Earlier this year, the Federal Trade Commission (“FTC”) issued a rule that largely prohibited employers from requiring employees to sign non-compete agreements (the “Non-Compete Rule”). The rule was set to take effect on September 4, 2024. However, on August 20, 2024, the United States District Court for the Northern District of Texas issued its final ruling in Ryan, LLC v. FTC, a case that challenged the FTC’s Non-Compete Rule. In its ruling, the court invalidated the Rule, meaning that non-compete agreements will continue to be valid and enforceable.

Background

The FTC is a federal agency charged with regulating commerce. The FTC was created by Congress and is granted certain statutory authority to regulate business in the United States. One of the areas that falls under the FTC’s purview is unfair trade practices.

In recent years, the FTC began looking at non-compete agreements. Eventually, the agency determined that the creation and enforcement of non-compete agreements was an unfair trade practice. The FTC used this determination as its basis for issuing the Non-Compete Rule.

Ryan LLC v. FTC

The plaintiff in Ryan challenged the Non-compete rule and argued that it had two basic flaws. First, it was arbitrary and capricious, based on the fact the FTC’s studies it relied on to reach its determination were inadequate. Second, the plaintiff argued that the FTC lacked the statutory authority to regulate non-compete agreements in general.

The Court agreed with the plaintiff in Ryan and held that the Non-Compete Rule was arbitrary and capricious as well as outside the authority granted by the FTC’s statutory mandate. Therefore, the court set aside the Non-Compete Rule in its entirety ensuring that it will not go into effect on September 4.

Takeaways

The court’s ruling is a final order in the case. The FTC may choose to appeal the ruling to the Fifth Circuit Court of Appeals. However, such an appeal would take months if not years, and the Non-compete Rule will not be enforced in the interim. If there is no appeal, the Non-Compete Rule is effectively dead.

However, given that non-compete clauses are in the FTC’s crosshairs, it is certainly possible that the agency will try to issue a new rule that would be able to pass judicial review. It is also possible that Congress could pass a law either banning non-competes or expressly giving the FTC authority to regulate them. That possibility is less likely in the near-term, given upcoming elections and the current partisan makeup of Congress.

But for the present, employers can continue their usual practices concerning non-compete clauses in employment contracts. While such clauses are not prohibited by the FTC Non-Compete Rule, there are a multitude of state laws and judicial decisions that constrain and delineate whether such clauses are valid and enforceable. In broad terms, non-compete clauses must be reasonably drafted to protect the legitimate interests of employers without being overly restrictive on an employee’s ability to work. Non-compete clauses need to be reasonable as to the length of time they are in effect, the geographic area they cover, and the scope of the prohibited competitive behavior.

If your company is currently using a PEO then you should contact them about this topic.

The most common classifications are exempt and nonexempt. Exempt employees are typically salaried workers who (a) are paid the same amount each week regardless of hours worked, (b) are paid at least $844 each week and (c) hold administrative, professional or executive positions. Nonexempt employees are often hourly workers who perform more manual or technical duties. Nonexempt employees are entitled to overtime pay for any hours worked beyond 40 in a workweek, which is defined as seven consecutive 24-hour periods.

Classifying employees as exempt or nonexempt under the Fair Labor Standards Act determines their eligibility for overtime pay as well as meal and rest breaks. Most employers have both exempt and nonexempt workers.

Other employment types come with their own sets of laws and considerations:
Full time describes someone who works a specified number of hours a week and gets access to company benefits. The specific terms are set by the employer and may be subject to state-specific labor laws. The category is subject to FLSA.

Part time describes someone who works fewer hours than full time, though the exact number of hours that constitutes part time is left to the employer to define. Part-time workers are covered by FLSA.

Contract employees are hired for a defined period, often for their specialized knowledge or skills. They work varying hours according to the contract and are eligible for FLSA benefits.
Independent contractors are like contract employees but aren’t on the company’s payroll. Their work hours and exemptions are determined by the organization they work for. Independent contractors are not covered by FLSA.

Temporary employees are hired on a short-term basis and are eligible for FLSA benefits.
On-call employees are expected to be able to work during specific hours, are paid hourly and may be covered by certain provisions of FLSA.

Seasonal workers or employees are hired for a specific period — typically of six months or less. Seasonal workers tend to be hired for the same six months from year to year (for example, summers), while seasonal employees tend to work as help during peak times (for example, winter holiday workers). FLSA does not specifically cover these categories, but certain provisions of the act may apply. Volunteers are not employees, so they are neither exempt nor nonexempt.

Because employee classifications impact companies’ budgets, some employers may seek to treat workers as independent contractors to avoid compliance with unemployment insurance, workers’ compensation, Social Security, tax withholding, temporary disability, and minimum wage and overtime laws. However, if you instead establish an employee classification policy and apply it consistently, your company will be less likely to face costly fines for misclassification. Payroll software, which offers such extras as analytics to aid in decision making, can help with compliance while fostering business growth.

