Update on Federal Non-Compete, Overtime Rule Changes

Earlier this year, we took a detailed look at two new federal rules, one from the Federal Trade Commission and one from the Department of Labor, that will change overtime regulations and the legality of non-compete contracts.

Current legal challenges to those rules, as well as anticipated future challenges, mean that employers will need to stay on their toes as their requirements go into effect (or don’t). Here’s what you need to know about both of these rules.

Non-Compete Rule: A Nationwide Injunction

The Federal Trade Commission’s (FTC) proposed rule banning non-compete agreements has faced numerous legal challenges, and in August 2024, a Texas federal judge issued a nationwide injunction on its implementation.

Non-Compete Rule Key Points:

• FTC rule: The FTC's rule, originally scheduled to go into effect on September 4, 2024, would have prohibited most new non-compete agreements and nullified existing agreements. Employers would have been required to notify affected employees about the change.
• The injunction: A federal judge blocked the rule's enforcement, citing concerns about the FTC's authority. According to the U.S. Chamber of Commerce, an opponent of the non-compete ban, this was a victory in the “fight against government micromanagement of business decisions.”
• Conclusion: The rule’s ultimate fate remains to be seen, considering the FTC is likely to appeal the judge’s decision. An appeal could eventually take the rule all the way to the U.S. Supreme Court for a final decision. In the meantime, state laws covering non-compete regulations remain in effect.

Advice for Employers:

• Review agreements: Evaluate your existing non-compete agreements to ensure they comply with your state’s specific regulations.
• Consider alternatives: Explore other methods to protect your business interests, such as trade secret agreements or intellectual property protections, and move away from using non-compete agreements.

Overtime Rule: A Complex Legal Landscape

The Department of Labor's (DOL) updated overtime rule, which formally went into effect on July 1, 2024, has also faced significant legal challenges. While the rule remains in place for now, several court cases are underway, with potential nationwide implications.

Overtime Rule Key Points:

• Salary threshold: The rule increased the minimum salary threshold for exempt employees to $844 per week ($43,888 annually) as of July 1, 2024.
• Legal challenges (Texas edition): Several lawsuits have been filed against the DOL, with mixed results. One challenge resulted in the State of Texas being granted a limited injunction as an employer. This injunction only covers people employed by the State of Texas; all other private and public companies in the state must still comply with the new threshold.
• Legal Challenges (Part Two): Ongoing lawsuits will likely result in additional rulings prior to the next increase. That adjustment, raising the threshold to $1,128 per week ($58,656 annually), is scheduled to take effect on January 1, 2025.

Advice for Employers:

• Stay informed: Read our previous breakdown of the steps employers should take, including implementing time tracking, updating policies, and honoring contractual obligations.  Monitor legal developments closely, as the situation is evolving rapidly.
• Consult counsel: Seek guidance from an employment attorney to understand your specific obligations and potential strategies.
• Review classifications: Evaluate your workforce to ensure that exempt employees meet the new salary threshold.
• Consider alternatives: Explore options like bonuses, commissions, or other non-salary compensation to maintain exempt status.
• Take action: Implement a plan to address any necessary changes to your employment practices.

Whether it’s non-compete clauses and overtime rules, or the latest trends in compensation, business leaders need to stay current in order to remain compliant and competitive. Follow this blog for all of the latest news in HR, payroll, tax processing, and timekeeping solutions, and reach out today for help preparing your business.