Final Regulations That Make it Harder for Businesses to do Business
April 23, 2024
NUMBER 1:
he Department of Labor, DOL, issued a final rule raising the salary that an employee must be paid to be Exempt from overtime pay, “OT” under the so-called white-collar Exemptions: Executive; Professional; Administrative; and Computer Employees. On July 1, 2024, the minimum salary to qualify for these Exemptions will jump from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). Then, it will increase to $1,128 per week ($58,656 annually) on January 1, 2025. Please remember that there are other requirements which must be met to properly classify an employee as Exempt, i.e. be paid on a Salary Basis; and perform specific duties.
The objective and effect of these changes is to make more employees eligible for OT pay, which will obviously make it more costly for many employers to do business. The DOL estimates that these changes will impact 4 million employees.
So, what should employers do now?
- Create a list of Exempt employees who earn less than the new required salary amounts, and decide whether to increase their salary or convert them to Non-Exempt. The number of hours over 40 an employee works (potential OT hours) should be considered in measuring the financial impact of this decision. Additionally, the affect on employee morale must be considered. For example, a supervisor converted from Exempt to Non-Exempt may be demoralized by having to clock in and out with subordinates.
- Communicate changes to Exempt status, or compensation, individually (if possible). An increase in pay to comply with the new levels will obviously be a positive conversation, while those with employees who are reclassified will be more challenging, and should include information about tracking time worked more closely (lunch breaks, after hours communications, etc.). Employees who are reclassified can be told that such is being done to comply with the federal government’s new wage and hour rules.
* Legal challenges to the new rules are likely, however, prudent employers should begin planning for them to take effect as scheduled, as there is no certainty as to the outcome of those challenges. We will provide updates.
NUMBER 2:
The Fair Trade Commission, FTC, issued a final rule that will prohibit employers from utilizing non-compete agreements with almost all employees. Specifically, under the rule, employers will no longer be able to:
- Enter into non-compete agreements with employees; or
- Enforce existing non-compete agreements, unless they are with “Senior Executives,” defined as those earning more than $151,164 annually, with policy making responsibilities.
Additionally, before the effective date of the rule, employers will be required to provide an explicit Notice to employees and former employees that their non-compete agreements are no longer enforceable.
Important notes:
- The rule can’t take effect until August 22 (120 days after it was published in the Federal Register).
- The rule includes model language for the Notice.
- The rule does Not ban other restrictive agreements, such as: customer non-solicitation agreements; confidentiality agreements; non-disclosure agreements; and employee non-solicitation agreements.
- Lawsuits challenging the new rule have already been filed, and more will follow. What will happen with those is anybody’s guess.
So, what should employers do now?
- Develop a Game Plan in light of the new rule. Outside counsel may be utilized to develop a comprehensive plan to protect company interests and information. This can be through the use of the other types of restrictive agreements, as well as Trade Secret protection.
- Put together a list of employees who would be required to receive Notice under the new rule.
- Monitor the court cases.
Recent Posts
A recent Opinion Letter from the Department of Labor, “DOL,” serves as a good reminder that incentive bonus payment usually must be included in an employee’s regular rate used to calculate overtime. The Opinion Letter dealt with an employer in the waste industry that paid drivers a bonus every pay period if certain safety and performance criteria (punctuality, attendance, and consistency in completing daily safety tasks) were met. Not surprisingly, the DOL found that the bonus amounts should be included in the regular rate of pay for overtime calculation purposes, because the payments were incentives and Discretionary Bonuses. Discretionary bonuses may be excluded from the regular rate of pay if: (1) the fact and amount of the payment are determined at the SOLE Discretion of the employer; (2) with the determination being made at or near the time of the period when the work was performed; and the payment must not be made pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly. The payments in this case were made pursuant to a predetermined plan to incentivize work performance. A true Discretionary bonus which can be excluded from overtime is quite unusual. Accordingly, most bonus payments must be included in overtime calculations.
