Federal Court Strikes Down Dallas Paid Sick Leave Ordinance

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The U.S. District Court for the Eastern District of Texas has permanently enjoined a controversial Dallas ordinance requiring employers to provide paid sick leave benefits to certain employees. The permanent injunction took effect on March 31, 2021.

Dallas was the third city in Texas to enact a paid sick leave ordinance, following the adoption of nearly identical laws in Austin and San Antonio. All three would have required covered private employers to provide certain paid sick leave benefits to employees based on hours worked within city limits. While the Austin and San Antonio laws were enjoined before they took effect, legal challenges to the Dallas law were not prosecuted until after it became effective on August 1, 2019. The ordinance remained in effect for approximately eight months until March 30, 2020, when the federal court preliminarily enjoined the city from enforcing it during the litigation. Just over one year later, the court decided earlier this week to enjoin the law permanently, forbidding the city from enforcing it in the future.  

The federal decision follows similar rulings by the Texas state courts that enjoined the paid sick leave benefit ordinances from taking effect in Austin and San Antonio. The basis for all these decisions has been the same. As the federal court held with respect to Dallas, the city exceeded its authority because its ordinance violates the Texas Minimum Wage Act, and is therefore, unconstitutional. Texas law prohibits local governments from requiring private employers to pay employees wages above the state minimum wage, preempting and thus voiding ordinances that attempt to do so. While the Texas Supreme Court has not yet addressed (and, in fact, has refused to decide) the specific issue of whether such ordinances are legal, both the Third and Fourth Courts of Appeals previously held that they are not. The courts have reasoned that mandating paid sick leave benefits while an employee is not working because of illness or other reasons is equivalent to mandating the payment of higher “wages” to these employees, and therefore, such ordinances effectively raise the state minimum wage for employers in those jurisdictions. The federal court followed this line of reasoning, holding that the Dallas ordinance was preempted by Texas law and unenforceable.

The federal court’s opinion is also notable for other observations about the effect of the ordinance on businesses. For example, the court concluded that the plaintiff-employers would have suffered irreparable harm had the ordinance remained in effect because they would have been forced to bear certain costs associated with compliance – such as higher labor costs. In addition, the court concluded that the public interest is best served by upholding the structure of government under the Texas Constitution by precluding local governments from issuing regulations that raise the minimum wage requirements, thereby overriding the public policy established by the Texas legislature in the Texas Minimum Wage Act.

Finally, this decision is important because it is the first case in Texas to reach a final decision on the merits of the issue. The appeals in Austin and San Antonio thus far have dealt only with the question of whether the trial courts should have entered preliminary injunctions during the pendency of litigation. Those appellate decisions did not formally conclude the cases or result in final decisions as to the legality of the ordinances at issue. By contrast, the federal court’s decision in Dallas ends the controversy by entering a final judgment in favor of the challengers. While the decision in Dallas is the first in this regard, it probably foreshadows the same results with respect to the lawsuits in Austin and San Antonio.

The principal take-away is clear: municipal attempts to create mandatory paid sick leave benefits within the private sector in Texas are dead-on-arrival. Change to Texas law will be required before such benefits can be mandated in the Lone Star State. Whether such legislation will be addressed during the current 87th Texas Legislative Session, which began on January 12, 2021, is unclear.

What should Texas employers do now?

Employers should continue to monitor the lawsuits challenging the ordinances in Austin and San Antonio in case unexpected developments allow those ordinances to take effect. Absent such action, the three Texas paid sick leave ordinances remain enjoined. Employers interested in exploring legal obligations and options for providing such benefits to their workforces in Texas would be wise to periodically check with employment counsel on this issue.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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