenix Office, in filing this suit, has made clear it is committed to challenging 100% healed policies. Elizabeth Cadle, District Director of the EEOC’s Phoenix District Office, stated in a press release,
“Employers should never have 100% return to work policies that require employees to have no medical restrictions. That policy tells employees that the company will not provide reasonable accommodations for employees with medical restrictions.”
What does this mean for Arizona employers?
If you are an Arizona employer with a 100% healed policy, you should contact legal counsel immediately to discuss policy revisions. While the ADA does not require employers to return every employee to work after medical leave, the law may prohibit automatic denials based on broad 100% healed requirements. Employers should consult with legal counsel to ensure their policies support a case-by-case analysis of employee accommodation requests. If you have a 100% healed policy, or have questions or concerns about your current accommodation and equal employment policies, contact the Milligan Lawless attorney with whom you usually work.
In the wake of the #MeToo movement, the United States Equal Employment Opportunity Commission (EEOC) has sent a message to employers that cracking down on workplace sexual harassment continues to be an enforcement priority. Immediately following a meeting last June that reconvened the EEOC’s Select Task Force on the Study of Harassment in the Workplace, the agency announced the filing of seven separate lawsuits against employers throughout the country over allegations of sexual harassment and other forms of misconduct.
The EEOC’s actions demonstrate the need for employers to take proactive measures toward eliminating and preventing sexual harassment within their workforce.
What is Sexual Harassment?
Sexual harassment is broadly defined as
- unwelcome sexual advances, requests for sexual favors, or visual, verbal, or physical conduct of a sexual nature,
- when such conduct explicitly or implicitly affects the terms and conditions of an individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating or hostile work environment.
Sexual harassment can take myriad forms, including all of the following: commenting on an individual’s body or sexual attractiveness; requesting sexual favors; transmitting or displaying sexually explicit emails, texts, or images; telling obscene jokes; making offensive gestures; and engaging in unwanted touching.
Sexual harassment is considered a form of sex discrimination that violates Title VII of the Civil Rights Act of 1964.
Sexual harassment also represents significant economic costs to employers in the form of increased absenteeism, reduced productivity, higher staff turnover, and the financial/reputational damage of high-profile payouts.
A Proactive Approach
The EEOC has made clear that employers are charged with exercising reasonable care to identify and correct sexual harassment in the workplace. To that end, employers should consider these practical steps:
Adopt a Written Anti-Harassment Policy
An employer can help minimize its exposure by adopting and communicating a strong, written anti-harassment policy. The EEOC advises that the policy should, at a minimum, include the following elements:
- A clear statement that harassment is not tolerated
- The definition of sexual harassment
- A clearly described complaint process that provides more than one avenue through which employees can report complaints – an employee’s direct supervisor should not be the only person to whom a complaint may be raised
- Assurance that the employer protects the confidentiality of complaints to the extent possible and does not retaliate against employees who report complaints
- Assurance that the employer will promptly and thoroughly investigate complaints and take immediate corrective and appropriate action when it has determined that harassment has occurred
Employers should include the policy in their employee handbooks and distribute to all employees.
Provide Effective Training
Employers should provide sexual harassment training to all levels of employees. Employers should also consider providing additional and separate training to management.
The EEOC states that anti-harassment training is most effective when it is, among other things:
- Championed by senior management
- Repeated and reinforced regularly
- Provided in a clear, easy to understand style and format
- Provided in all languages commonly used by employees
- Tailored to the specific workplace and workforce
- Conducted by qualified, live, interactive trainers or, if live training is not available, designed to encourage active participation
- Routinely evaluated by participants and revised if necessary
Conduct Appropriate Investigations & Take Effective Remedial Action
When an employee reports a complaint of sexual harassment, employers can help protect themselves by promptly investigating the claim. As soon as an employer learns of a complaint, it should determine whether a fact-finding investigation is necessary and how it will be conducted. To the extent possible, investigations should be kept confidential.
In the event that an employer determines that harassment has occurred, it must undertake immediate and appropriate corrective measures. Corrective measures should be designed to stop the harassment, correct its effects on the complainant, and ensure that the harassment does not recur.
Employers should keep in mind that corrective measures that adversely affect or penalize the complainant could constitute unlawful retaliation.
Consult with Legal Counsel for Additional Information
Employers that would like more information about workplace sexual harassment, including advice on creating and implementing effective anti-harassment policies, may contact the attorneys at Milligan Lawless for assistance.
On April 30th, 2018, Dr. Rita Luthra was convicted of violating the HIPAA Privacy Rule and of obstruction of a criminal health care investigation. A federal jury found that Dr. Luthra allowed a pharmaceutical sales representative to access her patient records and lied to federal investigators. Criminal charges under the federal Anti-Kickback Statute (“AKS”) were alleged initially but subsequently dropped.