Employee classification is essential for workforce planning, recruitment and retention strategies, and compliance. One of the business advantages of joining a Professional Employer Organization (PEO) is that they will assist in ensuring that your company has made the employee classifications accurate.

New Overtime Regulations

On April 23, 2024, the U.S. Department of Labor announced a final rule to raise the salary threshold for certain overtime exemptions.

The final rule raises the minimum salary thresholds in two steps.

July 1, 2024:

• The salary threshold will increase to $844 per week or $43,888 per year (a 23% increase over current levels).
• The salary threshold for highly compensated employees will increase from $107,432 to $132,964 per year (a 23% increase over current levels).

January 1, 2025:

• The salary threshold will increase to $1,128 per week or $58,656 per year (a 64.9% increase over current levels).
• The salary threshold for highly compensated employees will increase to $151,164 per year (a 41% increase over current levels).

The rule is considered a “major rule” and cannot take effect for 60 days. During this time, the ruling could be challenged in court.

We recommend that you review your salaries and classification policies to determine what approach you would use to comply with the rule, if and when it becomes effective. Because the rule could be struck down, you may wish to plan for implementation but hold off on taking action for as long as possible.

Options to consider if someone’s salary is under the new thresholds:

• Increase their salary to the new minimum; or
• Change their status to hourly, non-exempt and pay overtime.

• Businesses that use PEOs grow 7 to 9 percent faster, have employee turnover that is 10 to 14 percent lower, and are 50 percent less likely to go out of business than companies that do not use PEOs.

• PEOs enable small businesses to offer their employees access to Fortune 500-level benefits such as: 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits they might not typically receive as employees of a small company.

• Most small companies cannot afford to hire a human resources professional. In contrast, almost all PEOs provide access to human resource professionals as a part of their services to small businesses and their employees. Through this service, PEOs help small businesses comply with myriad federal, state, and local employment laws, and they provide access to HR expertise to small business employees.

• Among businesses with fewer than 10 employees, those using a PEO have more than 3 times greater participation in a retirement plan than employees of businesses that do not use a PEO. For businesses with 10 to 49 employees, 52 percent of PEO client employees have a retirement plan, versus 23 percent in those companies that do not use a PEO.

About the PEO Industry

• There are more than 500 PEOs in the U.S. that provide human resource services to small and mid-size businesses—issuing wages and remitting taxes, offering workers’ comp and risk consulting services, and providing compliance assistance with employment-related rules and regulations. In addition, many PEOs offer HR technology systems and access to 401(k) plans, health, dental, and life insurance, dependent care, and other benefits.

• PEOs help businesses take care of employees by enabling them to offer Fortune 500-level benefits at an affordable cost and providing access to experienced HR professionals. And they help business owners and executives save time by taking administrative and HR-related tasks off their plates, allowing them to focus on the success of their businesses.

• More than 200,000 small and mid-size businesses employing 4.5 million people partner with a PEO.

• About 17 percent of all employers with 10 to 100 employees are PEO clients.

• Over the last 12 years, the PEO industry has quadrupled in size as the regulatory landscape gets increasingly complicated and more and more businesses turn to PEOs for back-office assistance.

Here is the text of her address:

COMMEMORATING NATIONAL PEO WEEK

HON. ERIN HOUCHIN
of Indiana in the U.S. House of Representatives – Monday, April 17, 2023

Mrs. HOUCHIN.

Mr. Speaker, I rise today to commemorate National PEO Week, which starts May 21 and ends May 27, 2023. National PEO Week will celebrate the important contributions of the professional employer organization (PEO) industry, which provides payroll, employee benefits, compliance assistance, and HR services to hundreds of thousands of small and mid-sized businesses that employmore than 4 million people.

PEOs play a critical role in helping businesses survive and thrive, particularly during challenging times. In the dark days of the COVID pandemic, PEOs ensured that that their clients stay afloat by securing PPP loans and loan forgiveness, managing employee leave, and applying for available tax credits. In fact, businesses that partner with a PEO were nearly 60 percent less likely to have permanently closed than those that did not use a PEO during the pandemic.

PEOs help small businesses improve productivity and profitability, focus on their core mission, and grow. Through a PEO, the employees of small businesses gain access to important employee benefits such as: 401(k) plans; health, dental, life, and other insurance; dependent care; other benefits they might not typically receive as employees of a small company.

I can attest to the value of PEOs. Before coming to Congress, I worked for a PEO and saw firsthand the positive impact they had on small businesses in Indiana.

Mr. Speaker, I would like to congratulate the PEO industry for all they do to help our Nation’s small businesses and their employees prosper.

