Are Non-Compete Agreements Now Banned?
New Overtime Salary Rules
By: Adam S. Chotiner
April 25, 2024
Tuesday was a busy day for labor and employment law developments. The Federal Trade Commission (FTC) voted 3-2 to ban non-compete agreements, and the U.S. Department of Labor (DOL) finalized a new rule raising the salary threshold for key overtime exemptions that will result in millions of more salaried workers being eligible for overtime pay. See below for more on these significant developments.
ARE NON-COMPETE AGREEMENTS NOW BANNED?
The FTC issued its proposed non-complete rule early last year on January 5, 2023. After receiving more than 26,000 public comments, yesterday the FTC voted 3-2 to approve a final rule that prohibits nearly all non-compete agreements. The final rule covers any type of worker, including employees and independent contractors. Any existing non-compete agreement for a “senior executive” (defined as a worker earning more than $151,164 who is in a “policy-making position”) can remain in force, but no new compete-agreements will be permitted for any workers. For existing non-compete agreements (except for a “senior executive”), the final rule requires employers to notify their employees that their non-compete agreements are no longer enforceable. Non-compete agreements that are part of the sale of business will continue to be permitted and enforceable.
The final rule purports to allow non-disclosure/confidentiality agreements and non-solicitation agreements (for example, an agreement restricting an employee from soliciting an employer’s clients or customers). However, such provisions can still be prohibited if they are so broad in scope that they essentially function as a non-compete agreement.
The FTC’s final non-compete rule will not going into effect until 120 days from the date the rule is officially published in the Federal Register. However, the U.S. Chamber of Commerce has already announced plans to sue the FTC over the new rule, likely this week, and it is possible the courts will block the new rule from taking effect. In the meantime, businesses should start preparing in the event the new non-compete rule becomes effective.
NEW OVERTIME SALARY RULE
In general, to be classified as exempt from overtime an employee must pass two tests: a duties test and a salary test. The “duties test” involves the nature and scope of an employee’s actual day-to-day duties and responsibilities, and the “salary test” imposes a minimum salary level. The DOL’s new rule changes the minimum salary level but does not effect the duties test.
Currently, an exempt executive, administrative or professional employee must earn a salary of at least $684 per week ($35,568 per year), and an exempt “highly compensated employee” must earn a salary of at least $107,432 per year.
Under the new DOL rule, effective July 1, 2024, executive, administrative or professional employees must earn a salary of at least $844 per week ($43,888 per year), and highly compensated employees must earn a salary of at least $132,964 per year. These minimum amounts will increase again effective January 1, 2025, with executive, administrative or professional employees earning a salary of at least $1,128 per week ($58,656 per year), and highly compensated employees earning a salary of at least $151,164 per year.
As with the FTC’s final non-compete rule, legal challenges to the DOL’s new overtime salary rules are expected. But with an effective date only weeks away, businesses should promptly review and analyze their current exempt workforce to determine whether and to what extent changes need to be made.
The Labor and Employment Law Practice Group at Shapiro, Blasi, Wasserman & Hermann advises businesses of all sizes on employment law compliance and provides creative and effective defensive approaches when claims are asserted. Each situation is different and this article does not constitute legal advice. Please do not hesitate to contact Adam S. Chotiner at achotiner@sbwh.law or (561) 477-7800, or visit our website at www.sbwh.law.
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