Austin businesses not required to offer paid sick leave, Texas court rules
In the latest tussle over employee benefits, a Texas appeals court recently blocked an ordinance passed by the city of Austin requiring businesses to provide employees with an hour of paid sick time for every 30 hours worked. The Austin ordinance, originally scheduled to take effect on October 1, 2018, would have established a mandatory paid sick leave provision for employees who work at least 80 hours within the city in a calendar year. The ordinance would have required employers to provide up to eight days or 64 hours of paid leave per year while small businesses with 15 or fewer employees would have had to offer up to six days of paid leave. Under the ordinance, leave could have been used for the employee’s or a family member’s illness, injury, health condition, or other qualifying events. In addition, the proposed regulation granted Austin the authority to investigate and fine employers that violate the sick leave policy or retaliate against an employee for requesting sick leave.
While tracking similar initiatives by San Antonio and Dallas to set wage and benefit laws at the municipal level, the Austin ordinance was the first to face swift and fierce opposition from management and business groups.
Waging the ‘wage’ battle
A few months after the Austin City Council adopted the ordinance, the Texas Public Policy Foundation and other organizations representing employers’ interests (including the Society for Human Resource Management) filed a lawsuit alleging the ordinance violated the Texas Constitution and was preempted by the state’s minimum wage laws. By way of background, federal law requires certain employers to provide unpaid sick leave to eligible employees; however, only seven states and the District of Columbia currently have legislation mandating paid sick leave.
Texas has no statewide leave policy. The Texas Minimum Wage Act (TMWA) provides that employees must be paid a minimum wage and that municipalities may not regulate workers’ wages in any manner inconsistent with the federal Fair Labor Standards Act (FLSA).
Since any municipal effort to regulate wages likely will be superseded by state law, Austin leave law ordinance opponents argued the city’s effort was preempted by the TMWA because paid sick leave is defined as “wages” under the law. On that point, the opponents successfully persuaded the court that a worker who takes paid sick leave under the ordinance would be receiving higher pay for working the same hours as an employee who did not receive paid sick leave. As a result, the court agreed the city had impermissibly established a wage under the TMWA’s plain language.
The court also rejected Austin’s attack on the business groups’ legal standing to challenge the law. The opponents pointed out that such leave law ordinances, if implemented, would disproportionately harm small businesses while costing more than $140 million annually in overhead, according to a report by the Austin Chamber of Commerce. Small businesses also highlighted the fact that they weren’t properly consulted during the drafting of the ordinance and feared the effects of the costs could trickle down to their workforces, leading to fewer jobs and less paid vacation time for their workers.
What this means for you as an employer
After months of protracted legal battles and several injunctions, the recent ruling brings a sigh of relief to many nervous Austin businesses. Paid leave law advocates argued, however, that the fight over employee wages and benefits likely won’t go away with the ruling as cities across the nation are becoming more receptive to paid leave legislation. An Austin spokesperson said the city will be “reviewing [its] options in this case” and that a reconsideration by the entire court of appeals, or a review by the Texas Supreme Court, is certainly possible.
The outcome also will likely shape the legal landscape for employee benefit laws beyond the Austin city limits:
- On August 16, San Antonio voted to adopt a similar paid leave ordinance affecting employers with more than five employees, which would have taken effect on August 1, 2019. The current halt to the Austin ordinance likely will spur litigation to declare the San Antonio ordinance unconstitutional on similar grounds.
- Around the same time the Austin ordinance was passed, a paid sick leave initiative was being circulated in Dallas. The grassroots initiative, organized by Working Texans for Paid Sick Time, ultimately fell a few hundred signatures short of passage on the city’s November ballot.
As employers in cities like Houston wait on edge for the latest news, the concern is growing that a paid sick leave ordinance, if passed, would force some businesses to rethink and reorganize their workforces. While many big businesses may not feel the impact of the proposed ordinances if they already offer paid sick leave as part of their standard benefits package, it’s worth keeping in mind that federal sick leave regulations generally don’t apply to employers with 50 or fewer employees. As a result, small businesses that find themselves offering sick leave to employees on an as-needed basis should pay special attention to new developments in this area.
In addition, all employers should take advantage of the opportunity to review and update your employment manual to ensure compliance with evolving federal, state, and municipal laws. As always, for any employment-related questions, please consult your attorney.