!!Attention Employers!!
New regulations from DOL & FTC aimed at curtailing employment based non-competes and increase the base salary for over time exemption effecting employers throughout the US.
This week is soon turning out to be crucial for all US Employers, with both the Department of Labor (DOL) and the Federal Trade Commission (FTC) issuing the Final Rules that could fundamentally alter employer-employee relationships.
Very likely to be challenged in a Court of Law, both the DOL rule increasing the base salary requirement for exempt employees and the FTC rule banning employment based non-competes, have created a lot of concern and confusion for many employers. Here, we briefly examine the rules, their impact and suggest what employers need to do to ensure compliance with such rules.
FTC: Non-Compete Clause Final Rule
After a year of deliberation, the FTC has published its much anticipated Non-Compete Clause Final Rule where the agency adopted a comprehensive ban on new non-competes with all workers and further declared that existing non-competes with workers other than senior executives are not enforceable after the effective date.
1. What is the FTC’s Non-Compete Clause Final Rule?
The Final Rule would generally prohibit employers from:
I. Entering into or attempting to enter into a non-compete clause.
II. Enforcing or attempting to enforce a non-compete clause, or
III. Representing that a worker is subject to a non-compete clause
2. Who does this rule impact?
If the rule becomes effective, it will impact all employers, as it will effectively ban any use of non-compete clauses or non-compete agreements for all its workers.
3. What kind of non-competes does this rule impact?
If the rule becomes effective, it will impact both future non-competes as the rule effectively bans the use of non-competes for workers and existing non-competes (except for senior executives) as they become unenforceable.
4. Does this rule impact only the employees of an organization?
It is important to note that the rule bans the use and enforceability of non-competes for all “Workers” and not just employees. Further the definition of worker includes “externs, interns, volunteers, apprentices, and independent contractors”.
5. Does this rule also impact non-competes during the term of employment of the worker?
No, this rule does not curtail the employers right to restrict the workers employment with a competing entity. If the rule becomes effective, it only bans any enforcement of non-competes post the termination of the worker.
6. What steps must the employers now take to ensure compliance?
Apart from complying with the rule stated in point no.1 above, if the rule becomes effective, employers are also required to notify all current and former workers that their non-competes are unenforceable by physical or electronic means. The Final Rule will also establish a safe harbor for employers who use the model notice language.
Employers must consider reviewing their current non-compete clauses and consider including provisions like the term of employment, non-disclosure clauses / confidentiality clauses as a manner of protecting their business.
7. When will the rule be enforceable?
If the rule sustains all legal battles ahead, it will become effective after 120 days from April 23, 2024 (04/23/24). That is, the rule will be enforceable after August 21, 2024 (08/21/24).
8. Will the rule be enforced?
The rule is already facing severe opposition from several business organizations, and the Chamber of Commerce has already declared the impending litigation with the FTC, regarding its authority to issue such rules. However, there is a very high chance that this rule will be implemented.
DOL – The final rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees”
This final rule issued by the DOL on April 24, 2024, will make several employers liable to pay overtime wages per the requirements of the Fair Labor Standards Act to certain employees, who previously met the exempt conditions stipulated by DOL’s Salary and Duties Test. This rule will likely face litigation, and challenges before its enforcement.
1. What is the DOL’s final rule defining and delimiting the exemptions for White Collar executive, administrative, professional, outside sales, and computer employees?
The rule will bring about the following changes:
I. Two phased increases in standard salary level for exempt employees
II. Increase in the total annual compensation level for highly compensated exemption (HCE) based employments.
III. Beginning July 01, 2027, the salary thresholds will be updated every three years to reflect the then current earnings data.
2. How will this rule impact current exempt employees?
If the rule is enforced, with the increase in the standard salary level for exempt employees, employers will be liable for overtime pay for work performed beyond the stipulated forty (40) hours per week.
3. If some of my employees meet the updated standard salary level requirements for exempt employees, can they automatically be considered as exempt employees?
It is important to note that it is not just sufficient to meet the standard salary level threshold and qualify the salary test required by the DOL, but also to meet the requirements of a duties test to be classified as an exempt employee.
4. Does this rule impact the Highly Compensated Exemption (HCE)?
If the rule is enforced, starting, July 01, 2024, the current minimum for HCE will be increased to $132,964.00 per year, further increasing to $151,164.00 per year starting January 01, 2025. Starting July 01, 2027, the current minimum for HCE will be updated every 3 years to reflect the then current earnings data.
5. Will the rule be enforced?
Such attempts to increase the salary threshold have been met with litigation, and this is exempted to challenge the current rule as well. Business interest organizations such as the chamber of commerce have already indicated interest to sue DOL and challenge the current rule.
6. When will the rule be enforced?
If the rule sustains all legal battles ahead, it will become effective on July 01, 2024.
What must employers do to ensure compliance with the FTC & DOL rules?
Such sudden changes to employment rules, can have serious impact on many employers. For some employers, particularly in the IT industry, such rules can severely impact the organizational structures and business models. It is important that the employers must:
1. Conduct a thorough audit of all your workers
Such audits will help understand the laws that apply to various employees who are placed in diverse locations across the United States. This also allows the concerned personnel to update any personnel files and contracts that have not been properly completed in the past.
2. Have your current Offer Letters/Employment Agreements & Employee Handbooks reviewed by a professional.
It is essential for all employers to comply with local, state and federal laws and maintain compliance with both labor and employment law precedents. Therefore, it is crucial to have all your existing contracts reviewed by a professional to ensure proper compliance.
Somireddy Law Group PLLC offers such customized and client-oriented services to assist your organizations in maintaining compliance with all its offer letter, employment agreements, employee handbooks to current standards. Such reviews can protect your legitimate business interest and ensure your compliance with the updated rules.
For have your contracts reviewed please feel free to reach out to us at litigation@somireddylaw.com.
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