Arizona’s Labor Laws on Termination Pay


Parting ways with an employer is rarely a clean break. Questions regarding termination of benefits, severance packages, vested stock options, and final paychecks are common, and unfortunately the employer’s human resources team is often unenthusiastic about helping someone who is no longer with the company. If you’re in this situation, it helps to understand what your former employer is required to do, and what rights you have under state and federal employment law.

What are the final paycheck rules if you quit?

When an employee voluntarily resigns, the employer is required to pay their final wages no later than the standard payday for the current pay period during which the employee resigned (ARS 23-353). For example, if an employer pays their employees every Friday for the preceding week’s wages, an employee who quits on a Wednesday should receive their final paycheck the next Friday like all of the other employees. The employer should issue the final paycheck according to the normal procedures (direct deposit, check, etc.), though the employee has the right to request payment by mail.

What are the final paycheck rules if you are laid off or resign due to a labor dispute?

If an employee is laid off, the employer is required to dispense their final paycheck within seven business days or by the next regular payday, whichever comes first. If the final paycheck is a check or money order, it needs to be dated for that payday (post-dating checks is not allowed). Employees who are involved in a labor dispute should receive their final paycheck by the following payday.

Is paid-time-off (PTO) included with a final paycheck?

Employers in the state of Arizona are not required to offer vacation time or PTO, though most do. As such, there is no explicit requirement to pay a former employee for their unused PTO. However, all of an employee’s wages are due on their final paycheck, and the formal definition of wages in ARS 23-350 includes compensation for labor or services rendered for which the employee has a reasonable expectation to be paid, so the matter is open to interpretation. If an employee earns PTO based on hours worked, you could argue that the accumulated PTO constitutes earned wages, which case the employer would be required to include unused PTO in an employee’s final paycheck.

Are severance packages included with the final paycheck?

There are not state or federal laws that require employers to offer severance packages to employees who are laid off or terminated. However, if severance packages are standard practice for the employer, or if a severance package is included in the employee’s contract, then the severance compensation will need to be included with the final paycheck.

Under what conditions can your final paycheck be withheld?

An employer can withhold part or all of a final paycheck if there is a reasonable good faith dispute over the value of the wages due. Such situations usually involve an employer with a valid claim of reimbursement, debt, recoupment, or counterclaim against the employee. In these cases, the employer is still required to pay the undisputed portion of the employee’s wages by the following payday or within 7 days, whichever comes first.

Can a former employee sue for unpaid wages?

According to ARS 23-355, an employee or former employee can file a civil suit against the employer seeking unpaid wages and damages. If the court finds the employer unlawfully withheld wages, the employee or former employee is entitled to 3x their unpaid wages. Before you seek civil action, though, you’ll need to file a complaint with the Industrial Commission of Arizona’s Labor Department. The Labor Department will launch an investigation into the employer if your claim has merit, and if the investigation finds employer wrongdoing they may be subject to fines and/or judicial action by the State.

Is Arizona an at-will employment state?

Unless there is a written contract between the employer and the employee, all employees in the state of Arizona are considered at-will employees (ARS 23-1501). However, both state and federal laws protect against discriminatory termination due to race, color, religion, national origin, gender, age (over 40), pregnancy, or disability. Employers are also prohibited from terminating an employee in retaliation for the employee’s refusal to break state and/or federal laws.

Applicable federal labor laws

While there are no federal laws that dictate how long an employer has to issue an employee’s final paycheck, nor are there any federal requirements to offer severance pay, there are 8 major federal laws that govern labor, wages, and the workplace:

  • Age Discrimination in Employment Act (ADEA) – protects employees who are age 40 or older from discrimination based on their age.
  • Americans With Disabilities Act (ADA) – employers cannot discriminate against employees or job applicants based on an actual or perceived disability. When assessing an employee or job applicant’s abilities, the employer is required to consider if they can fulfill the job’s essential responsibilities with or without reasonable accommodations.
  • Equal Pay Act (EPA) – employers are required to provide equal compensation to men and women who are performing the same work within the company.
  • Fair Labor Standards Act (FLSA) – this law provides the foundation for the federal minimum wage and overtime-pay requirements. The federal minimum wage is currently $7.25/hour, and employers are required to pay 1.5x an employee’s wages for overtime over 40 hours a week.
  • Family and Medical Leave Act (FMLA) – employers are required to provide employees unpaid time-off for qualified family and personal medical situations. All employees that have been with the company for over a year and have worked at least 1,250 hours during the previous year are eligible for FMLA. Employees are guaranteed up to 12 weeks of unpaid leave with continuing benefits, and upon their return to work the employer must either retain their position or offer them another position with the same compensation.
  • Occupational Safety and Health Act (OSH Act) – all employees have the right to work in a safe environment
  • Pregnancy Discrimination Act (PDA) – employers cannot discriminate against a female employee based on pregnancy, childbirth, or maternity-related healthcare issues.
  • Title VII of the Civil Rights Act (Title VII) – employers are prohibited from discriminating against employees and job applicants based on race, color, religion, national origin, and gender. Employers are also required to provide reasonable accommodations for an employee’s deeply held religious beliefs and practices.

Call our Employment Law team at (480) 464-1111 to discuss your case today.

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