US: transformational changes to US labor and employment law?

Last week, three potential transformational changes to U.S. labor and employment law were announced. The Federal Trade Commission (“FTC”) banned almost all non-compete agreements, the U.S. Department of Labor (“DOL”) significantly increased the minimum salary threshold for overtime exemptions for white-collar employees, and New York State became the first state to offer paid leave for prenatal care.

We say “potential” because it is possible that the non-compete and overtime proposals will never become law. Below, we summarize these proposals and join the fray of commentators by recommending a wait-and-see approach for non-competes and the overtime rule, while recommending that employers revise their policies to comply with New York’s prenatal and nursing break requirements.

The FTC’s Non-compete Rule

On April 23, 2024, the FTC voted 3-2 to issue a Final Rule that would ban most non-compete agreements in the United States. The law will not go into effect until 120 days after its publication in the Federal Register, providing ample time for legal challenges, which have already begun. Among these legal challenges, the U.S. Chamber of Commerce has filed for an injunction in the U.S. District Court for the Eastern District of Texas that would enjoin enforcement of the Final Rule.

For now, we recommend that employers sit tight as these legal battles play out. It is likely that a lower court will issue a stay of the Final Rule, and the U.S. Supreme Court will ultimately strike it down as beyond the FTC’s authority. The U.S. Supreme Court has been hostile to administrative rulemaking on major issues that goes beyond an agency’s explicit authority. Here, a Final Rule that bans non-competes across the nation is almost certain to be treated with this same hostility. As a recent example, in West Virginia v. EPA, the Court held that the Environmental Protection Agency (“EPA”) did not have the authority to regulate greenhouse gas emissions in every industry because there was no clear directive from Congress granting the EPA this power. By similar logic, the Court is likely to hold that Congress never granted the FTC the power to regulate non-competes in this fashion.

In the unlikely event the Final Rule goes into effect, it would not only ban future non-competes for all employees but would render existing non-competes unenforceable for all workers other than “senior executives,” and require employers to provide written notice to current and former employees that their non-competes are unenforceable. Senior executives are defined as those employees who: (1) receive total annual compensation of at least $151,164 per year, and (2) are in a “policy-making position.” The “policy-making position” definition is vague, and it will be ripe for factual disputes over who fits within this definition.

If the Final Rule has not been stayed and/or struck down, we will provide additional details on compliance as the effective date approaches. For now, we believe it is too early for employers to make any changes.

The DOL’s Overtime Rule

On the same day as the new FTC rule was announced, the DOL raised the salary threshold for white-collar employees to qualify for various overtime exemptions under the Fair Labor Standards Act (“FLSA”). This change is expected to result in about 4 million employees losing their exempt status.
The FLSA provides three basic white-collar exemptions to federal overtime requirements: the Executive, Administrative, and Professional exemptions. Currently, for employees to qualify for these exemptions, they must be paid at least $684 per week, or $35,568 annually. The new rule raises the salary threshold for the exemptions, which will continue to increase over time. The initial increase will occur in two phases. On July 1, 2024, the minimum salary threshold will be $844 per week, or $43,888 annually. On January 1, 2025, the minimum salary will again increase to $1,128 per week, or $58,656. The rule also increases the minimum salary to qualify for the “highly-compensated” employee exemption. The current minimum for this exemption is $107,432 per year. On July 1, 2024, this will rise to $132,964 per year, and on January 1, 2025, $151,164 per year.

In addition to these initial increases, beginning July 1, 2027, and every three years thereafter, the DOL will implement further increases in the minimum salary for exemptions based on the “current earning data.”

Like the FTC rule, there will be legal challenges to the DOL’s rule, just as there were when the DOL tried to increase these same salary thresholds back in 2016. The fate of these challenges is less certain than the FTC rule, but it is possible that, like in 2016, a court will issue a nationwide injunction while the challenges work their way up to the U.S. Supreme Court. If it does, Justice Brett Kavanaugh’s dissent in Helix Energy Solutions v. Hewitt signaled his interest in questioning if there is a legal basis for any salary threshold under the FLSA.

For now, we recommend employers wait to see if an injunction is issued in the next two months. In the meantime, employers may want to identify employees who could be affected by the increased minimum threshold. Employers should also keep in mind various state wage and hour laws that may already require a higher salary threshold, such as New York and New Jersey.

NY Paid Prenatal Leave/ Nursing Break

Not to be outdone, New York passed a first of its kind law in the United States. The New York Legislature updated the New York Labor Law to require all employers to provide employees with 20 hours of paid prenatal leave per year, which may be used to obtain health services during or related to pregnancy. This leave is separate from other types of leaves, including the paid Sick and Safe leave. The prenatal leave requirement becomes effective on January 1, 2025.

The Legislature also passed a law requiring that employers provide 30 minutes of paid leave for breast milk expression for nursing employees. This law will take effect earlier, on June 19, 2024.

Because there is not expected to be any valid bases to challenge these laws, employers should update their policies.

Conclusion

For the FTC and DOL rules, we recommend that employers maintain the status quo for the immediate future. At most, employers should take stock of those non-compete agreements currently in place and identify employees who could be affected by the increased minimum salary threshold. As for the New York Labor Law revisions, we recommend employers update their policies to address these latest requirements.