Appellate Court Deals Blow To Austin Earned Sick Time Ordinance

On Friday, November 16, 2018, the Texas Third Court of Appeals handed down an opinion that granted nearly all of the relief sought by business associations and private employers (referred to by the Court as “the private parties”) who opposed Austin’s paid sick leave ordinance. Passed by the Austin City Council in February 2018 and slated to go into effect on October 1 of this year, the ordinance would have required all covered employers—those with six or more employees in Austin—to grant accrual of paid sick leave, up to a maximum of 64 hours per year for employers with more than 15 employees, and up to a maximum of 48 hours per year for employers with between 6 and 15 employees.  The ordinance would have imposed similar requirements on smaller employers at a later date.

The private parties challenged the ordinance’s constitutionality on multiple grounds. Among other arguments, they contended that the sick leave ordinance violated the Texas Minimum Wage Act (TMWA), which prohibits municipalities from regulating wages paid by employers subject to the minimum-wage requirements of the federal Fair Labor Standards Act.  The Court devoted most of its analysis to defining the term “wages,” which, curiously, is not defined in the TMWA. The Court determined that the ordinary usage of that term includes fringe benefits such as vacation and paid leave. The Court ultimately concluded that sums paid to employees pursuant to the sick leave ordinance would constitute wages, because the “effective result” of the ordinance is that employees who take paid sick leave would be paid more than employees who work the same hours without paid sick leave. Further, the Court cited the section of the Texas Constitution that mandates that no city ordinance may contain any provision inconsistent with the Constitution and the laws passed by the Texas Legislature.

Having concluded that the TMWA preempted local regulation establishing a “wage,” and further that the ordinance established such a wage, the Court held that the ordinance was preempted and was therefore unconstitutional. Further, the private parties established a “probable right to relief,” including a demonstration that they would suffer imminent and irreparable injury without the Court’s intervention. The case was thus sent back to the trial court with instructions to grant the requested temporary injunction and to conduct further proceedings consistent with the Court’s opinion. The trial court will now take up several additional issues, including the private parties’ claims that subpoena power granted under the ordinance constitutes a “search and seizure” contrary to the Texas Constitution.

One of the sponsors of the ordinance, Austin City Council member Greg Casar, noted in public comments following the ruling that the composition of the Third Court of Appeals will change when the results of the November 2018 election are implemented.  The City of Austin has not indicated whether it will appeal the Court’s ruling.

In the meantime, the Texas Legislature is gearing up for its next session, which starts in January.  Already one bill has been filed, HB 222, which seeks to prohibit municipalities from implementing paid sick leave laws.

Cornell Smith will continue to monitor the lawsuit and further legislative developments.  For any questions relating to this ordinance or paid sick time, please contact us.