Congressional Record link is here.

This also provides that additional family leave due to the adoption of an ill child or a child with a disability must be considered on the same basis as comparable cases of complications accompanying the birth of a child. In addition, if an employer provides paid leave benefits for the birth of a child, it must provide similar benefits for adoption.

Details are here.

Recently there have been a number of law firms advertising that they are seeking to represent workers who have been adversely affected by COVID vaccines which were mandated by their employer. One such firm is Ben Carlisle Law in New York State. In those appeals, they represent that those workers may be entitled to damages from their employers Workers Comp Insurance Carrier. While there has been a wide range of opinion about the negative health impacts of COVID vaccines those impacts may result in significant financial costs for insurance carriers from legal settlements with those litigants.

On a positive note, for the insurance carriers, early in the pandemic most states denied the ability for workers to file work comp claims because they believed they contracted COVID in their workplace. This was done because claiming that someone contracted COVID in the workplace was nearly impossible to prove.

Like any business, insurance companies will likely pass on those increased costs in the form of higher prices for their products. Time will tell how this plays out.

NCCI has an in-depth analysis of the impacts of COVD on workers compensation insurance located here:

https://www.ncci.com/Articles/Documents/Insights-COVID19-Impact-on-WC.pdf

Belmont (CA)

Berkeley (CA)

Cupertino (CA)

Daly City (CA)

El Cerrito (CA)

Emeryville (CA)

Fremont (CA)

Half Moon Bay (CA)

Hayward (CA)

Long Beach (CA)

Los Altos (CA)

Los Angeles (CA): city and unincorporated cities within Los Angeles County

Malibu (CA)

Milpitas (CA)

Mountain View (CA)

Oakland (CA)

Palo Alto (CA)

Pasadena (CA)

Petaluma (CA)

Redwood City (CA)

Richmond (CA)

Sacramento (CA)

San Carlos (CA)

San Diego (CA)

San Francisco – City and County (CA)

San Jose (CA)

San Leandro (CA)

San Mateo (CA)

Santa Clara (CA)

Santa Monica (CA)

Santa Rosa (CA)

Sonoma (CA)

Sunnyvale (CA)

Qualified Employer-Sponsored Plans

The CalSavers website states that a qualified retirement plan includes any plan that is qualified under Internal Revenue Code sections 401(a) (including a 401(k) plan), a qualified annuity plan under section 403(a), a tax-sheltered annuity plan under section 403(b), a Simplified Employee Pension (SEP) plan under section 408(k), a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA plan under section 408(p) or a payroll deducted IRA with an automatic enrollment feature.

If your company has five or more employees in California and already offers a qualified employer-sponsored retirement plan, you are exempt from having to participate in the state program. However, employers need to certify their exemption by going to CalSavers.com or by contacting CalSavers Client Services at 855.650.6916.

Employers who are utilizing the services of a Professional Employer Organization and are obtaining employee access to a 401K plan should also contact their PEO to confirm the process for obtaining the exemption. Employers with five or more employees in California considering joining a PEO to obtain access to employee benefits like retirement plans should contact StaffMarket to streamline their search for the right California Professional Employer Organization for their company.

It remains uncertain how the massive increase in unemployment claims due to the COVID-19 crisis will be handled financially. Business owners and PEOs have concerns that the state unemployment (UI) funds will increase each operating company’s associated SUTA experience rate dramatically in the future.

Recently passed legislation for THE CARES ACT may make the best financial option to not release employees and then encourage them to file an unemployment claim. This legislation provides $350B in forgivable loans and allows business owners to retain their workers and ensure that those employees continue their compensation. It’s good for small businesses and their employees

With the passage of THE CARES ACT it may be financially in the best interest for the business owners and the employees to retain the employees on the payroll and use provisions in THE CARES ACT to be reimbursed for those paid wages during the crisis. In addition, most employee wages will exceed the compensation amount available via unemployment.

Highlights of THE CARES ACT

Begin by applying through a Small Business Administration (SBA) participating bank. Act by June 30, 2020.

They will require an affidavit be signed attesting to the business being adversely affected. Causes can include: a decrease in gross receipts or customers, business closure, staffing problems and supply chain disruptions.

Eligibility requires that the business have less than five hundred employees. Eating establishments may apply with less than five hundred employees per location.

The loan must be used for payroll, mortgage interest, utilities or rent. The loan will be forgiven if used to these purposes and such can be proven with documents and receipts. Loan amounts not used for the listed purposes will not be eligible for forgiveness and will be become a ten-year loan at a maximum interest rate of four percent.

Business using a Professional Employer Organization (PEO) should contact their assigned representative to get the appropriate payroll records and to receive advice on how the program can help them sustain their company.