by Ethan O’Shea
A ban on Non-Compete Agreements from the FTC
On Tuesday, April 23, the Federal Trade Commission (FTC) sent shockwaves around the business world by announcing a new rule aimed at banning non-compete agreements nation- wide. The rule defines “non-competition agreements” as any term or condition that prohibits or penalizes a worker from seeking or accepting a job with a competing business or operating a competing business.
The rule will become effective 120 days after publication in the Federal Register, so no sooner than late August, 2024.
What will the rule ban?
The rule bans companies from entering into new non-compete agreements and renders existing non-compete agreements unenforceable for all employees except “senior executives”, defined as employees earning more than $151,164 per year and who hold policy making positions. The rule also requires that companies notify workers currently bound by such agreements, in writing, that the agreements will not be enforced, and it provides model language for the notice.
What it will NOT Ban
The rule does not ban non-compete agreements pertaining to the sale of a business or the sale of ownership of a business. Nor does the rule ban other restrictive covenants such as non-solicitation agreements, non-disclosure agreements, and confidentiality agreements.
But wait…challenges will lie ahead
This rule will certainly be challenged in court, and the U.S. Chamber of Commerce has already brought a legal action to block the rule. Do not be surprised if a federal court enjoins enforcement of the rule as the legal process plays out, and it would not be at all surprising if the legality of this rule makes its way to the United States Supreme Court.
Department of Labor announces new Overtime Rule Affecting “White Collar” Employees
Not to be outdone by the FTC, on the same day, the Department of Labor (DOL) announced its long awaited rule regarding overtime pay of white-collar workers. By way of background, the Fair Labor Standards Act requires that employers pay their employees time-and-a-half when employees work more than 40 hours in a work week. However, certain professional, executive and administrative employees and other “white collar” employees are exempt from the overtime pay requirements. Currently, in order to be exempt, the white collar employee must be paid a salary of at least $35,568 per year. The new rule raises the minimum salary threshold to $43,888 as of July 1, 2024 and then to $58,656 as of January 1, 2025. The rule also raises the minimum salary for highly compensated employees and would automatically raise the salary threshold every three years. The rule does not change the duties tests for the various white collar exemptions. The DOL has gone down this path before, only to have its proposed minimum salary threshold increases struck down by the courts. No doubt legal challenges to its latest rule change will also be filed, and like the forthcoming litigation to the FTC’s rule, this might be played out in the courts for quite some time.
What should employers do now:
Notwithstanding the prolonged legal battles that are expected pertaining to both the FTC rule regarding non-compete agreements and the DOL rule regarding overtime pay, employers should NOT ignore either rule or presume both will be enjoined if not struck down. Employers must take stock of their compensation structures and employee agreements and plan accordingly.
While the FTC’s action represents a significant milestone, the impact of the new rule will vary across different industries and regions.
- Employers wishing to prevent confidential information from walking out their doors will now have to creatively address these issues and likely re-examine their existing employment agreements.
- Getting ahead of these issues will be paramount for those aiming to minimize disruption. There are steps you can take now to get ready.
CONTACT US: We can get you ready to be compliant
Our employment team, led by Ethan O’Shea is available to answer your questions about both rules, review your potential exposure and advise you on how to prepare for implementation in advance of August 2024. He can be reached at (215) 661-0400 or EOShea@HRMML.com.
