Court Opinion

ID: 4276125
Source: CourtListenerOpinion
Date Created: 2018-05-17 16:02:24.825326+00
Date Added: 2024-06-11T14:33:48.790873
License: Public Domain

IN THE
             ARIZONA COURT OF APPEALS
                              DIVISION ONE

            THE GRIFFIN FOUNDATION, Plaintiff/Appellant,

                                     v.

      ARIZONA STATE RETIREMENT SYSTEM, Defendant/Appellee.

                           No. 1 CA-CV 17-0114
                             FILED 5-17-2018

           Appeal from the Superior Court in Maricopa County
                        No. LC2016-000008-001
                 The Honorable Patricia A. Starr, Judge

                                AFFIRMED

                                COUNSEL

Jaburg & Wilk PC, Phoenix
By Kraig J. Marton, Jeffrey A. Silence
Counsel for Plaintiff/Appellant

Arizona State Retirement System, Phoenix
By Jothi Beljan
Counsel for Defendant/Appellee

                                 OPINION

Presiding Judge Randall M. Howe delivered the opinion of the Court, in
which Judge Kenton D. Jones and Judge James B. Morse Jr. joined.
                    GRIFFIN FOUNDATION v. AZSRS
                          Opinion of the Court

H O W E, Judge:

¶1            The Griffin Foundation Inc. (“GFI”) appeals the superior
court’s decision affirming the Arizona State Retirement System’s (“ASRS”)
administrative decision holding that GFI owed past-due contributions for
its employees from October 2010 to July 2015. GFI claims that during that
time, its workers were not ASRS-eligible members because they were
“leased” through third-party companies and therefore it did not owe any
past-due contributions. A “leased employee” is an individual that is not an
employee of an ASRS employer, but performs services under the
employer’s primary direction or control and performs those services under
a leasing agreement between the employer and another person on a
substantially full-time basis for at least one year. A.R.S. § 38–711(23)(f). We
hold that when a business enters into an agreement to serve as a “co-
employer” of those working under its direction or control, those persons
cannot be considered “leased employees” within the language of A.R.S.
§ 38–711(23)(f). We therefore affirm the ASRS Board’s decision.

                 FACTS AND PROCEDURAL HISTORY

¶2            GFI operates three charter schools in Tucson. In September
2001, GFI became a participating ASRS employer by executing a
supplemental retirement plan under A.R.S. §§ 15–187(C) and 38–729, which
allow charter schools to enter ASRS as political subdivisions. After entering
ASRS, GFI began remitting contributions to ASRS on behalf of its
employees.

¶3           In 2010, GFI’s CEO, Lee Griffin, met with GFI’s business
manager, to discuss budget issues. The business manager informed Griffin
about using leased employees, a concept she first heard about while
attending an ASRS workshop. The business manager solicited more
information about leasing employees from ASRS. ASRS responded that
leasing employees was a practice that ASRS had seen but did not “support.”
GFI subsequently met with businesses that it believed satisfied the
requirements to serve as a leasing company. GFI contracted with
Administaff1 for such services. GFI subsequently stopped remitting
contributions to ASRS on behalf of its workers, who GFI claimed were no

1     Administaff subsequently changed its name to Insperity. For clarity
and consistency, we refer to the company as Administaff throughout this
opinion.

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                    GRIFFIN FOUNDATION v. AZSRS
                          Opinion of the Court

longer ASRS-eligible members since the workers were by then leased
through Administaff.

¶4            In February 2011, the business manager informed ASRS that
on October 26, 2010, GFI “contracted with Administaff to provide payroll
management services, including shared employment.” ASRS responded
that it was not familiar with the term “shared employment” and that it
needed additional information about GFI and Administaff’s contractual
relationship. ASRS requested information on whether GFI had its own
employees or leased them through a third-party company. The following
month, GFI responded that effective October 25, 2010, it no longer had
employees, but leased its workers from Administaff. GFI also attached a
copy of the signature page from GFI’s contract with Administaff.

¶5            Five months later, ASRS assistant director Patrick Klein
requested the entire contract between GFI and Administaff. After receiving
the contract, ASRS asked Administaff about its contractual relationship
with GFI. Administaff responded that it had a “co-employer relationship”
with GFI, “under which our worksite employees are employed by both co-
employers.” Administaff also stated that it was a professional employer
organization (“PEO”) and that the Arizona Professional Employer
Organization Registration Act governed its relationship with GFI.

