Government Passes New Rules on Noncompete Agreements and FLSA Exemptions

It’s been a busy week in the world of employment law, with the government announcing new changes to major laws that protect workers and employees. These are both changes that came through the Federal Trade Commission (FTC) and the Department of Labor (DOL), not laws passed by congress.

Noncompete Agreements – Gone?

One change fundamentally alters the law when it comes to noncompete agreements.

For about a year, the FTC had been considering changes to the laws that relate to noncompete agreements. The government felt that these agreements prevent workers from finding new jobs, jobs that could open new businesses, create more competition, and increase employment.

As a result, the FTC has announced a nationwide ban on the use of noncompete agreements.

In California, these agreements had been banned under state law, so the effects may be negligible, but for those who may have worked remotely, or in different states, or who may be subject to another state law where noncompete agreements are or were enforceable, the change could have some impact.

The law applies to almost all employees, and once the rule is officially in effect, any noncompete agreements that were previously signed, would become null and void. This includes noncompetes for senior level employees (although their past previously-signed agreements would remain in full force and effect).

Employers will have to notify employees who may have signed such agreements that they are no longer valid.

Other agreements like trade secret or confidentiality or non-solicitation agreements can still be used legally.

Exemptions to FLSA Changed

The other rule change has to do with the Fair Labor Standards Act (FLSA), the law that requires minimum wage and overtime be paid to employees.

The FLSA has a number of exemptions, the main one which is that those who are considered professional or managerial workers, or those in supervisory positions don’t have to be paid according to the FLSA, and neither do any employees making above a certain salary level (those making about $43,888 per year).

But that is scheduled to increase to exempt only workers making $58,656 or more per year, meaning that more employees are covered, and fewer employers are now exempt from the FLSA. Higher level executives (professionals or managers) making about $133,000 per year were previously exempt, but now, only those making more than about $151,000 will be exempt.

Those salary numbers are subject to review every three years, allowing the FLSA to update based on the economy.

Will the Changes Stick?

Both changes are expected to face scrutiny and multiple court challenges. The first challenge will be whether the rules can be enforced while the rules themselves are being challenged. If history is any indication, different federal circuits will probably weigh in differently on these executive agencies’ powers to make these changes.

Whether they can make those changes or whether the changes are out of their power, could ultimately be decided by the Supreme Court.

Contact the San Jose employment lawyers at the Costanzo Law Firm today if you feel you have not been paid fairly or in full at work.

Sources:

dol.gov/newsroom/releases/whd/whd20240423-0

ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes