Federal Law Update: Non-Competes & Exempt Salary Threshold

In our March Quarterly Update we mentioned how March can sometimes come in like a lion and go out like a lamb. Regardless of how March ended, thanks to the federal government, April sure seems to be going out like a lion!

Two significant new laws were passed earlier this month. We know these are important and have an impact on you and your business – so we are sending out an update with what we know now, and our recommendations for employers moving forward.

Please note this is a summary of upcoming changes and not an all-inclusive overview.

Ban on Non-Compete Agreements: If you do business in California or Washington, you’re likely familiar with restrictions imposed at the state level regarding Non-Compete Agreements. The U.S. Federal Trade Commission (FTC) has now joined in with their own restrictions, passing a new law that will vastly prevent most all employers from entering into Non-Compete Agreements with employees. Yes, you read that right! We have more details to share, but before we do, we want to mention: the law goes into effect September 4, 2024 and is currently being challenged – that means the law could change or be blocked altogether in the courts.

For now, it’s important to be aware of the new law and what it is imposing – and make a reasonable plan to address it if the August effective date is implemented. Here are the highlights:

Within the rule, “non-compete clauses”, are defined as a “term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from seeking or accepting work…or operating a business…”.
Entering into new non-compete clauses with employees will no longer be allowed.
Enforcing previous or existing non-compete clauses with employees will no longer be allowed. Only caveat here is at the senior executive level who earns more than $151,164 annually and is in a policy-making position.
Notifying employees (current and former) that their non-compete clauses are no longer enforceable is required. There are specific requirements that must be included in the notice (which must be written; verbal notice does not meet the requirement). The good news is, the FTC has prepared a Model Notice employers can choose to use!

What To Do Now?

While part of the “to do” is to wait and see what happens with the challenges in court, here are some reasonable steps you may want to take to prepare.

As a first step, it makes sense to start gathering information to see how many non-competes exist in your organization – and whether any of them meet the senior manager exemption.
Either stop using, or closely track, any new non-compete clauses sent out.
For existing clauses, decide whether you want to use the Model Notice provided or prepare your own. We generally recommend using the model notices when they are provided, as that would ensure you are communicating all the necessary details. If you prefer using your own, we recommend using the Model Notice as a starting point to help ensure the right information is included.
Discuss this with your legal counsel – it may be important to review other covenants such as non-solicitation or non-disclosure clauses.

New Exempt Salary Threshold: Here’s another one that will be familiar for employers in California and Washington: the minimum salary threshold requirement for exempt employees is going to increase at the federal level. The good news for CA and WA is this new federal requirement is below their individual state requirements, so this won’t have much impact. For employers in other states, the impact will likely be significant. Again, similar to the above update, litigation of this new rule may occur, which means it could be blocked. It’s also important to start reasonably planning for its potential impact, so here’s what you need to know:

On April 23, 2024, the United States Department of Labor (DOL) issued a final rule to increase the minimum salary threshold for exempt employees (which is currently $684 per week or $35,568 annually) under the administrative, executive and professional exemptions, as follows:

On July 1, 2024, the minimum salary threshold for exempt employees will increase to $844 per week, or $43,888 annually.
On January 1, 2025 (yes, six months later), the minimum salary threshold for exempt employees will increase to $1,128 per week or $58,656 annually.
Every three years thereafter, there are automatic adjustments expected.

As a reminder, to be exempt, an employee needs to meet a duties test and a salary threshold/basis test. This law does not change the duties test.

What To Do Now?

While there is a chance for the law to be delayed or blocked, July is right around the corner. As such, we recommend taking reasonable steps to prepare for the July 1st date by reviewing any exempt employee whose salary does not meet the expected minimum threshold of $43,888 annually. To remain compliant, you would then consider the two following options:

Raising the employee’s annual salary to the new exempt salary threshold of $43,888.
Transitioning the employee to a non-exempt status, thus paying overtime for hours worked over 40 in the workweek.

Having a lot of experience in both Washington and California, HRT is well versed in navigating this type of analysis and adjustment – please reach out if you need support!

Keep an eye out for our quarterly newsletters for updates on these topics. Of course, if something significant occurs, we will also ensure our clients are notified.

HRT Northwest: Your HRT Northwest Team

Seattle: (253) 642-7372 | info@hrtnorthwest.com

This Update is not a full overview of all recent or upcoming legal changes. HRT Northwest is staffed by professionals in the field of Human Resources and business management. We are glad to help with your HR needs; however, we do not offer legal advice and our services are not a substitute for the help of a qualified attorney.