¶6             In September 2011, citing inconsistencies between GFI’s and
Administaff’s characterization of their relationship, ASRS informed GFI
that it was liable for all contributions not withheld from October 25, 2010,
to the present and attached a Contributions Not Withheld (“CNW”) form
for GFI to submit for each employee. GFI responded that its “workforce is
employed through a leasing agency/PEO program” and that Administaff’s
PEO program “offers much more than the basic function of leasing
employees[.]”

¶7              This led ASRS to again seek information from Administaff
about whether it leased its employees to GFI. Administaff stated that it was
a PEO “that co-employ[ed GFI’s] employees, not a leasing agency” and that
“it d[id] not lease and never has leased employees.” It also explained that it
entered into separate employment agreements with the employees so that
they became co-employees and Administaff could provide payroll and
human resource services. Finally, Administaff stated that after it became
aware of GFI’s possible obligations to ASRS, it offered to provide a
mechanism GFI could use to satisfy those obligations but GFI declined the
help. For that reason, Administaff terminated its business relationship with
GFI. Accordingly, in November, ASRS informed GFI that the alleged

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                   GRIFFIN FOUNDATION v. AZSRS
                         Opinion of the Court

leasing relationship with Administaff was “unfounded” and again attached
CNW forms for GFI to complete for the delinquent contributions.

¶8              In response, GFI told ASRS on November 30, 2011, that GFI
had ended its relationship with Administaff and contracted with ADP
TotalSource, another “leasing agency/PEO program.” GFI also stated that
ADP’s PEO program “offers much more than the basic function of leasing
employees” and that ADP “understands that [GFI] has no employees.” GFI
concluded that “any actions to withhold [GFI’s] State Equalization funding
will result in legal action.”

¶9             A year later, in December 2012, GFI requested instructions
from ASRS on how to rejoin ASRS before the year ended. ASRS responded
that GFI would receive a letter addressing ASRS’s issues with it. In ASRS’s
subsequent letter to GFI, it reiterated GFI’s request to be reinstated as an
ASRS participating employer but explained that GFI had always been an
“employer partner with the ASRS prior to [its] suspension of ASRS
contributions in the fall of 2010.” ASRS then stated that it had never
received documentation between GFI and ADP following the November
30, 2011 letter supporting GFI’s claim that it leased its employees from ADP.
After requesting supporting documentation, ASRS explained that its
records would continue to show that GFI owed contributions, plus interest,
from October 2010.

¶10            Over the next year, GFI and ASRS communicated twice. In
April 2013, GFI’s attorney explained to ASRS that (1) GFI was not required
to make ASRS contributions while it leased its employees, (2) ASRS failed
to make its position clear and therefore GFI reasonably believed that it was
not required to make contributions to ASRS, and (3) GFI should be allowed
to reenter ASRS. The attorney explained that GFI “requests to be re-
activated into the ASRS, now, so that it can begin making ASRS
contributions once again while the parties work on a solution to address the
past due issue.” In May, ASRS responded that GFI had been an employer
partner with ASRS since September 2001. ASRS also requested
documentation supporting GFI’s contention that it had only leased
employees and continued that “[o]ur position is and has been that [GFI]
inappropriately suspended the remittance of employer and employee
contributions to the ASRS in October[] 2010. [GFI] owes contributions plus
interest on its delinquent ASRS contributions dating from that time.”

¶11          In February 2014, GFI’s attorney responded to ASRS. To show
that GFI leased its employees, the attorney attached a 2013 letter from
Administaff, which stated that Administaff was the employer of record for

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                   GRIFFIN FOUNDATION v. AZSRS
                         Opinion of the Court

employees on its payroll for tax purposes from October 2010 to November
2011. The attorney also attached a letter from ADP stating that ADP filed
all of GFI’s federal taxes since November 2011 and a copy of ADP’s 2012
Wage and Tax register, which used ADP’s employer identification number
for employee W-2s. In June 2014, ASRS requested a copy of the contract
between ADP and GFI and stated that the 2013 Administaff letter and 2012
ADP register were not confirmation that GFI did not directly employ staff.
GFI’s attorney sent the contract to ASRS in July and requested that ASRS
acknowledge that GFI does not owe any delinquent contributions and
immediately reactivate GFI into ASRS. The attorney concluded that GFI
would need to provide ADP a 30-day notice and be given time for the leased
employees to enroll in benefit packages with GFI as the employer.

