The high economic burden of paid sick leave

The lawsuit brought by the Texas Public Policy Foundation against the city of Austin challenging its new paid sick leave ordinance isn’t just a local matter. It’s a principled fight with broad implications for Texas and other states, because it’s about freedom — and the rule of law.

In January, the Austin City Council introduced an ordinance requiring all companies doing business in the city to give their employees paid sick leave. Allowing for little time for review and analysis, the council passed the ordinance after 1:00 a.m. on Feb. 15. The cost and impact of the ordinance were not up for discussion despite the Austin Chamber of Commerce’s estimate that the ordinance will have a negative $140 million impact on the Austin economy.

If only city officials acted this quickly and decisively to fix potholes and Austin’s legendary traffic congestion.

The problem is that the ordinance is illegal. It’s an attempt to supersede state law.

The Texas Minimum Wage Act prohibits cities like Austin from regulating the wages of employees of private businesses and preempts any ordinance from going beyond the standards set forth in the federal Fair Labor Standards Act. Through the Texas Minimum Wage Act, state law caps the minimum wage at the federal rate. Austin’s paid sick leave ordinance is in direct conflict with state law, since it requires employers to pay a minimum wage to employees for hours not actually worked. The effect is to push their hourly wage above the minimum wage ceiling set by Texas law.

And cities can’t do that.

What’s more, it’s a problem for interstate and international companies that do business in Austin, but make their compensation decisions elsewhere. Airlines, for example, have sued over similar ordinances in other jurisdictions contending that paid sick leave rules — which can vary greatly — put an undue burden on them.

According to an airline trade group’s lawsuit against the state of Washington’s paid sick leave law, “a flight crew departing from SeaTac International Airport, landing in Portland International Airport, and continuing to San Diego International Airport is subject to three different paid sick leave laws in a single duty period, each with its own accrual, compensation, reporting, and leave requirements.”

What about local control? That’s the defense being offered by some. Let Austin be Austin, they say.

But it’s not just about Austin, and local control is a poorly understood principle. Local control is a useful tool, not a rule. And liberty must always trump local control.

This applies not just to paid sick leave policies, but also to issues ranging from private property rights (such as tree-cutting ordinances) to energy policy (such as bans on hydraulic fracturing).

There’s a practical side, as well. Put simply, the government shouldn’t get involved in what are voluntary agreements between employers and employees.

Paid sick leave is not an employer gift. When offered, it becomes part of the compensation package negotiated between workers and employers, along with other terms such as salary, flexible hours, responsibilities, etc. All jobs are different in value both to the employer and employee. Paid leave is something that employers can offer their workers as an incentive to come work there, and to stay. When companies can offer it, they may attract and keep better workers. Or, they may other incentives like higher pay. But, employers must compete to hire and retain qualified workers, particularly in a tight job market like Texas (4.0 percent unemployment in April).

In other words, the free market is the best and most effective way to extend this benefit to more and more workers, while keeping the costs and the impacts at a minimum.

But when paid sick leave is seen as a right, it comes at the expense of that employer, whether the company can afford it or not. Paid sick leave rules elsewhere have resulted in fewer jobs, fewer hours for those who have jobs, and higher prices for consumers.

For TPPF, it’s about liberty. And liberty must be defended at all levels. Some Texas lawmakers have pledged to address the Austin paid sick leave ordinance the next time the Legislature meets (January 2019). But for some companies, that could be too late.

That’s why we are suing the city of Austin (and why the Texas Attorney General’s Office has joined that suit). When government at any level threatens our freedoms — including economic freedoms — then that government must be called out.