On April 23, 2024, there were two big announcements from the federal government that may affect how employers operate, one from the United States Department of Labor (DOL) and another from the Federal Trade Commission (FTC). MEA will be discussing these changes in the upcoming MEA Insights Webinar and also at the HR & Employment Law Conference on May 9th.
What Did the DOL Say?
The DOL released a final rule raising the salary threshold to qualify for certain overtime exemptions under federal law. While the DOL announced a July 1, 2024 effective date for the salary threshold change, legal challenges to the rule are extremely likely, and the rule ultimately could be blocked. Even so, employers must take note and prepare for the possibility that the final rule takes effect this summer.
What is the Salary Threshold?
Under the federal Fair Labor Standards Act (FLSA) and state wage and hour laws, employers must classify all employees as either exempt or nonexempt. This classification determines how the employee should be paid to ensure legal compliance. Exempt employees are exempt from the overtime provisions of state and federal law and are expected to devote the number of hours necessary to complete their respective tasks. The compensation of an exempt employee does not change based upon the number of hours worked. By contrast, nonexempt employees must be paid overtime if they work more than forty hours per workweek. The most common FLSA overtime exemptions – often called the “white collar” exemptions – are the executive, administrative, and professional exemptions. The current federal salary threshold is $684 per week ($35,568 annualized). Some states have higher salary thresholds.
What Does the Final Rule Say?
The final rule raises the federal salary threshold to $844 per week ($43,888 annualized) effective July 1, 2024. Then, in January 2025, the rule will raise the salary threshold to $1,128 per week ($58,656 annualized). The rule contemplates automatic updates every three years.
What Should Employers Do Now in Response to the DOL Final Rule?
Human Resources professionals may recall that a similar, significant change to the salary threshold was proposed in 2016 but never took effect due to legal challenges. A much smaller increase to the current salary threshold ultimately took effect a few years later. While legal challenges to the current final rule are likely, employers should take several steps to prepare in the event that the final rule takes effect.
Employers should review their payroll to determine which employees’ salaries fall between the current threshold and the proposed threshold. Employers then should determine which employees the employer would reclassify to nonexempt and which employees would be given a salary increase to retain their exempt status. With the likelihood of legal challenge, employers may wish to plan for implementation of the final rule but hold off on taking decisive action for as long as is practicable. In addition, with proposed changes in the law, this is an excellent time for employers to review employee exempt status for compliance and consider making changes, regardless of whether the final rule ultimately takes effect.
What Did the FTC Say?
On April 23, 2024, the FTC, by a 3-2 vote, announced a final rule banning non-competes in most circumstances. The rule will take effect 120 days after it is published in the Federal Register, assuming courts do not intervene in the interim.
The rule defines a “non-compete clause” as a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from: (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.
This sweeping prohibition covers agreements with any worker, including employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide a service to a client or customer. The rule applies to any person or employer, including a natural person, partnership, corporation, association, or other legal entity within the Commission’s jurisdiction, including any person acting under color or authority of state law, which effectively includes all persons or businesses operating for profit.
Even existing non-competes for all workers, other than those who qualify as “Senior Executives,” are effectively banned. Under the final rule, it is an unfair method of competition: (i) to enter into or attempt to enter into a non-compete clause; (ii) to enforce or attempt to enforce a non-compete clause (for Senior Executives, to do so based on a non-compete entered into on or after the effective date of the regulation); or (iii) to represent that the worker is subject to a non-compete clause (unless the worker is a Senior Executive who entered into a non-compete clause before the effective date of the regulation).
In the next several weeks, court challenges and requests to stay the rule are likely to be filed. MEA will provide additional information and advice once those challenges have been filed and it becomes clear what positions the challengers take and how the courts react.
Employers should consult with experienced human resources professionals and/or labor and employment counsel with any questions regarding these complex employment law issues. For all MEA members, the Hotline is available to provide this assistance. For MEA Essential and Premier members, a Member Legal Services attorney is available for additional consultation.
Who is MEA?
MidAtlantic Employers’ Association delivers comprehensive HR-driven business solutions designed to help companies grow. Whether you need support for a single project or complex issues, you have access to seasoned professionals who are experts in their fields and dedicated to serving you well. Our collaborative, accessible, and responsive nature allows us to help you find solutions aligned with your goals. Whatever your goals are, we can help you develop better people and better outcomes so they can be achieved.
To learn more, contact us today to schedule a consultation, help us understand your needs, and learn how we can help.
*This Alert is provided for general informational purposes only and does not constitute legal advice.