¶12            In October, ASRS requested information from ADP’s general
counsel about its relationship with GFI, particularly, whether employees
covered by the contract were ADP employees or GFI employees. On
October 17, ASRS explained to GFI’s attorney that after analyzing GFI’s
contract with ADP, it found that the contract was not a leasing agreement
but rather a co-employment agreement. ASRS concluded that GFI remained
the employer for purposes of its employees’ participation in ASRS and that
GFI owed delinquent contributions with interest. ASRS also stated that GFI
could appeal the decision to the ASRS Director. On November 14, 2014, GFI
appealed ASRS’s decision to the ASRS Director. The ASRS Director
affirmed the decision and found that GFI’s employees had not been leased
employees. In December, GFI appealed to the ASRS Board and an
administrative hearing was set.

¶13           Also in December, ADP’s general counsel informed ASRS
that ADP was a PEO and that unlike “employee leasing companies, where
the client company terminates its employees and leases them back from the
employee leasing company, a PEO becomes the co-employer, while the
client company continues as an employer to direct and control the
employees’ day-to-day activities.” He further stated that when a business
joins the ADP PEO relationship, the employees are co-employed by both
ADP and the client. In a follow-up email to ASRS, ADP noted that it “does
not lease employees and has not leased employees to [GFI].”

¶14           At the administrative hearing in May 2015, Griffin, Klein, and
GFI’s business manager testified to these facts. Griffin also submitted as an
exhibit a chart comparing GFI’s contracts with Administaff and ADP with
the contractual language from an ASRS-approved leasing company,
Educational Services Inc. (“ESI”), to show that the contracts and services
provided were similar. Additionally, Griffin testified that in November

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                    GRIFFIN FOUNDATION v. AZSRS
                          Opinion of the Court

2012 GFI wanted to “reenter” ASRS and start withholding contributions
again, but ASRS’s online system for employers had not allowed GFI to sign
in. Klein testified that GFI’s request to “reenter” ASRS was confusing
because GFI had “never not been a partner of [ASRS]. They could have
made contributions and obviously should have made contributions all
along.” Klein also testified that ASRS recognized ESI as an employee
leasing company but maintained that GFI’s agreements with Administaff
and ADP were not leasing agreements because, unlike ESI’s agreements,
the agreements referred to a co-employer relationship. He further testified
that GFI’s chart was flawed because “[w]hat is not on the chart is one
sentence out of each contract that specifically tells the client whether or not
those employees are the client’s employees or belong to the contractor.” An
ASRS auditor testified that he audited GFI and determined that GFI owed
$807,467.07 in delinquent contributions and interest from October 24, 2010,
through January 9, 2015. While waiting for the Administrative Law Judge’s
(“ALJ”) decision, GFI started making employee and employer
contributions to ASRS on July 25, 2015.

¶15             In October 2015, the ALJ ruled that the “preponderance of the
evidence established that written agreements between [GFI] and
Administaff[] and ADP TotalSource were co-employer agreements wherein
first Administaff[] and then ADP TotalSource provided services but did not
lease employees to [GFI].” Accordingly, the ALJ concluded that because
GFI was a co-employer, the workers were still employees of GFI and did
not fall within the “leased employee” exception under A.R.S. § 38–
711(23)(f). The ALJ recommended that the ASRS Board deny GFI’s appeal
in its entirety. At its December 2015 meeting, the ASRS Board accepted the
ALJ’s recommended decision.

