Seyfarth Synopsis: Paid sick leave ordinances in Texas continue to face setbacks as multiple judges have granted temporary injunctions barring such ordinances from taking effect while lawsuits are pending. Dallas has suffered the largest blow yet. On March 31, 2021, a federal district court granted a permanent injunction against the Dallas Paid Sick Leave (“PSL”) Ordinance, ruling that the ordinance is preempted by the Texas Minimum Wage Act (“TMWA”) and, thus, violates the Texas Constitution. Only an appeal to the Fifth Circuit Court of Appeals or an unlikely ruling from the Texas Supreme Court would change the ordinance’s defeat.

As we previously reported, in April 2019 the City of Dallas passed a PSL ordinance, scheduled to take full effect on April 1, 2020. However, on March 30, 2020, the U.S. District Court for the Eastern District of Texas Sherman Division (the “Eastern District”) granted a preliminary injunction barring the Ordinance from taking effect while the lawsuit against the city was pending. On March 31, 2021, almost one year later to the day, the Eastern District issued an order permanently blocking the Dallas PSL Ordinance from taking effect. In its opinion, the Eastern District held the Dallas PSL Ordinance was preempted by the Texas Minimum Wage Act (“TMWA”) because it required private employers to pay a wage other than the state minimum wage. Such requirement is void and violated the Texas Constitution according to the Eastern District.

In granting a permanent injunction of the Dallas PSL Ordinance, the Eastern District was guided by recent decisions from the Texas Courts of Appeals for the Third and Fourth Districts (the “Third District” and “Fourth District” respectively). The Third District previously determined that the City of Austin’s PSL Ordinance was preempted by the TMWA, and, thus, in violation the Texas Constitution. Just last month, the Fourth District determined the same regarding the City of San Antonio’s PSL Ordinance.

The Texas Supreme Court has yet to rule on this issue, so the Eastern District was bound by these intermediate appellate court decisions. However, the Eastern District found it unlikely the Texas Supreme Court would rule differently because it had declined review of the Third District’s opinion regarding the TMWA’s preemption of Austin’s PSL Ordinance. Because the Dallas PSL Ordinance was virtually identical to both the Austin and San Antonio PSL ordinances, the Eastern District held the Dallas Ordinance was also preempted by the TMWA. This holding alone supported the permanent injunction, but the Eastern District further explained the harm Dallas’ PSL Ordinance would cause if it took effect.

Specifically, the Eastern District explained in dicta that the plaintiffs, two employers and the State of Texas, would face irreparable harm if the Dallas PSL Ordinance took effect. The State of Texas faced irreparable harm if it could not enforce its laws, i.e. the TMWA, at least as to the City of Dallas. The employer-plaintiffs also faced irreparable harm because complying with the Ordinance increased their costs by requiring updates to handbooks and training materials, and the hiring of additional personnel to oversee compliance. Furthermore, the Eastern District found that public policy was best served by granting the injunction because it upheld the will of the Texas legislature and the Texas Constitution.

With the Dallas PSL Ordinance permanently enjoined, employers need not take any actions to bring their policies or practices into compliance with the Ordinance. However, potentially affected employers should continue to monitor legislative and judicial developments to determine if they may need to do so down the line. We will continue to monitor Texas PSL developments at all levels, and issue updates as appropriate.