ESI/Employee Sols., L.P. v. City of Dall., CIVIL ACTION NO. 4:19-CV-570-SDJ

CourtUnited States District Courts. 5th Circuit. United States District Court of Eastern District Texas
PartiesESI/EMPLOYEE SOLUTIONS, L.P.; HAGAN LAW GROUP L.L.C.; and STATE OF TEXAS v. CITY OF DALLAS; T.C. BROADNAX, in his official capacity as City Manager of the City of Dallas; and BEVERLY DAVIS, in her official capacity as Director of the City of Dallas Office of Equity and Human Rights
Docket NumberCIVIL ACTION NO. 4:19-CV-570-SDJ
Decision Date30 March 2020

CITY OF DALLAS; T.C. BROADNAX, in his official capacity as City Manager of the City of Dallas;
and BEVERLY DAVIS, in her official capacity as Director of
the City of Dallas Office of Equity and Human Rights



March 30, 2020


Like several other Texas cities, the City of Dallas has enacted an ordinance requiring employers to provide paid sick leave to most employees working within the Dallas city limits. Plaintiffs, the State of Texas and two Collin County headquartered employers with employees who work in Dallas, ESI/Employee Solutions, L.P. ("ESI") and Hagan Law Group, L.L.C. ("Hagan"), assert that the Dallas paid sick leave ordinance runs afoul of both the federal and state constitutions and is therefore unenforceable.1

Before the Court is a Motion to Dismiss filed by Defendants City of Dallas, T.C. Broadnax, and Beverly Davis (collectively, "the City"), (Dkt. #36), and Employer-Plaintiffs' Motion for Preliminary Injunction, (Dkt. #3), joined by the State of Texas, (Dkt. #21). The City has moved to dismiss Plaintiffs' claims under Federal

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Rule of Civil Procedure 12(b)(1) and Rule 12(b)(6). (Dkt. #36). The State of Texas and the Employer-Plaintiffs' motion for preliminary injunction requests that the Court issue an injunction to halt the enforcement of the City's Paid Sick Leave Ordinance until an ultimate ruling on the merits is made.

The Court, having considered the motion to dismiss, response, reply, and applicable law, GRANTS in part and DENIES in part the motion. (Dkt. #36).2 The Court further GRANTS the Plaintiffs' motion for preliminary injunction. (Dkt. #3, #21).3


A. The City's Paid Sick Leave Ordinance

On April 24, 2019, the City enacted the Paid Sick Leave Ordinance (the "Ordinance"). Dallas, Texas, Ordinance No. 31181; Municipal Code § 20-1-20-12. The

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Ordinance, which became effective for "medium or large employers" on August 1, 2019, and will become effective for "small employers" on August 1, 2021, requires employers to grant one hour of paid sick leave for every thirty hours worked by an employee within Dallas, regardless of the employer's location.4 Dall. City Code § 20-4(a)-(b).

The Ordinance allows employees working in Dallas to earn up to sixty-four hours of sick leave time per year for medium or large employers and forty-eight hours of sick leave time per year for small employers. Id. § 20-4(c)(1)-(2). Employees under a collective bargaining agreement, however, may bargain to modify the yearly cap. Id. § 20-4(e). When an employee uses accrued paid sick leave time, employers are directed to pay employees their normal rate, exclusive of overtime premiums, tips, and commissions, for each hour the employee is absent from work for reasons that are authorized under the Ordinance. Id. § 20-5(a). Authorized reasons include absence arising from mental or physical illness and preventative care for the employee or their family members. Id. § 20-5(c).

In addition to granting sick leave time, the Ordinance also contains reporting and notice requirements for employers. Id. § 20-7. Among those requirements are physical notices of rights and remedies under the Ordinance on signage and in an employee handbook, where one exists. Id. § 20-7(b), (e). The employer must also track

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and report the number of sick leave hours available to each employee in writing on no less than a monthly basis, id. § 20-7(a), as well as maintain logs of the hours accrued, used, and available for each employee, id. § 20-7(d).

The Ordinance authorizes the City to conduct investigations, triggered by employee complaints, to assess employer compliance. Such investigations may include the use of administrative subpoenas to compel witness attendance or material and document production. Id. § 20-10(a)-(b). Violations of any portion of the Ordinance will result in a fine. Id. § 20-11(a). However, aside from claims of retaliation under section 20-8, the City will not begin to assess penalties for Ordinance violations against medium or large employers until April 1, 2020, and will not assess any penalties, including retaliation claims, against small employers until April 1, 2021. Id. § 20-11(c).

