Update on Significant Development Regarding Non-Compete Agreements and Employee Overtime

Cheylynn Hayman
801-257-7933
chayman@parrbrown.com

Chase Wilde
801-257-7930
cwilde@parrbrown.com

April 25, 2024

On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to authorize the publication of the Non-Compete Clause Rule, following a notice of proposed rulemaking issued in January 2023.

The final rule, which is set to take effect 120 days after its publication in the Federal Register, prohibits the use of new non-compete clauses with all workers after the effective date. Existing non-competes that were entered into before the effective date will not be enforceable as of the effective date. There are two exceptions to this new rule: (1) existing non-competes with “senior executives,” defined as individuals earning more than $151,164 annually and in a policy-making position, may be enforced even after the effective date; and (2) non-compete clauses entered into as part of a sale of a business entity are not covered by the new rule, so those may still be entered into and enforced, subject to existing laws.

On or before the effective date, employers who have non-compete agreements with any workers that do not fall into one of the two exceptions must inform those workers, in writing, that their noncompete agreements are no longer enforceable as of the effective date.

A lawsuit already has been filed in Texas challenging the FTC’s authority to issue the new rule.  Depending on how that case and other potential litigation turn out, the effective date of the rule may be delayed.

In related news, the Department of Labor issued a new final rule this week, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, that will impact employee classifications under the Fair Labor Standards Act. Currently, the salary threshold for exempt employees is $35,568. The DOL’s new overtime rule raises the threshold to $43,888 on July 1, 2024, and then to $58,656 next year.   The annual compensation threshold for highly compensated exempt employees will increase from $107,432 to $132,964 on July 1, 2024, and to $151,164 on January 1, 2025.  This rule may also face court challenges.

We will continue to monitor the legal landscape surrounding these new rules and the legal challenges to them. If you have questions about how these new rules may impact your business, please feel free to contact us.

The foregoing update is designed to be accurate and authoritative but is not intended to provide and should not be construed as providing legal advice or as creating any attorney-client relationship with the author or Parr Brown Gee & Loveless, P.C.  For legal advice regarding the topics addressed in this update, you should consult with your legal counsel.