¶16           In January 2016, GFI appealed the ASRS Board’s decision to
the superior court. GFI claimed that (1) its employees were leased
employees, (2) ASRS violated GFI’s due process rights by failing to issue a
timely decision, (3) GFI should be excused from making contributions
because ASRS failed to provide it with an “unlock code,” and (4) its
employees could waive participation in ASRS. The superior court ruled that
because GFI’s contracts with Administaff and ADP made GFI a co-
employer—one of each employees’ two employers—its employees did not
qualify as leased employees. The court also concluded that the agreements
were dissimilar from ESI’s agreements. ESI had actually leased employees
and had “craft[ed] agreements in which [ESI was] the sole employer[] of
any employees[,]” while Administaff and ADP had expressly and
repeatedly denied leasing employees to GFI. The court also ruled that ASRS
did not violate GFI’s due process rights because GFI was aware as early as

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                     GRIFFIN FOUNDATION v. AZSRS
                           Opinion of the Court

February 2011 that ASRS did not agree that GFI’s employees were leased
and because GFI did not establish that ASRS’s final decision was
unreasonably prolonged. The court further ruled that ASRS helped with the
online system once it understood that GFI was unable to enter the online
system. Finally, the court found that participation in ASRS was not
voluntary, no exception under A.R.S. § 38–727 applied to GFI, and GFI
employees could not waive participation. As such, in December 2016, the
superior court affirmed the ASRS Board’s December 2015 decision. GFI
timely appealed.

                                 DISCUSSION

¶17            GFI raises several claims regarding the superior court’s ruling
affirming the ASRS Board’s decision that GFI’s workers were not leased
employees but ASRS-eligible employees. “On appeal from the superior
court’s review of an administrative decision, we consider whether the
agency action was supported by the law and substantial evidence and
whether it was arbitrary, capricious or an abuse of discretion.” Callen v.
Rogers, 216 Ariz. 499, 502 ¶ 9 (2007). “In reviewing factual determinations,
we will not substitute our conclusion for that of the administrative agency;
instead, we review the record to determine whether substantial evidence
supports the agency’s decision and whether the agency exercised its
discretion reasonably and with due consideration.” State ex rel. Winkleman
v. Ariz. Navigable Stream Adjudication Comm’n, 224 Ariz. 230, 238 ¶ 14 (App.
2010). But we review the administrative decision’s interpretation of law de
novo. Id. at ¶ 15.

               1. GFI’s Employees Were Not Leased Employees

¶18            GFI argues that the ASRS Board erred by finding that GFI
employees were not leased employees under A.R.S. § 38–711(23)(f). We
review questions of statutory interpretation de novo. Di Giacinto v. Ariz.
State Ret. Sys., 242 Ariz. 283, 286 ¶ 8 (App. 2017). Because GFI’s employees
are not leased employees as A.R.S. § 38–711(23)(f) defines the term, GFI was
required to make employer contributions and withhold employee
contributions.

¶19            “To determine a statute’s meaning, we look first to its
text. When the text is clear and unambiguous, we apply the plain meaning
and our inquiry ends.” State v. Burbey, 243 Ariz. 145, 147 ¶ 7 (2017) (internal
citations omitted); see also Wade v. Ariz. State Ret. Sys., 241 Ariz. 559, 561 ¶ 10
(2017) (“‘If the statute is subject to only one reasonable interpretation, we
apply it without further analysis.’” (quoting Glazer v. State, 237 Ariz. 160,

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                     GRIFFIN FOUNDATION v. AZSRS
                           Opinion of the Court

163 ¶ 12 (2015))). “We will give effect to each word or phrase and apply the
‘usual and commonly understood meaning unless the legislature clearly
intended a different meaning.’” Indus. Comm’n of Ariz. v. Old Republic Ins.
Co., 223 Ariz. 75, 77 ¶ 7 (App. 2009) (quoting State v. Korzep, 165 Ariz. 490,
493 (1990)).

¶20            The parties do not dispute that GFI is an ASRS employer
under A.R.S. § 38–711(13) or that it must pay contributions to ASRS for any
employees that meet ASRS membership requirements. Instead, the parties
dispute whether the employees are ASRS-eligible members or if leased
employees as GFI claims. An employee is considered a “member” for ASRS
purposes when employed by a participating ASRS employer and engaged
to work at least 20 weeks in a fiscal year and at least 20 hours each week.
A.R.S. § 38–711(23)(a), (b). An employee is not a member-eligible employee
if the employee is a “leased employee.” See A.R.S. § 38–711(23)(f). Under
that statute, a “leased employee” is an individual who:

               (i) Is not otherwise an employee of an employer.

               (ii) Pursuant to a leasing agreement between the
               employer and another person, performs
               services for the employer on a substantially full-
               time basis for at least one year.

