By Harvey B. Cooper and Julie Ryan
In April 2024, the U.S. Federal Trade Commission (FTC) and the U.S. Department of Labor (DOL) issued final rules that may significantly affect employers.
On April 23, 2024, The FTC voted to approve a final rule that will effectively ban the use of non-compete clauses by employers and require employers to rescind existing such agreements, with the exception of existing agreements with senior executives.
On that same day, the U.S. Department of Labor (DOL) issued its final rule raising the salary threshold for employees exempt from federal overtime requirements. The new rule also significantly increases the minimum salary requirement for executive, professional, and administrative employees.
What is the impact of these changes, and what should you do?
The FTC Non-Compete Rule
The rule bans all non-competes as an unfair method of competition, except for existing non-competes with “senior executives”. There is no exception to the ban. Enforcement of existing non-competes with non-senior executives is barred.
Existing non-competes with “senior executives” earning more than $151,164 and are at the level of a president, chief executive officer, or the equivalent, or in a position that has similar authority to a president or officer and has policy-making authority are grandfathered in and are still enforceable.
“Policy-making authority” is defined as “final authority to make policy decisions that control significant aspects of a business entity or a common enterprise.” It does not include authority limited to advising or exerting influence over policy decisions or having final authority to make policy decisions for only a subsidiary of or affiliate of a common enterprise.”
No new non-competes with senior executives can be entered into once the Rule takes effect.
The Rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity.
The Rule requires employers to notify employees with noncompete agreements that the agreements are no longer enforceable. A sample notice is included in the Rule.
The Rule does not affect more restrictive state laws.
The Rule was to go into effect 120 days after it was published in the Federal Register. However, a lawsuit to block its enforcement was quickly filed. We expect any decision from that Court to be appealed. Moreover, if there is a change of administration, we expect the Rule to be withdrawn.
We foresee a positive advantage for Nebraska employers and the expansion of the talent hiring pool. Once the Rule takes effect, employees in other states, other than “senior executives” with a current non-compete agreement, may be available to be hired by Nebraska employers without potential lawsuits seeking to enforce an agreement invalid under the Rule. Of course, Nebraska employers will need to be mindful that these employees may also have enforceable trade secret or non-solicitation obligations to their former employers.
We suggest all existing employee restrictive agreements be reviewed by counsel to determine compliance with Nebraska and Federal law.
The New DOL Salary Thresholds for Executive, Administrative and Professional Exemptions
Effective July 1, 2024, the salary threshold for the executive, administrative, and professional employee exemption will increase to the equivalent of an annual salary of $43,888 and increase to $58,656 on January 1, 2025. The July 1 increase updates the present annual salary threshold of $35,568.
In addition, the Rule will adjust the threshold for highly compensated employees. Starting July 1, 2027, salary thresholds will be updated every three years by applying up-to-date wage data to determine new salary levels.
The new Rule’s effective date is July 1, 2024, barring a court challenge. If there is a change of administration, we expect the Rule may be withdrawn, as occurred at the outset of the 2017 Trump administration.
What should employers do now? We recommend you prepare for but do not announce any salary or exemption change yet. Prepare by:
- Identifying all exempt executive, administrative and professional employees, their current salary, and actual weekly hours worked.
- Determine if current exempt employees are actually performing the required duties for the claimed exemption.
- For those employees making less than $43,888, determine if you want to increase their salary to $43,888 or make them non-exempt, entitled to overtime pay on July 1.
- For those exempt employees who will make at least $43,888 as of July 1 but less than $58,656 on January 1, 2025, determine if you want to increase their salary to $58,656 or make them non-exempt, entitled to overtime pay on January 1.
If you have questions about these Rules and their implications to your business, please contact Harvey Cooper or Julie Ryan at 402-392-1250.