On November 16, 2018, the Third Court of Appeals in Austin, Texas, entered a temporary injunction blocking the implementation of the paid sick leave ordinance that the Austin City Council passed in February 2018. The court of appeals ruled that the ordinance violated the Texas Constitution because it is preempted by the Texas Minimum Wage Act (TMWA).

The paid sick leave ordinance, which required employers to provide sick leave to their employees at the rate of 1 hour of paid sick leave for every 30 hours worked up to a maximum of 64) hours, depending upon the size of the employer, was to take effect on October 1, 2018. Immediately after the ordinance passed, business groups in Austin filed a lawsuit in a Travis County district court seeking to enjoin the implementation of the ordinance. The district court denied the injunction, and the business groups appealed. On August 17, 2018, the court of appeals stayed the implementation of the paid sick leave ordinance pending resolution of the appeal. This stay was not in and of itself a ruling on the constitutionality of the ordinance.

In its opinion, the court of appeals addressed the principal argument that the business groups raised: that the TMWA preempted the ordinance. The TMWA specifically prohibits municipalities from regulating the wages of employees that are subject to the minimum wage requirements of the Fair Labor Standards Act (FLSA). The TMWA also provides that its own minimum wage requirement supersedes any minimum wage established by an ordinance governing wages in private employment.

The issue was whether the requirement to provide paid sick leave constituted “wages” under the law. The court observed that a worker who receives paid sick leave would actually be paid higher wages for working the same period of time than a person who did not get paid leave. The result of the ordinance is that an employer must pay its employees who use sick leave for hours they did not work, such that employees who take sick leave are paid the same for fewer hours worked than employees who do not take paid sick leave. Therefore, the mandated paid sick leave constituted “wages.” Because the ordinance required the payment of “wages” in violation of the TMWA, the court found that the ordinance violated the Texas Constitution’s prohibition of city ordinances containing any provision inconsistent with the laws enacted by the legislature. The court enjoined the implementation of the ordinance and remanded the matter to the district court to enter an appropriate order.

Key Takeaways

While this decision is not a final decision, the court of appeals clearly and unequivocally ruled that the Austin paid sick leave ordinance was unconstitutional because it was preempted by the TMWA. The district court will not be able to enter an order contrary to the court of appeals’s order. The City of Austin can ask for reconsideration by the entire court of appeals or seek review by the Supreme Court of Texas.

This ruling is obviously good news for employers in Austin. Additionally, while the decision does not specifically apply to San Antonio’s paid sick leave ordinance, the court of appeals’s ruling will likely encourage litigation to declare the San Antonio ordinance unconstitutional. Additionally, a bill has been filed for the upcoming legislative session, which would specifically ban municipalities from enacting paid sick leave ordinances and would apply to any law, either in the future or in the past, that mandates paid sick leave.