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New Federal Agency Rules for Overtime, Independent Contractors, and Non-Compete Agreements

New Federal Agency Rules for Overtime, Independent Contractors, and Non-Compete Agreements

DOL Overtime Rule Changes

In the last ebulletin, we provided a summary  of the Department of Labor’s (DOL) new final rule on wage and overtime requirements. As we explained, the main provision significantly raises the minimum salary necessary for application of the overtime exemption to white collar employees, thus making it harder to classify such employees as exempt.  That rule will become partially effective on July 1 so employers should start planning now on how they will address any requirement applicable to them.

To help in this regard, America’s Newspapers on May 16 hosted a very informative webinar providing a deep dive into the regulations. The webinar, entitled “Navigating the Overtime Rule Overhaul’s Impact on Newspapers,” was presented by the law firm, Seyfarth Shaw.  Watch this webinar to help protect your business by learning about these game-changing overtime reforms before they disrupt your operations. The power point presentation and recording can be accessed at AN’s website:  https://newspapers.org/stories/webinars,4156053

Other Federal Employment Rule Changes

In addition to this wage and overtime rule change, two other employment related rules have also recently been issued by federal agencies that may be of interest to members: 1) a new test by DOL for whether an employee is an independent contractor and therefore exempt from the wage and overtime requirements; and 2) an FTC rule basically banning the use of noncompete agreements. These are summarized below.

DOL Independent Contractor Rule

Employees are entitled to wage and hour protections under the Fair Labor Standards Act (“FLSA”) while independent contractors are not. As a result, employers need to be careful in classifying workers since misclassification (as an independent contractor) can result in a significant wage and hour compliance concern for businesses.

On January 10, 2024, DOL released a final rule changing the criteria to be used in such classification of workers under the FSLA. The final rule took effect March 11, 2024, and rescinds the previous administration’s 2021 rule. The current rule is facing several lawsuits and if these challenges are successful, it is possible the 2021 rule could be reinstated.

The new rule provides a new interpretation of the independent contractor analysis. The rule applies a six-factor test that does not concentrate on any particular factor (as the previous rule did); rather, it focuses on an individual’s activity as a whole to determine whether such an individual is an independent contractor.

The rule is only applicable in determining worker classification under the FLSA; thus, it does not impact other federal and state laws. Employers may continue to rely on classification of workers as independent contractors, for example, under state unemployment insurance laws, ERISA, the Internal Revenue Code (in particular, the Code’s rules for determination of eligibility for cafeteria and retirement plans).

Overall, the new rule narrows the definition of what constitutes an independent contractor. As a result, it is more likely that certain workers currently classified as independent contractors will need to be reclassified as employees and likely be eligible for both minimum wage and overtime protections.

Despite the legal challenges, for now, at least, the DOL’s final independent contractor rule is in effect. Employers should study the new rule carefully and evaluate their classification policies and practices. When in doubt, employers should work with experienced counsel.

Here is additional information from the DOL Wage and Hour Division– https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking

FTC Rule On Non-Compete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) issued its final rule prohibiting all non-compete agreements for all employees at all levels, with only extremely limited exceptions. Although approved 3-2 along party lines by the FTC, the final rule is not yet effective and legal challenges already are looming.

The final rule broadly bans basically all non-compete clauses, whether a contractual term or workplace policy.

All current and former workers, regardless of which entity hired or contracted with them to work and regardless of the worker’s position, title, or status, are covered by the final rule. While the final rule prohibits new non-compete clauses for “senior executives” following the effective date, non-compete clauses entered into with senior executives prior to the effective date remain enforceable.  “Senior executives” are workers who are in a “policy-making position” and earned at least $151,164 annually.

Significantly, the rule contains a rescission requirement where employers must give notice to workers who entered into a non-compete clause that the non-compete provisions are unenforceable. Model language for the notice is provided in the final rule.

The final rule will become effective 4 months after publication in the Federal Register.

Employers that use restrictive covenants understandably are nervous about the FTC’s final rule. Importantly, it is not yet effective, and the legal challenges to it are significant. On the other hand, it is possible that the final rule may ultimately become effective. If so, as noted above, all true non-competes will be barred, as well as clauses that function to prevent a worker from competing or penalize a worker for competing.

Here is more information from the FTC–https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes