DOL Finalizes Rule Regarding Salary Threshold for Exempt Status and FTC Announces Final Rule Banning Non-Compete Clauses
Martin is a Shareholder and David is an Associate at Peters & Kappenman, P.A., a firm representing employers in a full range of employment law issues and litigation in Minneapolis, Minnesota.
Salary Threshold Increases
On April 23, 2024, the U.S. Department of Labor (DOL) announced its final rule increasing the salary threshold for overtime exemptions. Currently, there are numerous “exemptions” for employees to be classified as exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA). The so-called “white collar” exemptions apply to executive, administrative, or professional employees who meet a certain salary threshold and perform certain duties. In addition, the “highly compensated employee” exemption applies to certain employees who are “highly compensated”. Both the “while collar” and “highly compensated employee” exemptions have seen their salary threshold’s rise with the DOL’s latest rule.
Currently, the salary threshold for the “white collar” exemptions is $684 per week (roughly $35,568 per year). On July 1, 2024, this amount is set to increase to $844 per week (roughly $43,888 per year). Additionally, on January 1, 2025, this amount is set to increase further to $1,128 per week (roughly $58,656 per year. Employees still must meet the “primary duties” test to be classified as a “white collar” employee.
The salary threshold for the “highly compensated employee” exemption currently requires employees to earn a salary of $107,432 to be exempt from overtime requirements. This amount is set to increase to $132,964 per year on July 1, 2024, and $151,164 per year on January 1, 2025. Employees still must “customarily and regularly” perform executive, administrative or professional duties to be classified as a “highly compensated” employee.
Practical Considerations
Employers should perform an internal audit of their employees to determine who meets these salary thresholds. Employers should determine if they will need to reclassify or raise the salary of any workers based on the above rule changes. Note, the rule is still subject to legal challenge and implementation may be put on hold by court action.
Nation Wide Non-Compete Ban
Additionally, on April 23, 2023, the Federal Trade Commission (FTC) issued a final rule banning non-compete clauses nation-wide effective 120 days after the final rule is published in the Federal Register.
Under the final rule, a non-compete clause is defined 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.”
The rule also differentiates Workers from Senior Executives. Workers are defined as “a natural person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status under any other State or Federal laws, including, but not limited to, whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides a service to a person. The term worker includes a natural person who works for a franchisee or franchisor, but does not include a franchisee in the context of a franchisee-franchisor relationship.”
The FTC’s final rule bans non-competes for all workers after the effective date. The FTC’s final rule also invalidates pre-existing non-competes for all workers after the effective date.
The term Senior Executive means “a worker who: (1) Was in a policy-making position; and (2) Received from a person for the employment: (i) Total annual compensation of at least $151,164 in the preceding year; or (ii) Total compensation of at least $151,164 when annualized if the worker was employed during only part of the preceding year; or (iii) Total compensation of at least $151,164 when annualized in the preceding year prior to the worker’s departure if the worker departed from employment prior to the preceding year and the worker is subject to a non-compete clause.”
The FTC’s final rule bans all non-competes with all Senior Executives after the effective date. However, pre-existing non-compete clauses for Senior Executives remain in force after the effective date.
Practical Considerations
Employers should consider revising, including, or strengthening (with consideration) non-solicitation or non-disclosure provisions that protect the employer’s goodwill developed with customers. Again, legal challenges to this prohibition are certain with the potential that the courts could enjoin any enforcement.
If you have questions regarding the above or any other employment-related concerns, please contact Martin Kappenman at 952.921.4603 or mkappenman@pklaborlaw.com, David Goldman at 952.921.4606 or dgoldman@pklaborlaw.com, or any other attorney at Peters & Kappenman, P.A.