               (iii) Performs services under the primary
               direction or control of the employer.

A.R.S. § 38–711(23)(f)(i)–(iii).

¶21             GFI’s employees do not fit within this definition and are
therefore not leased employees. The statute’s language unambiguously
provides that a leased employee cannot otherwise be an employee of an
ASRS employer. Stated differently, to fit the definition, the worker cannot
be an employee in any sense other than being leased from a leasing
company to the leasing company’s client. The specific language of GFI’s
contractual agreements with both Administaff and ADP established the
existence of a co-employer relationship. Because GFI contracted for a co-
employer relationship with both Administaff and ADP, GFI has defined
itself as a co-employer of its employees and therefore cannot satisfy the
statute’s first prong. Moreover, the statute’s second prong requires a leasing
agreement between the employer and the third party. A.R.S. § 38–
711(23)(f)(ii). But GFI’s contractual agreements with Administaff and ADP
do not mention the leasing of employees or state that the contracts are
leasing agreements. Rather, each contract explicitly creates a shared

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                    GRIFFIN FOUNDATION v. AZSRS
                          Opinion of the Court

employment relationship between the PEO and GFI. Additionally,
Administaff and ADP each informed ASRS that it was not a leasing
company and did not lease employees to GFI. Thus, GFI’s contractual
agreements with Administaff and ADP fail the statute’s second prong. As
such, the ASRS Board and the superior court correctly determined that GFI
did not lease its employees from October 24, 2010 through July 25, 2015.

¶22            Notwithstanding the statute’s plain language that the leased
employee must not otherwise be an employee of the employer, GFI
contends that because its agreements with Administaff and ADP are not
materially different from the contract created by the ASRS-approved
leasing company, ESI, ASRS should have recognized that GFI leased its
employees. GFI argues that Administaff, ADP, and ESI all provide similar
services and that the ASRS Board and superior court failed to properly
consider GFI’s chart that evidenced their similarities. But this argument is
meritless. Klein testified at the administrative hearing that the chart was not
completely accurate because it left out an important part of each contract:
the identity of the employer. Not only do the contracts between Administaff
and ADP make no mention of leased employees, but representatives from
both companies explained to ASRS that they did not lease employees, nor
had they ever leased employees to GFI. Instead, both companies’ contracts
specified that both the PEO and GFI would be co-employers—that GFI would
remain an employer. In contrast, ESI’s agreement provided it would be the
employee’s sole employer.

¶23            GFI also asserts that because the ASRS Board and the superior
court failed to consider GFI’s chart, this Court should not defer to any
underlying factual findings. The record does not support GFI’s assertion,
however. The ALJ heard testimony about GFI’s chart from both Griffin and
Klein. Although the ALJ did not expressly discuss GFI’s chart, he did
discuss that ASRS acknowledged ESI as a leasing company but found that
the agreements between GFI and Administaff and ADP were co-employer
agreements and did not involve leasing employees. By so finding, the ALJ
implicitly rejected GFI’s argument and the ASRS Board accepted the ALJ’s
recommended decision. Further, contrary to GFI’s assertion, the superior
court also addressed GFI’s chart. The court acknowledged that Klein
testified that GFI’s chart showed the similarities between the companies but
ASRS nevertheless relied on the contractual language that described GFI’s
relationship with Administaff and ADP. The court then specifically
contrasted Administaff and ADP with ESI and concluded that ESI crafted
agreements so that it was the sole employer of any employees. This shows
that both the ASRS Board and the superior court understood that although
GFI intended to show similarities between the companies, the evidence

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                    GRIFFIN FOUNDATION v. AZSRS
                          Opinion of the Court

actually showed that its employees were co-employed and not leased
employees as A.R.S. § 38–711(23)(f) defines the term.

