Pension & Benefits News City of Austin’s paid leave ordinance declared unconstitutional
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Thursday, December 6, 2018

City of Austin’s paid leave ordinance declared unconstitutional

By Pension and Benefits Editorial Staff

Finding that a City of Austin ordinance requiring private employers to provide paid sick leave to their employees was inconsistent with the Texas Minimum Wage Act, a Texas Court of Appeals remanded the case for issuance of a temporary injunction barring enforcement of the ordinance. An employer subject to the ordinance must pay employees who use sick leave for hours that they did not actually work, thereby increasing the pay of employees who took leave. Because the ordinance established a wage, the plain language of the TMWA preempted it as a matter of law.

Paid leave ordinance. In February 2018, the City of Austin enacted an ordinance requiring private employers to provide paid sick leave to their employees. Under the ordinance, Austin employers must "grant an employee one hour of earned sick time for every 30 hours worked." The sick leave accrues as soon as the employee begins working and must be made available for use either immediately or after 60 days of employment, depending on certain circumstances of employment. An employer must pay the "earned sick leave in an amount equal to what the employee would have earned if the employee had worked." The ordinance caps the sick leave an employee may accrue at either 48 or 64 hours per year, depending on the employer’s size.

The ordinance purports to give the city the authority to subpoena employers’ records for compliance purposes, and employers that violate the ordinance face civil and criminal penalties. It was scheduled to take effect on October 1, 2018.

Five companies with Austin employees and six business associations filed a declaratory judgment action against the city asserting that the ordinance is facially unconstitutional because it was preempted by the Texas Minimum Wage Act (TMWA), and because it violates the Texas Constitution’s due-course-of-law, equal protection, association, and warrantless search clauses. As relief, the plaintiffs sought temporary and permanent injunctions prohibiting the city from enforcing the ordinance.

State intervention. The state intervened in the suit asserting a preemption claim. As relief, the state asked for a declaration that the ordinance is preempted by the TMWA and for a permanent injunction against the ordinance’s enforcement. The state also joined the employers’ application for a temporary injunction. The trial court denied their application for a temporary injunction, and the city’s jurisdictional challenges. The parties filed cross-appeals from these interlocutory orders.

As to the trial court’s jurisdictional rulings, the appeals court first rejected the city’s argument that the employers’ lacked standing and that their claims were not ripe for adjudication because they had not yet suffered any injury from the ordinance. Similarly, it concluded that the state had standing to sue the city based on its claim that the ordinance was unconstitutional because it was preempted by the TMWA.

Preemption. Next, the court turned to consider the employers’ and state’s appeal from the trial court’s denial of their request for a temporary injunction. Specifically, they argued that the district court abused its discretion in denying injunctive relief because the ordinance was preempted by the TMWA as a matter of law and because the ordinance will irreparably harm the employers and the state.

Entitlement to temporary injunction. The first requirement to be entitled to a temporary injunction is to plead and prove a cause of action against the defendant. Here, the court noted that because it had already resolved jurisdictional issues regarding the ripeness of their claims, standing to sue, and the city’s governmental immunity, there was no jurisdictional bar to this temporary injunction element.

The second requirement for a temporary injunction is to plead and prove a probable right to relief. Here, the appeals court observed that the Texas Constitution prohibits city ordinances from "containing any provision inconsistent with the Constitution of the state, or of the general laws enacted by the Legislature of the State." While home rule cities, like Austin, have all power not denied by the Constitution or state law, and thus, need not look to the legislature for grants of authority, the legislature can limit or withdraw that power by general law.

Wage defined. In this case, the legislative intent in the TMWA to preempt local law is clear. First, the TMWA expressly prohibits municipalities from regulating the wages of employers that are subject to the minimum wage requirements of the FLSA. Of more significance to this appeal, the TMWA explicitly provides that "the minimum wage provided by the TMWA supersedes a wage established in an ordinance . . . governing wages in private employment." Thus, the question was whether the city’s ordinance fell within the TMWA’s ambit.

Because the TMWA does not define "wage," the appeals court gave the work its ordinary meaning. "Wage" refers to a payment to a person for service rendered.

In this instance, the ordinance required employers to provide one hour of paid sick leave for "every 30 hours worked." This means that an employer subject to the ordinance must pay employees who use sick leave for hours that they did not actually work. Thus, employees who take sick leave are paid more per hour for the hours actually worked. As a consequence, the ordinance increases the pay of those employees who use paid sick leave. Accordingly, under the plain language of the TMWA, the ordinance establishes a wage. Because the ordinance established a wage, the TMWA preempted the city’s ordinance as a matter of law, thus making the ordinance unconstitutional. As such, the employers and the state conclusively established a probable right to relief sought on their preemption claim.

Irreparable injury. The final requirement to be entitled to a temporary injunction is to show "a probable, imminent, and irreparable injury in the interim." Here, the appeals court agreed with the state that its sovereignty would be irreparably harmed if the ordinance was allowed to go into effect. The plain language of the TMWA preempts the ordinance and, as a result, the ordinance violates the Texas Constitution’s mandate that no city ordinance shall contain any provision inconsistent with the general laws.

The employers contended that they would be irreparably harmed if the ordinance goes into effect because they will incur costs to prepare for the ordinance to go into effect that cannot be recovered. Also, they will have to grant paid sick leave to employees. Accordingly, the appeals court held that the trial court abused its discretion in denying the employers and state’s application for temporary injunction.

SOURCE: Texas Association of Business v. City of Austin, Texas, (Tex. App.), No. 03-18-00445-CV, November 16, 2018.

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