- The Federal Trade Commission voted this week to ban non-compete agreements, and the Biden administration finalized a rule that would make more salaried workers eligible for overtime pay.
- Starting July 1, employers must pay overtime to salaried employees making less than $43,888 a year in certain administrative, executive and professional roles.
- The FTC’s move to ban noncompete agreements, which limit an employee’s ability to leave a rival company or start a competing business for a certain period of time, is already being challenged in court.
For millions of American workers, the federal government took two actions this week that could potentially provide far-reaching benefits.
In one move, federal trade commission Voted to ban non-compete agreements, which prevent millions of workers from leaving their employer for a specific period of time to join a competitor or start a rival business. The FTC’s move, which is already being challenged in court, would mean that such workers could apply for jobs for which they were not previously qualified.
Investigating agreements that ban low- or middle-wage workers from competing against older bosses
In the second move, Biden administration A rule has been finalized that will make millions of higher salaried workers eligible for overtime pay. This rule significantly increases the wage level that workers can earn and still be eligible for overtime.
The new rules do not come into effect immediately. And not everyone will benefit from them. So what will these rules actually mean for America’s workers?
The Federal Trade Commission building is seen in Washington on January 28, 2015. US companies will no longer be able to prevent employees from taking jobs with competitors under a rule approved by the FTC on Tuesday, April 23, 2024, although the rule is set to be challenged in court. (AP Photo/Alex Brandon)
What is a non-compete agreement?
Non-compete agreements, which employers have enforced more frequently in recent years, limit an employee’s ability to jump ship to a rival company or start a competing business for a certain period of time. The idea is to prevent employees from taking a company’s trade secrets, job leads or sales relationships directly to a competitor who could immediately take advantage of them.
Many industries use non-competition agreements, often among their salespeople, said Paul Lopez, managing partner of Tripp Scott, a Florida law firm that has handled more than 100 cases involving non-competition clauses.
“They’re the ones generating the leads and sales,” Lopez said. “The last thing you want as a business is for that person to go to your competitors and do the same thing.”
Who is usually subject to these agreements?
People may assume that non-compete agreements only apply to high-level executives in the technology or finance industries. But many lower-level employees are also subject to restrictions. Rules vary by state.
Stephanie Camfield, assistant general counsel at Engage PEO, a Florida-based company, said that in Florida, a medical sales worker was barred by her employer from joining a competitor for 10 years — and once she left her job, He remained unemployed for more than five years. Handles human resources for small and medium-sized businesses.
“He was able to find another sales position in a completely different industry,” Camfield said. “But there was a learning curve, so he wasn’t making that much money.”
In another case, a company in the optical industry that hired a sales associate was informed by his former employer that it intended to enforce a non-compete agreement. So the optical company terminated the employee, Camfield said.
“They thought they had a qualified sales associate and he or she was ready to go to work, and now suddenly they’re back in the same situation.”
Why ban non-compete agreements?
Some consider non-compete agreements to be harmful and unfair to workers by limiting their mobility. Career opportunities outside an employee’s current workplace are often more attractive. And with restrictions on the type of work they can do for a competitor, it may be difficult to move to a more suitable or attractive position.
Many hiring managers, after all, place the most value on job candidates who already have a certain level of experience in the same industry.
“A non-compete will unilaterally prevent someone from getting the kind of job they want,” said Jennifer Tosti-Kharas, a professor of organizational behavior at Babson College in Massachusetts. “It’s extremely paternalistic to exclude people from this. It’s really using a blunt instrument to limit people’s mobility, when in fact there are other legal mechanisms in place to prevent trade secrets from being disclosed.”
How do I know if I am subject to a non-compete?
People are sometimes surprised to learn that they are bound by such an agreement. They probably don’t even know until they leave for a new job, and their former employer intervenes and fires them.
“When you join a company, you’re so focused on the opportunity in front of you that you probably aren’t thinking about what the next leap will be,” Tosti-Kharas said.
Experts recommend that employees consult their human resources department about any non-compete agreements. If a workplace does not have a human resources department, the employee should ask the company attorney.
Are trade secrets now likely to be exposed?
There are still laws on the books that protect companies’ trade secrets. The FTC’s decision doesn’t change that.
And this US Chamber of Commerce has already filed a lawsuit against the Federal Trade Commission, calling its decision a dangerous precedent for government micromanagement of business. The lawsuits could potentially delay implementation of the FTC’s new rule for years.
What about the new overtime rules?
Starting July 1, employers of all sizes must pay overtime — time and a half pay after 40 hours per week — to salaried employees who make less than $43,888 a year in certain executive, administrative and professional roles. This limit will increase to $58,656 by the beginning of 2025. Previously, this limit was $35,568.
Who is eligible?
The Labor Department estimates that 4 million salaried workers who were not previously eligible will be eligible. However, some occupations, including teachers, doctors and lawyers, are not eligible for overtime pay and thus are not affected by the change. And some states, like California and New York, already have salary limits higher than the federal level.
What’s the reaction so far?
Predictably, groups representing companies have come out against the new rule. On the contrary, labor groups are hailing it as a necessary and long-awaited change.
The National Retail Federation argued that the new rules “undermine the ability of retailers to offer the most flexible, generous and tailored benefits packages to lower-level exempt employees across the industry.”
It also says the new rules do not give employers enough time to make the necessary changes. And it complained that including the automatic increases “exceeds the Department’s legal authority and goes beyond long-standing Fair Labor Standards Act and Administrative Procedure Act principles.”
On social media site X, the AFL-CIO labor organization said the rules would “restore and expand overtime protections for hard-working Americans.”
Will the changes be challenged in court?
That’s almost certainly the case. The Obama administration’s 2016 effort was struck down in court just days before it was to take effect. Because the new overtime rules won’t go into effect until July 1, groups have time to study the decision before mounting a challenge.
“I expect there will be some legal challenges,” said Ted Hollis, a partner at the law firm Quarles & Brady. “When the Obama administration published its proposed rule in 2016, it was almost immediately challenged in court.”
How should businesses prepare for this?
Companies of all sizes must reclassify workers who will now qualify for overtime pay — and make sure they keep track of hours and pay them appropriately.
Another option is to increase the salaries of employees so that they can be exempted from overtime. But employers should keep in mind that there are two more increases coming under the new timetable.
They also need to determine how they will budget for additional pay for overtime. Small businesses will have the hardest time.
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“Some people will have to cut staff,” Hollis said. “Others will have to cut hours from existing employees.
“Some will have to raise prices, and some probably won’t find a way to make it work economically and will unfortunately have to close.”