¶24            GFI argues that the third prong—that the leased employee
performs services under the primary direction or control of the employer—
necessitates that GFI have a co-employer relationship with the leasing
company. This is incorrect. GFI’s agreements could have provided that the
“leased employees” would perform services under GFI’s primary direction
or control—thus satisfying the third prong—without maintaining a co-
employer relationship and thereby violating prong one. See Smith v. Saxon,
186 Ariz. 70, 73 (App. 1996) (“Absent ascertainable public policy to the
contrary, parties are free to contract as they wish.”). We reject GFI’s
invitation to interpret the third prong to require a co-employer relationship
because that would nullify the first prong, which requires that the leased
employee not otherwise be an employee of an employer. We will not
interpret statutes in a way that results in contradictory provisions. See
Premier Physicians Grp., PLLC v. Navarro, 240 Ariz. 193, 195 ¶ 9 (2016)
(“When possible, we seek to harmonize statutory provisions and avoid
interpretations that result in contradictory provisions.”). The Ninth Circuit
agreed with interpreting prong three this way in Burrey v. Pac. Gas & Elec.
Co., 159 F.3d 388 (9th Cir. 1998). In Burrey, the court interpreted the “leased
employee” definition in the Internal Revenue Code and held that
interpreting the third prong’s “primary direction or control” requirement
as mandating an employer to remain an employer would render the “who
is not an employee” of the employer phrase superfluous. Id. at 394. As such,
GFI’s argument is meritless.

              2. ASRS Did Not Violate GFI’s Due Process Rights

¶25            GFI argues that ASRS violated its due process rights by not
issuing a final appealable decision in a timely manner. We review an
alleged due process violation de novo. Id. “Due process is flexible and calls
for such procedural protections as the particular situation demands, and
the fundamental requirement of due process is the opportunity to be heard
at a meaningful time and in a meaningful manner.” Samiuddin v. Nothwehr,
243 Ariz. 204, 211 ¶ 20 (2017) (internal quotations and citations omitted). A
delay in obtaining a hearing does not violate due process if the hearing is
not “unreasonably prolonged.” See Cleveland Bd. of Educ. v. Loudermill, 470
U.S. 532, 547 (1985).

¶26         ASRS’s final decision was not unreasonably prolonged. GFI
provided ASRS with its Administaff contract in August 2011. After
reviewing the contract, ASRS discussed the issue with Administaff. In

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                   GRIFFIN FOUNDATION v. AZSRS
                         Opinion of the Court

September 2011, ASRS informed GFI that GFI “is liable for all contributions
not withheld from October 25, 2010[,] to the present,” and attached CNW
forms. ASRS explained that once GFI submitted the CNW form for each
employee, ASRS would then issue an invoice for employer contributions
and interest due. Instead of submitting a letter of appeal, see Arizona
Administrative Code R2–8–403 (stating that a person not satisfied with an
agency decision may submit a letter of appeal), GFI responded with a letter
stating why it believed its employees were leased employees.

¶27            This response caused ASRS to further investigate GFI’s claims
with Administaff. After Administaff unequivocally denied leasing
employees to GFI, ASRS sent GFI another letter in November again
informing GFI that it owed contributions because its employees were not
leased. GFI did not appeal from this decision but instead informed ASRS
that it was now using another “leasing agency/PEO program.” As such,
GFI knew at the very latest by November 2011 that ASRS believed it was
liable for all contributions not withheld from October 2010 onward and
ASRS did not violate its due process rights.

¶28            ASRS also did not violate GFI’s due process rights in
deciding—three months after receiving the ADP contract—that GFI’s
contractual relationship with ADP was not a leasing agreement. GFI’s
contract with ADP began in November 2011. Although ASRS had just
informed GFI that its previous contract did not establish that GFI had leased
employees, GFI did not seek clarification from ASRS after its November
2011 letter. GFI did not communicate with ASRS again until December 2012.
In May 2013, ASRS requested information pertaining to GFI’s contract with
ADP and stated that ASRS’s position had always been that GFI
inappropriately suspended employee and employer contributions in
October 2010 and that GFI owed contributions plus interest on its
delinquent ASRS contributions dating from that time. In February 2014—
nine months later—GFI responded explaining why it believed its workers
were leased, but did not send the ADP contract. ASRS received the contract
in July 2014, and after reviewing the contract and soliciting information
from ADP, issued a final appealable decision in October 2014. During this
time, from October 2010 to October 2014, ASRS communicated with GFI
and its alleged leasing companies to gather information about the nature of
the contractual relationships to make a determination on the issue. As such,
the record supports the court’s ruling that no due process violation
occurred.

