May 13, 2024

By attorneys Emily Ellingson, Rachel Fritz and Rebecca Reif

In recent months, there have been significant changes to legal and regulatory requirements impacting employers. Some of the more significant changes include modifications to the salary requirements for employees under the Fair Labor Standards Act, updated rules prohibiting non-compete agreements with employees, and new legislation impacting pregnant workers. See below for more information regarding these changes.

“Salary Threshold” for FLSA Exemptions Increased

On April 23, 2024, the U.S. Department of Labor issued a final rule under the federal Fair Labor Standards Act (the “FLSA”) which will raise the salary threshold for “executive, administrative, and professional” (“EAP”) and “highly compensated” exempt employees in the United States. The rule not only changes the current salary threshold amount but also builds in future automatic increases to these salary thresholds, in order to keep up with workplace and economic changes without regulatory rulemaking. This final rule will become effective on July 1, 2024.

The major changes include:

  • An increase in the salary threshold for EAP exempt employees to $844 per week, or $43,888 annually, as of July 1, 2024;
  • An increase in the salary threshold for EAP exempt employees to $1,128 per week, or $58,656 annually; as of January 1, 2025;
  • An increase in the salary threshold for the “highly compensated” employee exemption to $132,964 annually as of July 1, 2024, and $151,164 annually as of January 1, 2025;
  • A self-adjusting increase to both of these thresholds every three years, starting on July 1, 2027, based on current wage data. 

However, the new rule will not:

  • Change the “primary duties” tests for EAP exempt employees;
  • Affect exemptions from overtime for positions without a salary threshold, or with a special salary threshold, including specifically teachers, doctors, lawyers, or academic administrative professionals employed at educational institutions. 

If you have employees who you have treated as exempt but do not meet the new salary thresholds, now is the time to plan for how you will comply with the new rule. Employers may want to audit their employees to determine who is affected and make determinations on how to comply. This could include considering increasing the employees’ salary to satisfy the threshold, re-classifying employees to non-exempt, planning for payment of overtime, or limiting employees’ working hours to 40 or fewer per work week.

Non-Compete Agreements Banned

On April 23, 2024, the Federal Trade Commission (the “FTC”) issued a new rule (the “Final Rule”) prohibiting employers from entering into and/or enforcing non-compete agreements in employment contracts. A non-compete agreement is defined broadly as any term or condition of employment that prohibits or penalizes an employee from (1) seeking or accepting employment with a different employer where such work would begin after the conclusion of the employment, or (2) operating a business after the conclusion of the employment.

All employers that are within the FTC’s jurisdiction, regardless of size, are required to comply with the Final Rule. Consequently, the Final Rule applies to most for-profit entities but does not apply to non-profit entities. The prohibition on non-compete agreements applies to all workers, including employees, independent contractors, volunteers, and anyone else who works for a covered employer, whether paid or unpaid. 

The Final Rule is expected to go into effect on September 4, 2024, although there have been multiple legal challenges that could affect its enforceability on that date. Not only does the Final Rule prohibit employers from entering into new non-compete agreements with employees on or after the effective date, but it also prohibits employers from enforcing existing non-compete agreements against employees. There are exceptions to the Final Rule’s prohibition on non-compete agreements, including for senior executives with existing non-compete agreements. Additionally, prior to this effective date, employers are required to notify employees that their existing non-compete agreements are no longer enforceable, no longer in effect, and will not be enforced.

The Final Rule is expected to have significant impact on employers across all professions. Moving forward, employers should seek assistance and guidance on restructuring employment agreements and adopting language to notify employees of the unenforceability of the non-compete agreements to comply with the Final Rule.

Pregnant Workers Fairness Act (PWFA) Regulations Released

On April 15, 2024, the Equal Employment Opportunity Commission (“EEOC”) issued its final regulation relating to the Pregnant Workers Fairness Act (“PWFA”) that went into effect last year. The PWFA requires public and private sector employers with 15 or more employees to provide “reasonable accommodations” to pregnant employees related to their pregnancy, childbirth, or related medical conditions. The final regulations go into effect on June 18, 2024. 

Under the rules, an employer must provide reasonable accommodations for an employee’s “known limitations” and cannot require an employee to accept an accommodation other than what is determined through the interactive process. Notably, under the final regulations, even if an employee is temporarily unable to perform one or more essential functions of their job, the employee is still qualified to perform their job, and the employer must engage in the interactive process to consider what reasonable accommodations can be made. Employers are not required to provide a reasonable accommodation if the accommodation would pose an undue hardship, meaning there would be significant difficulty or expense in providing the accommodation.

Employers will want to review their policies and practices to ensure they comply with the PWFA and the applicable regulation. It will be important for employers to ensure they have processes in place for employees to notify them of a “known limitation” and to evaluate if the employee is qualified even if they are temporarily unable to perform the essential functions of their position due to the employee’s pregnancy, childbirth, or related medical conditions.

If you would like assistance working through any of these issues, please feel free to contact Ahlers & Cooney's employment law attorneys for more information. 

 

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