FTC Noncompete Ban and DOL Salary Threshold Increases: What You Need to Know

By: Nicole M. Dwyer and Stuart M. Katz

FTC Noncompete Ban and DOL Salary Threshold Increases: What You Need to Know

It has been a busy time for federal employment regulations. On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule purporting to ban virtually all noncompete agreements. The same day, the Department of Labor (“DOL”) announced a substantial increase to the salary thresholds under the Fair Labor Standards Act that will significantly expand overtime protections for many workers. Here is what you need to know to be ready for these changes.  

FTC rule bans noncompete agreements, but will it stick?

The FTC has issued a final rule that would prevent employers from entering into or enforcing noncompete agreements against all but a select few employees. The rule is set to take effect 120 days from publication in the Federal Register.  

Under the new rule, it will be an “unfair method of competition” to

• Enter into or attempt to enter into a noncompete clause;
• Enforce or attempt to enforce a noncompete clause (except against senior executives who entered into a noncompete prior to the rule’s effective date); or
• Represent that a worker is subject to a noncompete clause.

In other words, this rule not only prevents employers from entering into new noncompete agreements, but it also bars employers from enforcing noncompete agreements that were entered into before the rule was issued unless the employee qualifies as a “senior executive.” Very few employees will qualify as senior executives (less than 1% of workers, according to the FTC), defined under the new rule as employees who both held a policy-making role and earned at least $151,164 annually.

The rule also imposes a significant notice requirement on employers. By the effective date, employers are required to notify each employee subject to a noncompete clause that the clause “will not be, and cannot legally be, enforced against the worker.” The notice must be in writing, addressed to the employee, and delivered by hand, mail, email, or text message.

Stakeholders in the business community have already announced that they intend to challenge the new rule, and we expect to see a stream of lawsuits filed attempting to block its implementation. In fact, the U.S. Chamber of Commerce has already filed suit arguing that the FTC lacks the authority to pass such a sweeping regulation.

It is also important to note that, even if the rule stands, it is limited to noncompete agreements and does not invalidate otherwise enforceable:

• Confidentiality clauses;
• Non-solicitation clauses;
• Trade secret obligations.

The rule also contains carveouts for persons selling a business who are often subject to noncompetition agreements, and for causes of action relating to noncompetes that accrued prior to the effective date of the rule.

DOL releases final overtime rule

Noncompetition agreements aren’t the only thing that may be changing. Also on April 23, 2024, the DOL has also issued its final overtime rule increasing the salary threshold for the executive, administrative professional, and highly compensated overtime exemptions to the Fair Labor Standards Act (FLSA).

As a reminder, the FLSA generally requires that employees be paid overtime compensation at a rate of 1.5 times their regular rate of pay for hours worked in excess of 40 in a given week, unless the employee satisfies one of the tests for exemption. The DOL’s new rule makes significant changes to two categories of exemptions, (1) the “white collar” exemptions; and (2) the “highly compensated individual” exemption.

Under both the white collar and highly compensated exemptions, employees must perform certain job duties and earn a certain threshold salary in order to be exempted from the FLSA’s overtime requirements. Under the current rule, the salary thresholds were $35,568 for “white collar” employees and $107,432 for “highly compensated” employees.

Effective July 1, 2024, the thresholds will increase as follows:

            White collar threshold: $43,888

            Highly compensated threshold: $132,964

Those amounts will increase again effective January 1, 2025:

            White collar threshold: $58,656

            Highly compensated threshold: $151,164

But that’s not all. The DOL rule also requires these amounts to be automatically updated every three years using then-current earnings data.

In anticipation of these changes, employers should take a close look at their workforces to understand how employees are currently classified and how those classifications will need to change in the current months. Meanwhile, employees who fall within the affected salary ranges should be aware of their rights under the new rule to ensure that they are properly reclassified when the time comes.

We recognize that employers and employees alike may have questions about their rights and obligations as the new FTC and DOL rules play out. At Cohen and Wolf, we are committed to keeping abreast of new developments and to providing timely updates and advice tailored to the specific needs of our clients. We are here to help. Please do not hesitate to contact us with any questions or concerns.

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