Dr. Luthra’s conviction stems from her involvement with a pharmaceutical sales representative with Warner Chilcott. Warner Chilcott was the subject of a criminal investigation by the U.S. Department of Justice (DOJ) in 2015. The investigation resulted in Warner Chilcott pleading guilty to a felony charge of health care fraud and agreeing to pay $125 million to resolve criminal and civil liability arising from alleged illegal marketing practices of certain drugs.
According to the government, the Warner Chilcott sales representative asked Dr. Luthra to participate in the company’s speaker program because Dr. Luthra prescribed a high volume of osteoporosis medication. Dr. Luthra agreed and spoke at medical education and speaker training events held in her office. The events involved Dr. Luthra speaking to the sales representative for about thirty minutes while she ate food provided by the representative for Luthra and her office staff. Warner Chilcott paid Dr. Luthra approximately $23,500 for her services.
In January 2011, Warner Chilcott launched a new osteoporosis drug which Dr. Luthra prescribed. Many insurance companies required a prior authorization before covering the new drug. In response to receiving numerous denials for Dr. Luthra’s prescriptions for the new drug, she asked the sales representative to assist one of her medical assistants with obtaining prior authorizations. The sales representative agreed, was given access to Dr. Luthra’s medical records to complete the prior authorizations, and filled out the prior authorizations.
Dr. Luthra later provided false information to OIG investigators when interviewed about her relationship with Warner Chilcott. She was convicted of a criminal violation of HIPAA for the improper disclosure of her patients’ protected health information to the sales representative. It is illegal to knowingly disclose protected health information in violation of the Privacy Rule. Most HIPAA enforcement activities are in the form of civil enforcement. However, the Privacy Rule also establishes criminal penalties for certain wrongful disclosures of protected health information.
Dr. Luthra’s sentencing has not yet been scheduled. Nonetheless, Dr. Luthra’s HIPAA violation provides for a sentence of up to one year in prison and/or a fine of up to $50,000. The obstruction conviction carries a higher potential penalty of up to five years in prison and a fine of up to $250,000.
While criminal prosecutions of HIPAA violations are rare, this case serves as a reminder that HIPAA is more than a series of privacy and security rules; HIPAA establishes criminal liability and potential jail time for HIPAA violations. This case reflects the DOJ’s continuing scrutiny of physician-pharmaceutical manufacturer relationships, particularly those that can affect health care decision making. Providers should be mindful of their relationships with pharmaceutical companies, and third parties who may have access to protected health information. Moreover, if a provider is the subject of an investigation, he or she should be truthful and engage competent counsel at the early stages of the investigation.
For more information, or if you need assistance with an investigation or evaluating whether your relationships comply with HIPAA, please contact Miranda Preston or another health care attorney at Milligan Lawless.
In November 2016, Arizona voters passed a ballot initiative (Proposition 206) for a statewide sick time law and annual increases to the minimum wage. The new law, entitled the Fair Wages and Healthy Families Act, takes effect on July 1, 2017. The purpose of this article is to provide an overview of the law’s paid sick time requirements and the steps employers should be taking to ensure compliance with those requirements.
Take note that the following information is intended as a summary only. Employers are strongly encouraged to seek legal counsel should they have additional questions regarding the new law’s requirements. Additionally, employers should be aware that certain requirements may be subject to changes or further clarification as the courts and the Industrial Commission provide additional guidance on the new law.
What is Paid Sick Time?
The new law requires employers to provide paid sick time to all full-time, part-time, and temporary employees. Paid sick time, which must be compensated at the employee’s current pay rate, may be used for the following reasons:
- An employee’s medical care, illness, injury, or health condition
- Care of an employee’s family member with an illness, injury, health condition, or need for medical care
- A public health emergency
- Issues related to domestic violence, sexual violence, abuse, or stalking affecting the employee or employee’s family member
The law broadly defines “family member” to include children and stepchildren of any age, parents and stepparents, spouses and domestic partners, grandparents, siblings, in-laws, and other individuals related by either blood or affinity whose close association with the employee is the equivalent of a family relationship.
What Arizona employers are subject to the paid sick time requirements?
Virtually all employers, including small businesses, are subject to the law’s requirements. State and federal employers are exempt.
How much sick time does the law provide employees?
Regardless of the size of the employer, employees must accrue paid sick time at the rate of no less than one hour for every 30 hours worked.
Employees working for employers with 15 or more employees are entitled to accrue and use up to a maximum of 40 hours of paid sick time per year.
Employees working for employers with less than 15 employees are entitled to accrue and use up to a maximum of 24 hours of paid sick time per year.
