by Last year, the U.S. Department of Labor (DOL) and the Federal Trade Commission (FTC) proposed regulations that would impact most private employers around the U.S. On April 23, 2024, both agencies announced their Final Rules. Employers subject to the new regulations should plan for implementation on the respective effective dates of the new rules. They should also evaluate how they want to include in their planning the possibility that either or both rules will be delayed by litigation.
DOL Fulfills Promise to Increase Salary Threshold for White Collar Exemptions
For a job to be free from the overtime pay mandates of the Fair Labor Standards Act, it must meet the requirements of one or more of the statutory and regulatory exemptions. The so-called ‘white collar exemptions’ available to administrative, professional, and executive jobs must satisfy a salary test demonstrating the employee is paid by salary that meets a regulatory threshold and a duties test showing that the job fits the definition of the exemption being applied. A salary threshold refers to compensation paid as a salary that is at least the referenced rate of pay. If the job doesn’t pay at least the salary threshold, the exemption is unavailable even if the duties would meet the exemption’s definition.
The new Rule, effective July 1, 2024, changes the salary threshold for white-collar exemptions and also raises the salary threshold for the ‘highly compensated employees’ who perform at least one exempt duty. The agency refers to salaries in terms of weekly pay rates but most employers refer to annualized salary rates. In order to retain the desired exemption for a position after the effective date, employers will need to pay an employee the new minimum salary or more. The alternative would be to convert the compensation to a calculation that provides for overtime pay such as hourly pay or salaried nonexempt pay. The changes include:
- A phasing-in of new salary thresholds for white collar exemptions, raising the salary threshold to an annual rate of $43,888 effective July 1, 2024, and to an annual rate of $58,656 rate effective January 1, 2025.
- The minimum exemption threshold salary for highly compensated employees will increase to an annual rate of $132,964 on July 1, 2024, and to an annual rate of $151,164 on January 1, 2025.
- Both rates will be subject to updates every three years.
For More information: The DOL has updated its online FAQs on salary thresholds: https://www.dol.gov/agencies/whd/overtime/rulemaking/faqs#earnings-thresholds8
Litigation Likelihood: Since past attempts at increasing the salary threshold have been challenged in court, it is expected that lawsuits will be filed. Two court-related actions provide some encouragement to challengers that the courts could eventually invalidate the rule. First, a federal district court found the methodology used in a previous attempt at raising the rates invalid. If a court finds similar problems with the methodology used in the new Rule, it could temporarily stop enforcement of the Rule until the issue is resolved through appeals or otherwise. The other encouragement for a legal challenge comes from the language of an opinion written last year by one of the current U.S. Supreme Court justices suggesting (but not determining) that the DOL has no authority to set minimum salary thresholds for exemptions.
FTC Issues Rule Banning Non-Compete Agreements
The FTC approved and issued a Final Rule that bans the employers’ use of non-compete agreements. The Rule is not effective until 120 days after it is formally published in the Federal Register. The Rule provides that, after the effective date, organizations and companies under the jurisdiction of the FTC cannot make it a condition or term of employment that:
- Prohibits or penalizes a worker from seeking or accepting work in the U.S. from a different employer after leaving their employment or
- Prohibits or penalizes a worker for operating a business in the U.S. after the conclusion of their employment.
This limitation on companies covers more than employees. It covers agreements with employees, independent contractors, volunteers, interns, apprentices, and sole proprietors who provide a service to a client or customer.
Existing non-compete agreements or clauses are banned for most workers. The exception is that the Rule does not invalidate pre-existing non-competes for ‘senior executives’ who hold a policy-making position and earn an annualized pay of $151,164 or more. Agreements made with senior executives after the effective date are invalid. There is also an exemption from the ban for non-compete clauses involving the sale of a business.
Despite the headlines that the FTC is ‘banning all non-compete agreements,’ the FTC does not have jurisdiction over all businesses. The agency’s broad jurisdiction excludes entities such as banks, savings and loan institutions, federal credit unions, transportation and communications common carriers, air carriers, and some non-profit organizations. Employers should consult with legal counsel for confirmation if they believe they are not covered by the FTC jurisdiction.
For More Information: The FTC has published a compliance guide on the non-compete ban that includes definitions and exemptions. https://www.ftc.gov/system/files/ftc_gov/pdf/Business-and-Small-Entity-Compliance-Guide-updated.pdf
Litigation Likelihood: There will be litigation but it is not guaranteed that planned legal action will stop the enforcement of the Rule across the country. The U.S. Chamber of Commerce has announced that it will start litigation against the ban, possibly as early as this week. At least one business has already filed a lawsuit.
