Vogel, Weir, Hunke & McCormick Ltd.
04/24/2024 | Press release | Distributed by Public on 04/24/2024 10:40
BREAKING NEWS: Federal Agencies Issue Final Rules Banning Non-Compete Agreements and Amending Overtime Rules
After months of inactivity, the U.S. Federal Trade Commission ("FTC") and the U.S. Department of Labor ("DOL") both approved final rules that could potentially have massive impacts on employers across the country.
Non-Compete Ban
First, the FTC issued a final rule yesterday banning non-compete agreements nationwide. The FTC estimates that the rule could impact around 30 million workers who would otherwise be bound by non-compete agreements. The final rule will go into effect 120 days after its publication in the Federal Register.
The final rule prohibits any contractual term that blocks a worker from working for a competing employer or operating a competing business after their employment ends. The final rule extends not only to employees but also to other workers such as independent contractors, externs, and volunteers. The rule does not apply, however, to non-compete agreements entered into as part of a bona fide sale of a business if the seller has at least a 25% ownership interest.
In addition to straightforward non-compete provisions that expressly prohibit post-employment competition, the final rule also thwarts agreements that "function to prevent" such competition. For example, the new rule could impact overly restrictive non-disclosure agreements that, in effect, preclude future work in the same field, as well as training-repayment agreements that require workers to repay training costs if they end their employment before a specified date. The FTC has indicated that provisions prohibiting solicitation of clients and employees, respectively, may still be valid depending on the circumstances of each case.
In addition to future non-compete agreements, the new rule also invalidates existing non-compete agreements for workers other than senior executives and requires that employers notify workers that their agreements are no longer in effect. The new rule defines "senior executives" as workers in "policy-making positions" who earn more than $151,164.00 annually.
The new rule will likely be subject to legal challenges. While awaiting clarity about the future of non-compete agreements, employers may wish to consider other options to protect their sensitive business information-such as sufficiently tailored confidentiality agreements.
Salary Threshold
Second, also yesterday, the DOL released a final rule increasing the minimum salary required for the "white collar" exemptions (administrative, executive, and professional) from minimum wage and overtime requirements under the Fair Labor Standards Act ("FLSA"). The final rule increases the salary threshold for those exemptions in two phases over six months, starting on July 1, 2024. The DOL expects the new rule will impact at least 3.6 million salaried workers.
The FLSA generally requires an employer to pay an employee an overtime premium of 1.5 times their regular rate of pay for all hours worked in excess of 40 in a workweek unless the employee falls under an exemption. To qualify for a white-collar exemption, an employee must primarily perform exempt duties; be paid on a salary basis; and earn a minimum salary threshold.
The DOL's final rule increases the minimum salary threshold. The standard threshold will increase from $684.00 per week ($35,568.00 annually):
- $844.00 per week ($43,888.00 annually) on July 1, 2024, and
- $1,128.00 per week ($58,656.00 annually) on January 1, 2025.
For highly compensated employees, the annual-compensation threshold will increase from $107,432.00 annually to:
- $132,964.00 annually on July 1, 2024, and
- $151,164.00 annually on January 1, 2025.
The final rule also allows the opportunity for increases of this threshold every three years based on current earnings data, beginning July 1, 2027.
In anticipation of the new rule, employers should review their workforce for any exempt employees who currently earn between $35,568.00 and $58,656.00 per year. Assuming the new rule will go into effect, employers will have to decide whether to raise these employees' salaries to maintain their exempt status or convert them to non-exempt status.
Just as with the FTC's final rule, the DOL's final rule will almost certainly be subject to legal challenges. The DOL previously pursued a similar rule in 2016, but it was blocked by a federal court. The DOL thereafter abandoned the rule after a change in the presidential administration. It remains to be seen whether this newest rule will meet a similar fate.
Conclusion
Employers should continue to monitor developments to the final rules released by the FTC and DOL. Although either or both rules could face legal challenges, employers should nevertheless review their current agreements and policies to determine if their workforces could be impacted if the rules go into effect. Reach out to a member of Vogel Law Firm's Employment & Labor Team with any questions!
Related materials:
https://www.vogellaw.com/ftc-proposes-new-non-compete-rule/
MacKenzie Hertz, Employment and Labor Law Attorney