Hunton Employment & Labor Perspectives

As detailed in our previous alert on this issue, on August 1, 2019, Dallas joined a host of states, cities and counties across the country when it implemented the City of Dallas’s Paid Sick Leave Ordinance No. 31181 (the “Ordinance”). Under the Ordinance, employers were required to provide paid sick leave to all full-time and part-time employees. While legal challenges effectively stopped the enactment of other cities’ ordinances, the Dallas Sick Leave Ordinance remained unchallenged – until recently, that is.

On March 30, 2020, the United States District Court for the Eastern District of Texas entered a preliminary injunction that enjoins officers, agents, servants, employees, attorneys, or any other person in active concert with the City of Dallas from enforcing the Dallas Sick Leave Ordinance.

The court concluded that:

1. the paid sick leave required by the Ordinance establishes a wage and, consequently, is preempted by the Texas Minimum Wage Act (TMWA) and unenforceable;
2. plaintiffs met their burden of establishing a strong likelihood of success on the merits of their state law preemption claim;
3. irreparable injury would be likely if the court did not grant the requested relief; and
4. the balance of the equities and public interest weighed in favor of granting the temporary injunction.

The primary issue in this case was whether the Ordinance is preempted by the TMWA. The Ordinance had the inevitable effect of increasing the pay of employees who use paid sick leave. However, the TMWA prohibits municipalities from regulating the wages of employees that are subject to the minimum wage requirements of the Fair Labor Standards Act (FLSA) or the Texas Labor Code.

In its opinion, the court acknowledged that the Texas Supreme Court has not yet addressed the preemption question, but concluded that the court is bound by the Texas Third Court of Appeals’ recent ruling, which analyzed a nearly identical paid sick leave ordinance in Austin, Texas. Specifically, the court explained that both the Dallas and the Austin ordinances granted employees an hour of paid sick leave for every thirty hours worked, and in both, employers must pay employees what they would have made if they had been working during those hours taken as sick leave. Following the reasoning articulated by the Third Court of Appeals, the court held that the legislative intent of the TMWA to preempt local law is clear. Specifically, the court noted that the plain text of the TMWA states that municipal ordinances governing wages in private employment are inapplicable to employers subject to the FLSA and section 62.151 of the Texas Labor Code, and that the minimum wage provided by the TMWA “supersedes” a wage established in a municipal ordinance.

Key Takeaways

This ruling comes as a victory to employers in Dallas who asserted that the Ordinance would inflict significant and irreparable harm on Texas businesses. Nonetheless, in its opinion, the court recognized that its ruling is being issued during an unprecedented time in history when employers and employees alike are grappling with the turmoil caused by COVID-19. Significantly, the court indicated that while the duty of other entities is to attend to the public health and economic challenges of the national emergency, the federal courts remain responsible for interpreting the law – not making policy judgments.

The City of Dallas can ask for reconsideration by the court of appeals or seek review by the Supreme Court of Texas.

We will continue to monitor developments.