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By Sam Larson
Vice President of Government Affairs
The Biden Administration this week enacted two significant employment-law changes that, if upheld, will impact many AIM-member companies and their employees.
First, the US Department of Labor (DOL) issued new rules that will significantly expand the number of workers eligible for overtime. The second change came when the Federal Trade Commission (FTC) passed regulations that would ban virtually all non-compete agreements.
As partisan gridlock limits Congress’s ability to create new laws, the Biden Administration has increasingly used its regulatory authority to set new policy.
The non-compete regulation has already been challenged by multiple organizations in the federal courts, which will probably have the final say on both proposals.
The AIM HR Solutions team is ready to help AIM members comply with both rules and the Government Affairs team is exploring several options to challenge them.
Overtime Rule: DOL finalized a revision of the Fair Labor Standards Act (FLSA) overtime exemption. Effective July 1, 2024, an executive, administrative, or professional employee must receive a salary of $43,888 per year to be classified as exempt and not receive overtime. This will increase to $58,656 on January 1, 2025. The current threshold is is $35,568.
Any employee who earns a salary that is less than those thresholds will be eligible for overtime, regardless of whether they are paid hourly.
Non-Competes: The FTC on a 3-2 vote adopted new rules that ban non-compete clauses in almost every employment contract, a decision that could affect millions of workers. Non-compete agreements are clauses in employment contracts through which an employee agrees not to compete with the employer after employment ends. The new rule effectively bans non-compete agreements nationwide.
The rule is set to take effect in 120 days. For non-compete agreements existing prior to the effective date, only those with “senior executives” may remain in force, while those with all other workers are not enforceable after the effective date. The rule defines “Senior Executive” as those who earn more than $151,164 annually who are in a “policy-making position.”
AIM strongly opposes the FTC’s non-compete rule and submitted testimony on behalf of our members during the comment period. We believe that the Massachusetts non-compete reforms enacted in 2018 represent a fair compromise under which low-wage workers are not subject to the agreements, but employers may still use non-competes in limited settings. The FTC rule would invalidate the carefully crafted Massachusetts law and impose a one-size-fits-all solution.
Court Challenges: The US Chamber of Commerce and the tax firm Ryan quickly challenged the non-compete rule in separate federal courts in Texas last week alleging that the FTC overstepped its authority. The Chamber could move for an injunction temporarily blocking the rule from taking effect as the case proceeds but did not say whether it would do so in Wednesday’s complaint.
Observers believe both the overtime and non-compete issues could end up before the U.S. Supreme Court. The high court has been skeptical of federal agencies exceeding their mandate and creating new policies without explicit authority from Congress. However, with Congress slow to act on many issues, the pattern of executive policy making followed by long litigation will likely continue.
AIM Resources: In the meantime, employers should prepare themselves to comply with both rules and have a plan in place if either one is upheld. The AIM HR Solutions team will host the following events to support members.
Members interested in these events should contact Terry Cook at tcook@aimhrsolutions.com or call the HR Solutions Hotline. Members interested in AIM’s government affairs advocacy on these issues should contact me, slarson@aimnet.org.