Accrual of paid sick time begins July 1, 2017. Employees may use paid sick time as soon as it is accrued; however, employers may require employees hired after July 1, 2017 to wait 90 calendar days after the start of employment before using accrued paid sick time.
What if an employer already provides paid time off to employees?
If employers already have policies that provide paid time off in an amount that meets or exceeds the law’s minimum requirements (and that can be used for the same purposes specified by the law), they are not required to provide additional paid sick time to employees.
Additionally, the law does not prohibit or discourage employers from implementing more generous paid leave policies, i.e., providing employees with paid time off above the law’s minimum requirements.
What if an employee has unused paid sick time at the end of the year?
The new law provides employers with two options regarding an employee’s accrued, unused paid sick time:
- Employers may allow employees to carry over any accrued, unused paid sick time into the next year; or
- Employers may pay employees for the accrued, unused paid sick time at the end of the year and provide those employees with an amount of paid sick time that meets or exceeds the requirements of the law and that is available for the employee’s immediate use at the beginning of the subsequent year.
Regardless of what option an employer chooses, employees are still only entitled to use the amount of paid sick time required under the law (up to a maximum of 40 hours per year) unless the employer has provided a higher limit.
Employers are not required to pay an employee for any accrued, unused paid sick time upon termination of the employee’s employment. If the employee is rehired by the employer within nine months of the termination of employment, however, the employee’s previously-accrued paid sick time must be reinstated.
How does an employee request use of paid sick time?
Employees may submit requests to use paid sick time orally, in writing, electronically, or by any other means acceptable to the employer. When the need to use paid sick time is foreseeable, an employee must make a good faith effort to provide advance notice and should attempt to schedule such time in a manner that is not unduly burdensome to the employer’s operations. When the need to use paid sick time is not foreseeable, an employer may only require advance notice if it has previously given the employee a written policy outlining the procedures for providing advance notice.
Employers cannot require that employees find a replacement worker when requesting use of paid sick time.
Can employers require employees to document or discuss the details of a need to use paid sick time?
In the event that an employee uses paid sick time for three or more consecutive work days, employers may require reasonable documentation that the paid sick time was used for one of the reasons specified under the law.
Employers cannot require employees to specify the relevant health issue or the details of domestic violence, sexual violence, abuse, or stalking that gave rise to the need to use paid sick time.
Are employers required to give employees notice of their rights under the new law?
At the commencement of an employee’s employment or by July 1, 2017, whichever is later, employers must provide employees written notice of the following:
- The fact that employees are entitled to paid sick time
- The amount of paid sick time that their employees are entitled to accrue
- The terms of using paid sick time
- That retaliation against employees who request or use paid sick time is prohibited
- That each employee has the right to file a complaint if paid sick time is denied or if the employee is subject to retaliation for requesting/using paid sick time
- The contact information for the Industrial Commission
Industrial Commission Labor Department
800 West Washington Street
Phoenix, Arizona 85007
The notice should be posted alongside other required workplace notices/posters.
Are there other recordkeeping requirements?
Employers must provide employees with the following information either in or on an attachment to the employee’s paycheck:
- The amount of paid sick time available for use by the employee
- The amount of paid sick time taken by the employee to date in the year
- The amount of pay the employee has received as paid sick time to date in the year
What are the consequences for failing to comply with the law’s requirements?
The law prohibits discrimination and retaliation against employees who use or request paid sick time. Paid sick time counts as a protected absence and cannot lead to any disciplinary or adverse action against an employee. The law creates a rebuttable presumption that any adverse employment action taken within 90 days of an employee’s use of paid sick time is retaliatory. An employer must show by clear and convincing evidence that the adverse employment action was not in retaliation for the employee’s use of paid sick time.
Employers who fail to comply with the law’s requirements are subject to the following:
- Civil lawsuits brought by the state and/or employees
- Payment of double the wages owed to an employee, plus interest
- Employee attorney fees and costs
- Civil penalties
- State monitoring and inspections
What should employers do to prepare for the new law?
- Employers should review current time off policies to ensure that they meet the requirements of the new law. Policies that include “use it or lose it” requirements, as well as policies that prohibit employees from accruing paid sick time until after a specified period of time, do not comply with the new law. Employers and/or legal counsel should revise existing policies to ensure compliance.
- Prior to July 1, 2017, employers should provide notice to employees of their rights under the new law.
- Employers should work with their payroll companies or payroll departments to develop a method for tracking and reporting employees’ paid sick time.
- Employers should provide training to supervisors on the new law’s requirements.
- Employers are strongly encouraged to consult with legal counsel regarding questions or concerns about complying with the new law.