The Dallas Paid Sick Leave Ordinance Has Been Enjoined: What Now?

In the COVID-19 landscape, April 1, 2020, is a big day for employers across the country. The federal Families First Coronavirus Response Act (“FFCRA”) becomes effective for employers with fewer than 500 employees. And Dallas employers had an added concern on April 1 because the City of Dallas was set to begin enforcement of its Earned Paid Sick Time (Paid Sick Leave) Ordinance (“Ordinance”) in full for employers with at least six employees. 

But, on March 30, 2020, a federal judge in the United States District Court for the Eastern District of Texas has given Dallas employers a bit of a reprieve by enjoining the Ordinance. So, what now? 

Below is a summary of the injunction, next steps, and other requirements and considerations for employers under the FFCRA.

U.S. District Court Order Enjoining the Ordinance

Relying on the doctrine of preemption as articulated by Texas’ Third Court of Appeals in Tex. Ass’n of Bus. v. City of Austin, 565 S.W.3d 425, 440 (Tex. App.—Austin 2018, pet. filed), the federal judge found that “if the paid sick leave required by the Ordinance establishes a wage, it is preempted by the [Texas Minimum Wage Act (“TMWA”)] and unenforceable.”(emphasis added). The Court acknowledged that the Texas Supreme Court had not yet weighed in on this particular issue, but found that there was “no reason to believe” that it would reject the Third Court of Appeals’ conclusions in Austin. Specifically, Austin’s conclusions were that: 

(1) the TMWA preempts local regulations that establish a wage, (2) the Austin paid sick leave ordinance establishes a wage [because it increases the pay of those employees who use paid sick leave], and that, accordingly, (3) the TMWA preempts the Austin ordinance as a matter of law, thus making the ordinance unconstitutional. 

565 S.W.3d at 440–41 (citing TEX. CONST. art. XI, § 5). Thus, the federal judge concluded that “it is bound to follow the Austin court’s well-reasoned preemption ruling which applies equally to the Dallas paid sick leave ordinance because its substantive provisions mirror those of the Austin ordinance held to be unenforceable.” 

Because the Court found that the Ordinance is unenforceable and that employers would “suffer irreparable harm resulting from compliance costs and increased regulatory burden,” it preliminarily enjoined the enforcement of the Ordinance, noting that the balance of the equities favored the ruling. The Court further acknowledged that its “decision issues at a time when the American public and federal, state, and local authorities are confronted with the unprecedented public health crisis and economic upheaval caused by” COVID-19. But it defended its decision, stating that the injunction “upholds the state constitution and statutory provisions preempting and rendering unenforceable the City’s paid sick leave ordinance.” 

Next Steps Following Injunction

The City of Dallas has the option to appeal the injunction. But absent a contrary ruling from the United States Fifth Circuit Court of Appeals or the Texas Supreme Court, the injunction against enforcement of the Ordinance will stand until the merits of the claims are tried by the parties in the case. This result (albeit temporary for now) is likely welcome news to employers covered by the Ordinance at a time when their businesses are already highly leveraged and burdened due to the “unprecedented public health crisis and economic upheaval” resulting from COVID-19. 

Paid Sick Leave under the FFCRA

That said, covered employers across the country, including in Dallas, still have statutorily mandated paid sick leave to provide to employees in the current COVID-19 reality. Specifically, the FFCRA becomes effective on April 1, 2020, for employers with fewer than 500 employees (subject to a limited small business exemption for which employers with fewer than 50 employees may apply). Generally, the U.S. Department of Labor indicates that for companies meeting the four-factor integrated employer test under the FMLA (common management, interrelation between operations, centralized control of labor relations, and degree of common ownership or financial control), all of their employees count toward this threshold. The Foley Coronavirus Resource Center contains additional information regarding how to calculate the number of employees in assessing whether the FFCRA applies. 

For full-time employees, the FFCRA provides up to 80 hours of (immediate) paid sick leave to employees who are unable to work or telework because the employee is “experiencing symptoms of COVID-19 and seeking a medical diagnosis” or is experiencing any “substantially similar condition specified by the Secretary of Health and Human Services.” An employee is also entitled to paid leave if he/she is subject to, or has a bona fide need to care for an individual who is subject to, a government quarantine or isolation order or a health care provider’s advice to self-quarantine, or if he/she has a bona fide need to care for a minor son or daughter whose school is closed, or a child care provider is unable to care for the child, due to COVID-19. 

Paid sick leave is provided for all absences meeting the FFCRA’s eligibility requirements if the employee follows the employer’s “reasonable notice procedures” after the first workday the employee receives paid sick leave. Leave is paid generally based on the employee’s regular rate of pay (subject to certain nuances in calculating the same), provided that the employee is entitled to at least minimum wage under the FLSA or state or local laws (if higher). In the case of the employee’s experiencing of any “substantially similar condition specified by the Secretary of Health and Human Services” or need to care for an individual under a government quarantine or isolation order or a health care provider’s advice to self-quarantine, leave is paid at 2/3 the regular rate of pay (or other higher minimum wage, as applicable). 

That said, paid sick leave is capped at $511 per day ($5,110 in the aggregate) for an employee “experiencing symptoms of COVID-19 and seeking a medical diagnosis” or subject to a government quarantine or isolation order or a health care provider’s advice to self-quarantine the employee. Paid sick leave is capped at $200 per day ($2,000 in the aggregate) if the employee is caring for an individual subject to a government quarantine or isolation order or a health care provider’s advice to self-quarantine or is experiencing any “substantially similar condition specified by the Secretary of Health and Human Services.” 

The rights under the FFCRA currently run through December 31, 2020. 

Conclusion—Provide Leave, Take a Tax Credit, and Act Reasonably and in Good Faith

So, what’s an employer to do? Employers covered by the FFCRA qualify for certain tax credits, which provide a “dollar-for-dollar reimbursement . . . for all qualifying wages paid under the FFCRA[,]” including for “amounts paid or incurred to maintain health insurance coverage.” Thus, employers will theoretically have a financial backstop from the federal government for providing paid sick leave under the FFCRA. 

Furthermore, employers effectively have temporary get-out-of-jail free cards of sorts if they are trying their best to provide appropriate paid leave under the FFCRA. Through May 1, 2020, the U.S. Department of Labor will observe a period of non-enforcement against employers using reasonable and good faith efforts to comply with the requirements. According to the U.S. Department of Labor’s Employer Guidance, good faith will generally mean that the employer who messes up in interpreting and implementing the FFCRA remedies the mistake, makes the employee whole as soon as practicable, and commits to comply as remedied in the future. 

Employers should take advantage, to the fullest extent, of the federal tax credits to offset the financial impact of providing paid sick leave under the FFCRA. And they will later reap the future benefits of having acted reasonably and in good faith through enhanced employee loyalty and avoidance of costly government investigations. 

For more information, please contact your Foley relationship partner or the Foley colleagues listed below. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the websites of the CDC and the World Health Organization. 

Foley has created a multi-disciplinary and multi-jurisdictional team to respond to COVID 19, which has prepared a wealth of topical client resources and is prepared to help our clients meet the legal and business challenges that the coronavirus outbreak is creating for stakeholders across a range of industries. Click here for Foley’s Coronavirus Resource Center to stay apprised of relevant developments, insights and resources to support your business during this challenging time. To receive this content directly in your inbox, click here and submit the form.