As employers will recall, a federal court struck down the Fair Trade Commission’s (FTC) proposed ban on employee non-compete agreements over a year ago. The FTC has since abandoned its effort to enforce a rule completely banning such agreements. However, in September, the FTC surprised some by announcing that it intends to regulate the use of employee non-competes on a case-by-case basis. It seems that the FTC will consider whether the restrictions are “reasonable” by determining whether they are no greater than is necessary to protect the employer’s legitimate interests, balancing those interests against the hardship to the employee and public. Some factors that are likely to be considered are: The size of the company, both in terms of employees and business; Whether the employer requires non-competes of all employees, or only those with job duties that might justify their use to protect the employer’s interests; The scope of the geographic and time limitations contained in the non-competes. This “reasonableness” determination is very similar to the analysis that many state courts use in determining whether to enforce a non-compete. The FTC has announced its intention to put particular focus on employers in the healthcare space. However, all employers utilizing non-compete agreements should review the restrictions contained therein in an effort to determine that they appear reasonable under the above criteria.
A lawsuit was filed in 2023 in federal court in CA by a man alleging that he applied for many jobs at companies that utilize Workday’s platform, and that he was rejected for all, with many rejection emails coming within an hour of his application
The federal law enacted last week provides some tax relief for employees who work overtime, and for those who receive tips. A summary is set forth below: Overtime Deduction An employee must receive OT pay as defined by the Fair Labor Standards Act (FLSA) (pay for hours worked beyond 40 in a workweek at a premium rate), and the deduction only applies to the premium portion of OT pay (the amount above the regular hourly rate). The deduction applies only to overtime compensation that is “required” under the FLSA. The deduction does not apply to overtime premiums that are not “required” by the FLSA, but instead are paid pursuant to contract (including a collective bargaining agreement), company policy, or because they are required under state law only. This is an above-the-line deduction, with the maximum deduction being $12,500 per year (up to $25,000 if married filing jointly). To be eligible for the full deduction, employees must earn $150,000 or less. Employers must include the total amount of qualified overtime compensation as a separate line item on the Form W-2. This will require employers to keep a distinct record of the overtime premium compensation that is both (a) required under the FLSA and (b) in excess of the regular rate. Tips Deduction To qualify for the deduction, the tips must be received by an individual engaged in an occupation that customarily and regularly received tips on or before Dec. 31, 2024, such as servers, bartenders, hotel staff, hairstylists, etc. To be considered a “qualified tip,” the amount must: (a) be paid voluntarily without any consequence in the event of nonpayment; (b) not be the subject of negotiation; and (c) be determined by the payor. Thus, for example, a mandatory service charge imposed by the employer for a banquet will not qualify for the deduction, and neither will a required gratuity that a restaurant adds automatically to a bill for large parties. Failing to make this distinction may lead employees to claim deductions to which they are not entitled. This is also an above-the-line deduction, with a cap of $25,000 per year. To be eligible for the full deduction, employees must earn $150,000 or less. The act requires employers to include on Form W-2 the total amount of cash tips reported by the employee, as well as the employee’s qualifying occupation. For 2025, the act authorizes the reporting party to “approximate” the amount designated as cash tips pursuant to a “reasonable method” to be specified in a forthcoming regulation by the Treasury secretary.
The FMLA contains specific provisions allowing eligible employees to take leave “to care for the employee's spouse, son, daughter, or parent with a serious health condition.” In December, the 6th Circuit Court of Appeals, which is the Federal Appellate Court for the above states, issued an opinion finding that an employee might be entitled to take FMLA leave to care for her sick sister. The language of the FMLA is crystal clear as to family members for which an employee may take FMLA leave to care for. Notwithstanding that, the court found that the in loco parentis (in the place of a parent) language in the FMLA’s definition of ‘Parent” and “Son or Daughter” showed that “Congress sought to protect parental relationships, whether biological, legal, or their functional equivalents.” So, the court sent the case back to the lower court to determine whether the employee in question had an “in loco parentis” relationship with her sister. If so, the employee would be entitled to FMLA leave to care for the sister. This nonsensical interpretation of the FMLA by court leaves employers in the above states with great uncertainty as to what to do if an employee requests FMLA leave to care for a sibling. Under the court’s skewed reasoning, the employer would have to determine whether an employee requesting such leave actually stood in loco parentis with the sibling. An employer facing such a request should consult with an HR or legal professional.
