Insights

Plaintiffs battling the Federal Trade Commission’s ban on non-compete clauses in employment agreements notched a significant victory recently.  On August 20, 2024, U.S. District for the Northern District of Texas Judge Ada Brown permanently blocked the agency’s action in Ryan LLC v. Federal Trade Commission, concluding the rulemaking exceeded the agency’s statutory authority.  Judge Brown had previously granted a preliminary injunction that limited its effect to the plaintiffs in the case.  Yesterday’s ruling, however, which granted the plaintiffs’ summary judgment motion, permanently blocks the ban nationwide.

The Federal Trade Commission (“FTC”) is now batting .500 in its effort to defend its rule banning most employee non-compete agreements.  On July 23, 2024, Judge Kelley Hodge of the U.S. District Court for the Eastern District of Pennsylvania denied the request for a preliminary injunction to block that rule from going into effect pending a full trial.  This decision is at odds with the decision issued earlier this month by Judge Ada Brown of the U.S. District Court for the Northern District of Texas, which found that the FTC had exceeded its statutory authority and issued a limited preliminary injunction that prevented the rule from becoming effective as to the plaintiffs in that case. 

On July 3, 2024, Judge Ada Brown of the U.S. District Court for the Northern District of Texas temporarily blocked the Federal Trade Commission (“FTC”) from enforcing its recent rule banning virtually all employee non-compete agreements in the United States.  In its 33-page opinion, the court ruled that the plaintiffs are likely to succeed on the merits of their claims that the FTC lacks statutory authority to issue its non-compete ban via rulemaking and that the FTC’s decision to ban non-competes broadly was arbitrary and capricious. However, in a surprise twist, the court declined to grant nationwide preliminary relief, opting instead to limit its injunction to the specific plaintiffs in the action.  The court indicated that it intends to issue a final ruling by August 30, 2024—days before the non-compete ban is scheduled to take effect on September 4.

On April 26, 2024, the Department of Labor (“DOL”) published the Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees Rule (“Final Rule”), which will increase the minimum salary thresholds for bona fide executive, administrative, and professional exemptions under the FLSA.  Effective July 1, 2024, the annual salary thresholds for these “white collar” exemptions will increase to $43,888 (from $35,568) and increase again on January 1, 2025 to $58,656 and the threshold for highly-compensated employees will also increase from $107,432 to $132,964.  Effective July 1, 2025, the methodology will change and these thresholds will increase again (to $58,656 and $151,164, respectively).

Under a new law passed last year in California, employers in the state are not only barred from including noncompete provisions in their employment agreements, but were also required to give written notice to certain employees by February 14, 2024 that any noncompete provisions in their existing employment agreements are void. 

On January 18, 2024 in Estrada v. Royalty Carpet Mills, Inc. (Cal., Jan. 18, 2024, No. S274340) 2024 WL 188863, the California Supreme Court resolved a split in authority among the California Courts of Appeal regarding whether or not trial courts have the inherent authority to dismiss Private Attorneys General Act (“PAGA”) claims due to unmanageability. The Supreme Court held that trial courts do not have this authority, and instead must address manageability concerns by using the variety of “tools” at their disposal, such as placing limitations on testimony and types of evidence and using representative testimony and surveys.

Governor Hochul vetoed a bill passed by the New York State legislature that would have effectively banned all non-compete agreements.  In her December 26, 2023 veto message, Governor Hochul cited New York’s “highly competitive economic climate” and the “legitimate interests” of companies to “retain highly compensated talent,” while stating that she has “long supported limits on non-compete agreements for middle-class and low-wage workers.” The Governor observed as well that she had “proposed banning non-compete agreements for anyone making below the median wage in New York” in her first Executive Budget. Governor Hochul stated that she remains open to “future legislation that achieves the right balance.”

Effective January 1, 2024, California employees will be entitled to accrue and use more paid sick leave per year.  On October 4, 2023, California Governor Gavin Newsom signed SB 616 into law, which amends the Healthy Workplaces, Healthy Families Act of 2014 (“HWHFA”) and significantly expands paid sick leave requirements for employers in California.  Further, non-construction industry employees covered by a collective bargaining agreement (“CBA”), previously excluded from coverage, will now be entitled to certain benefits and protections under the HWHFA.  The amendment also preempts local ordinances that are contrary to the HWHFA with respect to certain issues, for example, rate and timing of pay, and advance leave and notice.

On October 8, 2023, Governor Gavin Newsom signed Senate Bill (SB) No. 497 into law. SB No. 497, also referred to as the Equal Pay and Anti-Retaliation Protection Act, amends California Labor Code Sections 98.6, 1102.5, and 1197.5 to lessen the burden for employees attempting to establish a prima facie case of retaliation. This new law, effective on January 1, 2024, also comes with a civil penalty for each violation.

On June 20, 2023, the New York State Assembly passed a sweeping bill that, if signed into law by Governor Hochul, will effectively ban future non-compete agreements.  If enacted, New York would join California, North Dakota, Oklahoma, and Minnesota in implementing a complete prohibition on non-compete agreements.  As of this writing, the bill has not yet been delivered to the Governor.

On February 15, 2023, the Ninth Circuit held that AB 51 is preempted by the Federal Arbitration Act (“FAA”) and consequently California employers are free to require employees to sign arbitration agreements as a condition of employment. See Chamber of Com. of the United States of Am. v. Bonta, No. 20-15291, 2023 WL 2013326 (9th Cir. Feb. 15, 2023). AB 51 made it a criminal offense for an employer to do so, whether for applicants or existing employees.

Yesterday, the Federal Trade Commission proposed a sweeping new rule that would ban employers from including non-compete terms in employment agreements with virtually all of their workers – from janitors to senior executives. Describing such agreements as an “exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses,” the FTC’s rule deems non-compete agreements to be an “unfair method of competition” under Section 5 of the FTC Act, without regard for any business justifications or reasonableness. Potential rulemaking against non-compete clauses has been percolating for some time and has support from the White House, but the breadth of the proposed rule is nonetheless surprising.

On October 11, 2022, the United States Department of Labor (“DOL”) announced that it is seeking public comment on a proposed rule, which modifies the legal framework for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FLSA”).  The proposed rule would rescind the current independent contractor rule (adopted by the Trump Administration in 2021), which simplified the multi-factor test, and heavily weighted two “core” factors—workers’ control over their work and opportunity for profit or loss—in determining the status of workers.  The new rule returns to a “totality-of-the-circumstances” analysis, which balances all factors equally.  While the current rule is perceived as more favorable to respecting a worker’s independent contractor status, this shift in legal framework is expected to lead to more determinations that workers are employees, most particularly, gig workers.

On September 27, 2022, California Governor Gavin Newsom signed SB 1162, which  requires employers with more than 15 employees to disclose pay scales to current employees and on job postings beginning January 1, 2023. The bill also requires private employers with more than 100 employees to submit significantly more pay data to the California Civil Rights Department (CRD, formerly known as the DFEH) beginning in May 2023.