As we previously reported, in February 2018, the city of Austin, Texas passed a paid sick and safe leave ordinance (the “Ordinance”) that would have required companies to provide paid sick and safe leave to their employees. The Ordinance obligated companies with 15 or more employees to provide eight days of paid leave, and companies with fewer than 15 employees to provide six days of paid leave. The Ordinance was scheduled to go into effect on October 1, 2018.

In Texas Association of Business et al. v. City of Austin, Texas, however, the Texas Court of Appeals recently declared the City of Austin’s Ordinance unconstitutional and ordered the district court to grant a temporary injunction barring its implementation.

The Court held that the Ordinance “violates the Texas Constitution because it is preempted by the Texas Minimum Wage Act”. The Texas Constitution bars city ordinance provisions “inconsistent” with the laws “enacted by the Legislature of the State.” The Texas Court of Appeals held that the Ordinance established a “wage”, violating the Texas Minimum Wage Act (TWMA), and thereby the Texas Constitution.

The TMWA precludes municipalities from regulating “wages” for employers subject to the minimum wage requirements of the Fair Labor Standards Act. The Texas Court of Appeals held that the Ordinance regulated “wages” because it requires employers to pay employees for hours they did not work, effectively raising their rate of pay for hours they actually worked. The Court illustrated this concept by using a hypothetical example of an hourly worker who earned $10 per hour, working 15 hours per week, who used 25 hours of accrued sick time in a year. The Court reasoned that under the Ordinance, this employee would receive “$250 for time she did not work, making her actual hourly wage $10.33.” Although the City of Austin argued that “wages” under the TWMA referred only to payments made to compensate workers for their services and not additional benefits, the Texas Court of Appeals disagreed and concluded that the TMWA’s definition of “wages” did not “necessarily preclude the inclusion of paid sick leave.”