The FTC Faces Lawsuit From The Chamber of Commerce and Others Following The Passage of Its Purported New Non-Compete Ban Rule

By Ami J. Patel*

On April 23, 2024, the Federal Trade Commission (“FTC”) voted 3-2 to pass a new rule that virtually bans all non-compete clauses as were ported in a prior Alert. The two dissenting Commissioners asserted that the FTC does not have the power to pass this new rule and anticipated litigation has followed based on that very assertion.

On April 24, 2024, the United States Chamber of Commerce filed a lawsuit which challenged the FTC’s authority. The Chamber filed a Complaint in the United States District Court Eastern Division of Texas against the FTC and Lina Khan in her official capacity as Chair of the FTC. The Chamber was joined by three other business groups: the Longview Chamber of Commerce, the Business Roundtable, and the Texas Association of Business.

The Chamber’s complaint is based on several assertions:

1. the Commission does not have the substantive rulemaking authority under Sections 5 and 6 of the Federal Trade Commission Act to enact this rule;
2. this enactment is based on an unlawful interpretation of “unfair methods of competition”;
3. the regulation constitutes unconstitutional delegation of Congressional rulemaking authority;
4. this regulation creates a form of unlawful retroactivity;
5. the FTC failed to engage in “Reasoned Decision Making” as required by the Administrative Procedure Act (“APA”), and;
6. the FTC failed to consider alternative proposals.

The Chamber has also filed a Motion of Stay and Preliminary Injunction to stop enforcement of the FTC’s new rule while the Court considers the merits of the Chamber’s claims. The FTC has until May 15, 2024 (21 days) to respond to the Chamber’s Complaint and Motion to Stay. After the Chamber’s opportunity to respond, the Court should determine whether to enjoin the FTC’s rule while the Court decides the merits of the Chamber’s case.

Another lawsuit has been filed by Ryan, a tax services and software firm, asserting that the new rule places a tremendous burden on companies looking to maintain top people in the professional services sectors and safeguard their intellectual property (IP). Ryan aims to stop what it believes are unjustified restrictions that the FTC's regulation would have on service-oriented businesses across the country, regardless of size. We anticipate many more lawsuits to come challenging the FTC’s new rule.

What Now For Employers?

As we stated in a prior alert, Employers should not panic! Employers should continue to assess their current use of non-competes, non-solicitation provisions, and non-disclosure agreements to identify changes, adjustments, and notices. However, employers do NOT need to make any changes as of now. Stay tuned and we will update you on any future developments on this matter.

*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.

The Final Rule: The Department of Labor Increases the Salary Threshold for Exempt Employees

By Michele L. Jakubs*

On April 23, 2024, the U.S. Department of Labor announced its final rule amending the regulations interpreting the Fair Labor Standards Act (FLSA)at 29 CFR part 541, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, which will take effect on July 1, 2024. The rule increases the salary threshold required for the most commonly used exemptions under the FLSA. Employees are exempt from overtime if they are paid on a salary basis and meet the duties requirements for one of these exemptions: executive, administrative, or professional. The new rule increases the salary level for these exemptions from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). The FLSA also provides an exemption for highly compensated employees who meet a less onerous duties test. The new rule increases the required annual compensation for highly compensated employees from $107,432 to $132,964. The new rule provides for incremental increases as follows:

On July 1, 2024

1. The salary threshold for the executive, administrative, and professional exemptions increases to $844 per week ($43,888 per year);
2. The highly compensated employees’ total annual compensation level increases to $132,964, including at least $844 per week paid on a salary or fee basis.

On January 1, 2025

1. The salary threshold for the executive, administrative, and professional exemptions increases to $1,128 per week ($58,656 per year);
2. The highly compensated employees’ total annual compensation level increases to $151,164, including at least $1,128 per week paid on a salary or fee basis.

The rule also adopts a mechanism to update the salary threshold starting July 1, 2027, and every three years thereafter.

It remains to be seen whether there will be legal challenges to the new rule and whether such challenges may delay or prevent the new rule from taking effect. In the meantime, employers should evaluate the salary levels of their exempt employees to determine whether these increases impact their eligibility for exempt status. For those employees falling below the new thresholds, employers need to consider the financial impact of increasing their salaries versus converting them to nonexempt status and paying them overtime.

*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele Jakubs (mlj@zrlaw.com) at (216) 696-4441 or Matthew Smallwood (mcs@zrlaw.com) at (614) 224-4411.

Federal Trade Commission Votes 3-2 to Ban Virtually All Non-Competes – DON’T PANIC

By Ami Patel*

During a live Commission Hearing on April 23, 2024, the FTC voted 3-2 to pass a new rule that virtually bans all non-compete clauses. This new rule comes after the FTC received over 26,000 comments to its original proposed rule. The new rule is set to go into effect 120 days after its publication in the federal register. But not so fast….

