Client Alert | Biden Administration Issues Regulations Attempting to:
- Ban Non-Compete Agreements
- Raise the Minimum Salary Threshold for Exempt Status under the FLSA
On April 23rd, the Federal Trade Commission (FTC) issued regulations that ban most non-compete agreements, while the Department of Labor (DOL) issued a Rule significantly increasing the minimum salary necessary for a worker to qualify as exempt from overtime requirements. Legal challenges are expected to both Rules, with many expecting both to be placed on hold pending rulings from the Supreme Court.
FTC Rule Banning Non-Competes
By David A. Kushner & Paris H, Thompson
The FTC voted Tuesday to approve final Rule that prohibits companies from entering into most post-employment non-compete agreements with employees. The Rule also prohibits companies from enforcing most existing non-compete agreements made prior to the Rule’s effective date, unless the existing agreement was made with a worker who is a “senior executive” (defined as a worker serving in a policy-making position and earning more than $151,164 annually). There is also an exception for certain non-competes tied to the sale of a business, or with certain entities over which the FTC has no jurisdiction.
The Rule is specific to non-compete provisions. It is not intended to apply to narrowly tailored confidentiality or customer non-solicitation provisions, although the FTC’s Rule does state that some such provisions will be so overbroad as to effectively constitute a prohibited non-compete.
The FTC’s Rule states that it goes into effect 120 days from the date it is published in the Federal Register. However, we expect immediate challenges to the Rule, and it is probable that one or more lower courts will issue an injunction prohibiting the Rule from being enforced until higher courts can weigh in on whether the Rule exceeds the FTC’s authority.
FTC Fact Sheet on Non-compete Rule
Recommendation
In the unlikely event that the Rule goes into effect, companies will have to notify workers that have entered into prohibited non-competes that such provisions “will not be, and cannot legally be, enforced.” While we think the Rule is unlikely to go into effect, we recommend that employers work with their employment counsel to review existing agreements and to develop an alternative strategy for protecting trade secrets and customer relationships in the event courts approve the Rule.
DOL Increases Minimum Salary for Overtime Exemption
By David A. Kushner & Paris H, Thompson
Also on Tuesday, the DOL announced a final Rule that will significantly raise the compensation thresholds needed to qualify for Fair Labor Standards Act exemptions.
Under current law, most salaried exempt employees must receive a minimum salary of at least $35,568 per year. Under the new Rule, workers employed in administrative, executive, or professional exempt positions will need to be paid a salary of at least $43,888 effective July 1, 2024, and at least $58,656 effective January 1, 2025.
For workers to be covered by the “highly compensated” overtime exemption, the salary threshold will increase to $132,964 effective July 1, 2024, and then to $151,164 effective January 1, 2025. Again, this is a significant increase from the current highly compensated threshold of $107,432.
DOL press release on Increase to Compensation Thresholds for Overtime Eligibility
Recommendation
As with the FTC Rule, these changes are likely to be challenged, which could lead to an injunction delaying or even permanently preventing the Rule from taking effect. In fact, the United State Supreme Court invalidated a similar Rule DOL promulgated in 2016, so there is reason to believe that Tuesday’s Rule is vulnerable to challenge. Still, we recommend that employers determine whether they have exempt employees earning under $43,888 or $58,656 per year. If so, employers should develop a preliminary strategy for either converting such workers to non-exempt status, or increasing compensation to above the new thresholds if the Rule is approved by the courts.