Insight Two New Employment Law Developments

In the last week, there have been two significant employment law developments. This article summarizes both developments.

FTC Rule Barring Non-Compete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) adopted a new rule that purports to prohibit non-compete clauses in employment contracts. Before taking any action in response to the new FTC rule, it is important to understand a few key issues.

First, the FTC rule only addresses true non-compete clauses, which the FTC defines as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” The FTC rule generally does not prohibit customer non-solicitation provisions or provisions prohibiting employees from using or disclosing the employer’s confidential information or trade secrets. Accordingly, some form of employee restrictive covenants will still be allowed going forward.

Second, the FTC rule will be retroactive in invalidating existing non-compete agreements, except for existing non-compete agreements with “senior executives,” which is defined as employees in a policy-making position with annual compensation over $151,164. New non-compete agreements are prohibited as to all employees, including senior executives.

Third, once the rule becomes effective, employers will be required to give employees notice, in writing, that their non-compete agreements are no longer enforceable.

Fourth, and perhaps most importantly, it remains unclear whether the FTC rule will actually go into effect anytime soon. The FTC rule is scheduled to become effective 120 days after publication in the Federal Register, which has not yet happened, but presumably will happen soon. However, lawsuits have already been filed to challenge the rule, including a lawsuit by the U.S. Chamber of Commerce. Many commentators believe there is a high likelihood that the FTC rule will be blocked by the courts or at least held up in litigation for a long time.

Our Employment & Labor Law group stands ready to help employers navigate the new FTC rule. However, most employers will be well served to wait for further developments before changing existing non-compete agreements.

Department of Labor Increases Salary Threshold for FLSA White-Collar Exemption

On April 23, 2024, the United States Department of Labor (DOL) announced a new rule that raises the minimum salary requirements for the “white-collar” exemptions (executive, administrative, and professional) from minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA).

The minimum salary level will increase in two phases from the current $684 per week ($35,568 per year) to:

• $844 per week ($43,888 annually) – as of July 1, 2024
• $1,128 per week ($58,656 annually) – as of January 1, 2025

Much like the FTC rule, it is possible, but less likely, that the DOL rule will be blocked by the courts. However, employers should begin planning for the potential impact of the rule. Employers should identify any employees who are currently classified as exempt under the white-collar exemption with salaries less than $58,656. Employers essentially have two options with regard to those employees: (1) reclassify those employees as hourly / non-exempt and plan on paying overtime if they work more than 40 hours in a work week; or (2) increase their salaries to at least the new minimum thresholds as of July 1, 2024 and January 1, 2025.

This blog is provided by Hawley Troxell Ennis & Hawley LLP for educational and information purposes only. It is intended to notify our clients and friends of certain events or issues. It is not intended to be, nor should it be, used as a substitute for legal advice regarding specific factual circumstances.

© Hawley Troxell Ennis & Hawley LLP all rights reserved.