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UPDATE – Overtime and Non-Compete Clause Rules Legally Challenged

May 23, 2024 Business & Tax Blog Labor & Employment Blog

Employers have had many questions about the new federal Overtime and Non-Compete Clause Rules whose effective dates are looming. Legal challenges may slow or stop the Rules from becoming effective.

Overtime — A lawsuit was filed challenging the new federal Overtime Rule that is otherwise scheduled to be effective July 1, 2024. As noted in our April 25, 2024 blog post, the new Overtime Rule would increase the required minimum salaries to exempt executive, administrative, professional, and highly compensated employees from the Fair Labor Standard Act’s overtime pay requirements in a two-step process with further modifications every 3 years thereafter. In Plano Chamber of Commerce v. Julie Su, Acting Secretary, Department of Labor, pending in the Sherman Division of the Eastern District of Texas, the plaintiffs are seeking to vacate and set aside the Overtime Rule, enjoin the Department of Labor and its agents from implementing, applying, or taking any action under it, and other relief. In 2017, the same court enjoined and invalidated a similar overtime rule via another legal challenge.

Non-Compete — Meanwhile, in the Ryan, LLC v. FTC case, pending in the Northern District of Texas, the court plans to rule by July 3, 2024, on the plaintiff’s emergency motion for a preliminary injunction and stay of the Federal Trade Commission’s (FTC’s) Non-Compete Clause Rule. As noted in our April 29, 2024 and May 7, 2024, blog posts, the FTC Non-Compete Clause Rule is scheduled to be effective on September 4, 2024, unless court or agency action delays or stops it. Like the challenge to the Overtime Rule, the Ryan plaintiff is seeking to vacate the Non-Compete Rule and enjoin the FTC from enforcing it.

While the Plano court evaluates whether employers should hold their horses and not alter any salary levels to maintain exemptions or implement timekeeping procedures for positions that would become nonexempt, employers may choose to audit their pay practices to make sure that employees are properly classified and update timekeeping and payroll systems. Similarly, between the Memorial Day and the Fourth of July holidays, employers could pause or continue to consider how the FTC Non-Compete Clause Rule may impact existing agreements and steps to consider to protect their confidential information and relationships with employees, customers, and others before that Rule may become effective. For additional guidance, please contact one of our attorneys.