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                    GRIFFIN FOUNDATION v. AZSRS
                          Opinion of the Court

              3. ASRS Did Not Breach the Covenant of Good Faith and
                 Fair Dealing

¶29           GFI argues that ASRS breached the implied covenant of good
faith and fair dealing by not providing it with the unlock code so that it
could start remitting contributions. The covenant of good faith and fair
dealing is implied in every contract. Great W. Bank v. LJC Dev., LLC, 238
Ariz. 470, 477 ¶ 21 (App. 2015). “The essence of that duty is that neither
party will act to impair the right of the other to receive the benefits which
flow from their agreement or contractual relationship.” Rawlings v. Apodaca,
151 Ariz. 149, 153 (1986). The parties agree that they entered into a
contractual relationship when GFI became an ASRS employer in 2001. As
such, the implied duty is included here. But the record shows that ASRS
did not breach that duty.

¶30             Because GFI argues that ASRS did not timely provide
technical assistance when it asked to “reenter” ASRS, the communications
between GFI and ASRS are dispositive in determining whether ASRS
breached any duty of good faith and fair dealing. GFI first communicated
with ASRS about “re-instatement instructions” in December 2012. ASRS
responded that GFI had been an ASRS employer since before it suspended
contributions in October 2010. Then in April 2013, GFI’s attorney requested
that it be re-activated into ASRS so that it could begin making contributions.
The following month, ASRS responded that GFI had been an ASRS
employer since September 2001 when it executed a supplemental
retirement plan under A.R.S. §§ 15–187(C) and 38–729 and that the
agreement between ASRS and GFI was irrevocable. GFI did not respond to
the June 2013 letter until February 2014.

¶31            In its February 2014 letter to ASRS, GFI discussed the leased
employee issue but concluded that “[GFI] is now eager to enroll in the ASRS
and begin making contributions once this matter is resolved.” ASRS
responded in June but did not mention GFI’s enrollment request. GFI’s July
letter again requested that it be re-activated and stated that once ASRS
approved the re-activation, GFI would need to provide a 30-day notice to
ADP and be given enough time to allow leased employees to enroll in
benefit services with GFI as the employer. Three months later, ASRS issued
its final appealable decision holding that GFI did not lease its employees.

¶32            At the administrative hearing, Klein testified that GFI had not
been locked out of ASRS but merely needed to update its password
information because it had gone too long without using the online system.
He also testified that GFI’s request to reenter ASRS was confusing because

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                   GRIFFIN FOUNDATION v. AZSRS
                         Opinion of the Court

it had always been an ASRS employer and that ASRS did not understand
that GFI was asking for login assistance. He finally testified that ASRS had
learned that GFI needed technical online assistance only at the settlement
conference before the hearing and that once ASRS learned that GFI had
login difficulties, it provided login instructions. The ALJ found Klein’s
testimony credible, and the superior court found that once ASRS knew GFI
was unable to enter the online system, it provided assistance. GFI’s
communications with ASRS support these findings. GFI requested to be
reactivated or reentered into ASRS but did not request technical assistance
in accessing the online system. Thus, the record contains sufficient evidence
that ASRS did not breach any duty of good faith and fair dealing.

             4. ASRS Members May Not Waive Participation

¶33           GFI next argues that even if its employees are not leased
employees for purposes of A.R.S. § 38–711(23)(f), its employees should be
allowed to waive contributions during the time that GFI failed to withhold
contributions. Section 38–727(A)(1) states in pertinent part that all
employees of political subdivisions are subject to the ASRS statutes “except
that membership is not mandatory” in limited exceptions. Because GFI
entered ASRS as a political subdivision, its member-eligible employees
must participate in ASRS unless one of the limited exceptions in A.R.S. § 38–
727 applies. GFI does not argue, however, that its employees fall under any
of the enumerated exceptions. Instead, it argues that the employees can
nevertheless waive their right to contributions. But under A.R.S. § 38–
736(A), “[m]ember contributions are required as a condition of employment
and shall be made by payroll deductions. Member contributions shall begin
simultaneously with membership in ASRS.” (Emphasis added). As such,
the legislature has clearly established when membership in ASRS is not
mandatory, and GFI’s employees do not fall within any exception;
therefore, the employees may not waive contributions.

                              CONCLUSION

¶34          For the foregoing reasons, we affirm.

                         AMY M. WOOD • Clerk of the Court
                          FILED: AA

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