B. The Employer-Plaintiffs and the State of Texas Challenge the Enforceability of the Ordinance

Shortly before the Ordinance became effective, Employer-Plaintiffs ESI and Hagan filed this lawsuit, arguing that the Ordinance violates both the United States Constitution and the Texas Constitution and is, therefore, unenforceable. ESI is a Texas corporation, headquartered in Plano, Texas, that provides temporary staffing in various industries. ESI employs over 300 temporary employees within the City of Dallas at any given time. Hagan is a Texas corporation, based in Allen, Texas, that provides legal counseling and representation to employers and executives in various industries located in Texas. Hagan currently employs one attorney who works full time from home within the City of Dallas.

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The Employer-Plaintiffs claim that the Ordinance violates their Fourth Amendment right to be free from unreasonable searches and seizures, their Fourteenth Amendment right to equal protection under the laws, and both their own and their employees' First Amendment right to freedom of association. The Employer-Plaintiffs further allege that the Ordinance is preempted by the Texas Minimum Wage Act ("TMWA") and, therefore, violates the Texas Constitution. The Employer-Plaintiffs have requested declaratory and injunctive relief, including a preliminary injunction barring the enforcement of the Ordinance pending a final ruling on the merits. The State of Texas has joined the suit, but it seeks declaratory and injunctive relief only on the claim that the Ordinance is preempted by the TMWA and therefore contravenes the Texas Constitution. The Employer-Plaintiffs filed a preliminary injunction motion, which was later joined by the State.

The City has filed a motion to dismiss all claims made by Plaintiffs under Federal Rule of Civil Procedure 12(b)(1) (lack of subject matter jurisdiction) and Rule 12(b)(6) (failure to state a claim). The City contends that the Employer-Plaintiffs do not have standing to challenge the Ordinance on First Amendment grounds either on their own behalf or on behalf of their employees. Further, the City claims that Plaintiff Hagan does not have standing to bring any claim because enforcement of the Ordinance as to Hagan is too remote in time. The City also claims that all Plaintiffs have failed to state a claim as to each of the federal and state constitutional challenges, and that they have likewise failed to adequately plead municipal liability under Monell v. Department of Social Services of the City of New York, 436 U.S. 658,

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98 S.Ct. 2018, 56 L.Ed.2d 611 (1978). Lastly, the City asks the Court, in the alternative, to decline supplemental jurisdiction over Plaintiffs' claim that the Ordinance is preempted by the TMWA under state law.


The City's Rule 12(b)(1) motion challenges (1) the Employer-Plaintiffs' standing to bring a claim under the First Amendment on their own behalf and on behalf of their employees, and (2) Hagan's standing to bring any claim with respect to the Ordinance. Because courts must generally address jurisdiction before reaching the merits, the Court will address these questions of standing first. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (quoting Ex parte McCardle, 7 Wall. 506, 514, 19 L.Ed. 264 (1868)) ("Without jurisdiction, the court cannot proceed at all in any cause." (internal quotation marks omitted)).

A. Rule 12(b)(1) Legal Standards

"'Federal courts are courts of limited jurisdiction,' possessing 'only that power authorized by Constitution and statute.'" Gunn v. Minton, 568 U.S. 251, 256, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994)). A federal court has original jurisdiction to hear a suit when it is asked to adjudicate a case or controversy that arises under federal question or diversity jurisdiction. U.S. CONST., art. III, § 2, cl.1; 28 U.S.C. §§ 1331-32. Courts have "an independent obligation to determine whether subject-matter jurisdiction exists . . . ." Arbaugh v. Y&H Corp., 546 U.S. 500,

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514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). However, a defendant may also challenge the court's subject matter jurisdiction by filing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1).

A Rule 12(b)(1) challenge to the court's subject matter jurisdiction to hear a claim may address the sufficiency of the facts pleaded in the complaint (a "facial" attack) or may challenge the accuracy of the facts underpinning the claimed federal jurisdiction (a "factual" attack). See King v. U.S. Dep't of Veteran's Affairs, 728 F.3d 410, 413 (5th Cir. 2013) (quoting Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001)) (noting that subject matter jurisdiction is amenable to a facial or factual attack). "An attack is 'factual' rather than 'facial' if the defendant 'submits affidavits, testimony, or other evidentiary materials'" to controvert subject matter jurisdiction. Superior MRI Servs., Inc. v. Alliance Healthcare Servs., Inc., 778 F.3d 502, 504 (5th Cir. 2015) (quoting Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981)).

When, as here, a defendant contests the facial sufficiency of the facts pleaded in the complaint to confer jurisdiction, those facts are entitled to a presumption of truth. See Ass'n of Am. Physicians & Surgeons, Inc. v. Tex. Med. Bd., 627 F.3d 547, 553 (5th Cir. 2010) (accepting material allegations in the complaint as true when subject...

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