On April 23, 2024, the Federal Trade Commission voted to adopt its final rule, which prevents employers from entering into and/or enforcing noncompete agreements against workers. This vote occurred over a year after the FTC first proposed its new rule banning noncompetes and in the midst of a nationwide discussion on whether such agreements should be allowed and under what conditions. Business groups, including the United States Chamber of Commerce, have already expressed their disapproval and their intention to contest the enforceability of the FTC’s rule, which many commentators have questioned. Two of the five commissioners who voted no on the rule have questioned the FTC’s authority to engage in this kind of rulemaking.
The final rule’s effective date will be 120 days after the rule is published in the Federal Register, though we should expect this effective date to be delayed due to anticipated legal challenges. A few key aspects of the final rule include:
- The rule bans employers from entering into any noncompete agreements with workers after the effective date. The term “workers” is broadly defined and includes traditional employees as well as independent contractors.
- The rule prohibits the enforcement of all existing noncompetes after the effective date, except those between employers and “senior executives” which existed prior to the effective date. A senior executive is a person who (1) was in a policy-making position and (2) received compensation of at least $151,164 in the preceding year.
- The rule requires that employers provide by the effective date clear and conspicuous notice to each affected worker that the worker’s noncompete clause will not be, and cannot legally be, enforced against the worker. This notice must identify the worker and must be delivered by mail, email or text to the worker.
- The rule does not apply to confidentiality agreements or non-solicitation agreements. But the FTC cautions that if such agreements are so broad that they have the effect of limiting competition, they may violate the new rule.
- This rule against noncompetes does not apply to a noncompete clause entered into by an owner as part of a sale of a business.
- The rule does not apply to a franchisee in the context of a franchisee-franchisor relationship but does apply to a worker who works for a franchisee or franchisor.
- The rule does not apply to nonprofits, but the FTC has clarified that it will attempt to enforce the rule against nonprofits if they are a nonprofit in name only but are in actuality a profit-making enterprise.
Not to be outdone, the U.S. Department of Labor also issued on April 23, 2024, its own final rule imposing a substantial increase to the salary threshold required for the “white collar” exemptions to the Fair Labor Standards Act’s minimum wage and overtime requirements. This final rule’s effective date is July 1, 2024, but we expect this to be delayed due to anticipated legal challenges based in part on the rule’s similarities to the DOL’s 2016 rule which was found to be invalid.
Under this rule, the salary threshold for exempt executive, administrative and professional employees will increase from $35,568 per year ($684 per week) to both:
- $43,888 per year ($844 per week), as of July 1, 2024.
- $58,656 per year ($1,128 per week), as of January 1, 2025.
The annual total compensation threshold for highly compensated exempt employees will similarly increase from $107,432 to $132,964 as of July 1, 2024, and then to $151,164 as of January 1, 2025. The rule further requires that as of July 1, 2027, and every three years thereafter, a new salary threshold for both white collar and highly compensated employees be determined by applying to available data the methodology used to set the salary level in effect at the time of the update.
If you have any questions about these rules, their status or their possible effects on your existing employment practices and agreements, please reach out to any member of Warner’s Labor and Employment Practice Group or the Employment Litigation Practice Group.