Significant changes to federal employment regulations are on the horizon. On April 23, 2024, the Federal Trade Commission (FTC) proposed a ban on most non-compete agreements nationwide, while the Department of Labor (DOL) significantly raised the salary threshold for overtime pay exemptions. Businesses must proactively understand and prepare for these legal changes.
Key Definitions
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• FTC (Federal Trade Commission): An independent government agency focused on promoting fair competition and protecting consumers from deceptive or unfair business practices.
• DOL (Department of Labor): The federal agency responsible for setting and enforcing labor standards, including wage and hour laws.
• Non-Compete Agreement: A contract clause restricting a worker's ability to seek new employment or start a competing business after they leave a company.
• Senior Executive: A highly compensated worker with significant policy-making authority within the company. The FTC rule sets a salary threshold that currently sits at $151,164 annually.
• Overtime Pay: Additional compensation, usually at 1.5 times the regular hourly rate, for employees working over 40 hours per week.
• Exemption: Classification for employees who meet specific criteria, making them ineligible for overtime pay.
FTC's Stance on Non-Compete Agreements
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The Core Change
Employers are generally prohibited from entering into new non-compete agreements with workers, including employees, contractors, and interns.
Limited Exception
Non-competes signed before the rule's effective date may remain enforceable for "senior executives."
Termination of Existing Agreements
All other existing non-compete agreements become unenforceable after the rule's effective date. Employers are legally obligated to notify affected workers.
Effective Date
The FTC rule's effective date is 120-days after it's published in the Federal Register. However, due to expected legal challenges this is likely to be delayed.
Michigan's Non-Compete Laws
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Existing Restrictions
• Michigan law already places limits on the enforceability of non-compete agreements. These restrictions may be stricter or offer different protections than the new FTC rule.
• The FTC rule complements, but does not replace, existing state legislation. It's crucial to understand how both the state and federal laws apply to your specific situation.
DOL's Updated Overtime Legal Regulations
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Substantial Salary Increase
Effective July 1, 2024, employees earning less than $43,888 annually ($844/week) must be paid overtime. This threshold rises further to $58,656 ($1,128/week) on January 1, 2025.
Calculating Total Compensation
Some bonuses may count towards the salary threshold, but health insurance and other typical benefits do not. The DOL will update these figures regularly in subsequent years.
Employers' Options
To offset overtime costs, businesses may raise salaries to maintain exemptions, reclassify employees as overtime-eligible, or carefully manage working hours to limit additional pay.
Additional Considerations
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Defining "Senior Executive"
The FTC focuses on employees who have decision-making power with a substantial impact on the company's direction, not merely those with managerial titles.
Broad Legal Agreements May Be Invalid
The FTC cautions against using overly restrictive non-solicitation or confidentiality agreements that functionally serve as non-competes.
Good Faith May Provide Temporary Protection
Businesses genuinely unclear on certain aspects of the rules may have a limited grace period. However, obtaining legal counsel is essential for ongoing compliance.
Impacts on Michigan Workers
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Increased Mobility and Opportunity
Employees previously bound by non-competes now have more freedom to pursue new positions, negotiate better terms, or start competing businesses.
Employer Action Items
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Review Existing Contracts
Thoroughly analyze all non-compete agreements within your organization, considering their scope and the workers involved.
Prepare Notices
Draft the required notifications that must be sent to workers whose non-competes will be voided.
Seek Legal Consultation
The House of Law, P.C., offers tailored guidance on compliance, risk mitigation, and best practices in this changing regulatory landscape.
Ensuring Full Compliance with The House of Law, P.C.
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In the wake of two significant changes to U.S. labor laws, the U.S. Department of Labor’s increase to the salary threshold for “white-collar” exemptions to the Fair Labor Standards Act’s minimum wage and overtime requirements, and the Federal Trade Commission’s ban on non-compete agreements, it is important that workers and employers alike stay informed about these changes.
The House of Law, P.C., is ready to help assess your company's specific situation and ensure full compliance with the law.
Disclaimer: This blog post provides general information and is not a substitute for legal advice. Please also note that laws are subject to change.
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