The end of April brought two new changes from the federal government that could have a big impact on businesses. Almost immediately, however, both rules faced legal challenges. It is likely that the Supreme Court will end up making the final decision on both rules. Until then, employers should be aware of what may be coming down the road because, absent successful challenges in the court, compliance with these laws is just around the corner.
Keep your eye on the email communications we send to you. We will keep you informed as we learn more going forward.
Federal Trade Commission (FTC) Bans Non-Competes
Effective Date: September 4, 2024
“Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban non-competes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Generally, non-competes prevent workers from taking new jobs or potentially starting a new business through contracts that prevent such actions. It is estimated that nearly 1 in 5 Americans are under a non-compete contract.
The FTC started this rule change process in January 2023 by issuing their initial proposed rule that was then subject to a 90-day public comment period. After receiving more than 26,000 comments, over 25,000 of which were in support of the ban, the FTC carefully crafted their final rule, making changes in response to the feedback they received.
If the final rule goes through, the vast majority of existing non-competes will no longer be enforceable. Senior executives with an existing non-compete can remain in force, but employers will be prohibited from entering into or enforcing any new non-competes with all employees, including senior executives. In addition, employers will be required to inform all individuals bound by a non-compete that it will not be enforced, excluding senior executives who have an existing and still enforceable non-compete.
The FTC has provided model language to help employers inform individuals that their non-compete will no longer be enforced. Click Here to access this information.
The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.
As an alternative, employers may wish to look at trade secret laws and non-disclosure agreements, both of which provide employers with the means to protect their proprietary and other sensitive information.
For additional information on this new rule, click here.
U.S. Department of Labor (DOL) Increases Minimum Salary for Overtime-Exempt Employees
Effective Date: July 1, 2024 & January 1, 2025
To be classified as overtime-exempt, also known as “white collar” exemption, a worker must meet two “tests” established by the DOL. The first test has to do with one’s job duties, and the second test has to do with how much they must be paid in the form of a salary. The new rule will impact the second test and will take effect in two stages over six months.
Currently, the minimum salary for an overtime-exempt worker is $684 per week, or $35,568 per year. The new increase is set to be:
- July 1, 2024: $844 per week ($43,888 annually)
- Jan. 1, 2025: $1,128 per week ($58,656 annually)
For individuals classified in the highly compensated exemption, the annual compensation minimum will increase from $107,432 to:
- July 1, 2024: $132,964 per year
- Jan. 1, 2025: $151,164 per year
In addition, these minimum salary thresholds will be updated every three years starting July 1, 2027.
