April 2024 Legislative Update
The Department of Labor (DOL) has been active in issuing rulings that impact how employees are classified and when they are entitled to overtime pay. At the same time, the Federal Trade Commission (FTC) quietly issued a final rule that disrupts the long-standing employment practice of non-competition clauses.
DOL RAISES OVERTIME SALARY THRESHOLD
The DOL said it will publish a final rule raising the Fair Labor Standards Act’s minimum annual salary threshold for overtime pay eligibility in a two-step process. Starting July 1, 2024, the threshold will increase from $35,568 to $43,888 per year. It will then increase to $58,656 on Jan. 1, 2025. This overtime exemption applies to workers employed as bona fide executive, administrative, professional and outside sales employees, as well as some computer employees.
We’ve seen in the past that these changes can be stalled; however, we cannot be sure of delays so it’s important to prepare for the July 1st update by determining which positions in your organization will be affected by the updated threshold and having a plan for converting them to hourly or increasing their pay.
FINAL INDEPENDENT CONTRACTOR RULE IS IN EFFECT
The DOL issued new guidance related to the classification of workers as independent contractors versus employees. Effective March 11, 2024, the new rule outlines six factors to determine whether an individual is an employee or independent contractor, with no single factor carrying greater weight than others.
Despite this multifactor approach, the DOL emphasizes that “economic dependence” is the key consideration in determining classification underscoring the importance of thoroughly evaluating the nature of the working relationship between an individual and an employer. While factors such as the establishment of a separate business entity, like an LLC, can be indicative of independent contractor status, they do not automatically determine classification.
The rules you followed when you initially hired any current independent contractors have changed so it’s important to complete an updated review of their status against the new regulations. This is imperative to ensure that you are compliant with the new regulations in order to prevent misclassification issues that could lead to costly penalties and fines.
RULE BANNING NON-COMPETE CLAUSES NATIONWIDE
Non-compete clauses are contractual agreements that restrict employees from working for or starting a competing business within a certain geographic area or for a specified period after leaving their current employer. The FTC’s issuance of a final rule prohibiting non-compete clauses in all agreements between employers and their workers represents a significant shift in employment law and has substantial implications for both employers and employees.
The FTC’s final rule effectively bans the use of such clauses in all agreements between employers and their workers. This means that employers are no longer permitted to include non-compete provisions in employment contracts, whether for new hires or existing employees.
The final rule imposes a comprehensive ban on new non-competes with all workers. Thus, any non-compete entered into after the final rule’s effective date (in approximately 4 months) will be considered a form of unfair competition in violation of the FTC Act.
Many legal challenges to the final rule are likely, which, at the very minimum, will significantly delay implementation of the rule. Employers likely will be able to operate as usual with respect to their non-compete agreement strategies as these anticipated legal battles work their way through the courts. Ultimately, however, you may need to begin preparing to comply with the FTC’s rule should it be upheld.
——————————
Blueprint HRM is here to assist you with any questions you have and to help you prepare for these changes. Whether you need clarification on specific aspects of the legislation, guidance on implementation strategies, or assistance in updating policies and procedures, feel free to reach out. We are here to support you through the process.