The Final Rule on Future Non-Competes

The final new rule purports to ban all new non-competes with workers including independent contractors and senior executives. The final rule states that for “a worker other than a senior executive, it is an unfair method of competition for a person: (i) to enter into or attempt to enter into a non-compete clause; (ii) to enforce or attempt to enforce a non-compete clause; or (iii) to represent that the worker is subject to a non-compete clause.” The final rule provides includes a notice requirement to workers for existing non-compete agreements.

However, there are limited exceptions to the non-compete ban for senior executives with existing non-competes and for non-competes entered by a person pursuant to a “bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.” The final rule likewise does not apply to breaches and existing claims related to a non-compete clause that accrued prior to the effective date of the rule.

The rule defines a “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii)operating a business in the United States after the conclusion of the employment that includes the term or condition.” The final rule further provides that a “term or condition of employment” includes, but is not limited to, a contractual term or workplace policy, whether written or oral.

The final rule defines “worker” as “a natural person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status” under any other state or federal law. Accordingly, “worker” includes employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide services to a person.

The final rule defines “senior executive” as “a worker who: (1) was in a policy-making position; and (2) received from a person for employment: (i) total annual compensation of at least $151,164 in the preceding year; or (ii) total compensation of at least $151,154 when annualized if the worker was employed during only part of the preceding year; or (iii) total compensation of at least $151,164 when annualized in the preceding year prior to the worker’s departure if the worker departed from employment prior to the preceding year and the worker is subject to a non-compete clause.”

FTC’s Rationale for the Final Rule

The FTC’s reasoning for passing the rule is that, based on its empirical research, the rule will reduce health care costs, will aid in new business formation, lead to higher worker earnings, and an increase in innovation. After implementation, any employer that enters a non-compete with a worker (or attempts to enforce a non-compete) will violate the new rule.

The New Rule’s Effect on Current Non-Competes

The rule will render null and void all current non-competes with workers who are not considered senior executives or fit within the bona fide sale of business exception. Any current non-competes with senior executives will remain in effect by the terms set forth in the contractual language. However, under the rule, employers cannot require senior executives to enter a non-compete after the effective date of the rule.

What Now For Employers?

The final rule will take effect 120 days after it is published in the federal register and challenges to the rule are expected. To stay compliant with the new rule, employers must (1) stop enforcing existing non-competes with workers other than senior executives, (2) provide notice to such workers of the new rule, and (3) cease from entering any new non-competes with any worker. As a result, employers should immediately begin to assess their current use of non-competes, non-solicitation provisions and non-disclosure agreements to determine where changes, adjustments, and notices maybe be required. It is highly likely that this law will be challenged and will not go into effect as scheduled. Stay tuned and don’t panic – you have time to (and should) assess your current and future contracts.

*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.

Title VII Suits Involving Job Transfers – No Harm vs. Some Harm vs. Significant Harm – What is the Standard?

By Natalie M. Stevens and Kimana A. Bowen*

On April 17, 2024, in a unanimous decision, the U.S. Supreme Court ruled in Muldrow v. St. Louis that Title VII of the Civil Rights Act requires “some harm” in the job transfer context.

The Opinion

Background

The plaintiff alleged that the defendant employer “discriminate[d] against” her based on sex “with respect to” the “terms [or] conditions” of her employment in violation of Title VII. Specifically, the plaintiff, a female Sergeant in the St. Louis Police Department, alleged she was transferred to another unit, and replaced by a male, and that while her rank and pay remained the same, her responsibilities, perks, and schedule did not.

The Eastern District of Missouri granted the defendant employer’s motion for summary judgment, and the Eighth Circuit affirmed the District Court’s decision holding that the plaintiff must, but could not in this case, prove that the transfer caused her a “materially significant disadvantage”; rather, the transfer only caused “minor” changes in her working conditions.
Muldrow v. City of St. Louis, 30 F.4th680, 688 (8th Cir. 2022).

Title VII Standard

Title VII provides that it is unlawful for a private employer or a state or local government “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.” 42 U.S.C. 2000e-2(a)(1).

Several courts have interpreted the statute to require that a transfer subject an individual to “worse treatment” or “harm,” and that the harm be “significant.”

In Muldrow v. St. Louis, the Supreme Court held that the requirement that the harm be “significant” would be adding words to the statute that Congress enacted, holding:

To make out a Title VII discrimination claim, a transferee must show some harm respecting an identifiable term or condition of employment. The transfer must have left the transferee worse off but not significantly so. The transferee does not need to establish an elevated threshold of harm. This would impose a new requirement on a Title VII claimant, so that the law as applied demands something more of them than the law as written.

No. 22-193, slip opinion, at p. 6.

What Now for Employers?

Employers should ensure that they have Equal Employment Opportunity and Anti-Discrimination policies and that any transfers are for legitimate, non-discriminatory and non-retaliatory reasons.

*Please contact ZR Team member Natalie M. Stevens (nms@zrlaw.com) or Kimana A. Bowen (kab@zrlaw.com) ^[1] if you have questions relating to the interplay of job transfers and Title VII.

^{[1] Presently barred in D.C. only.}

EEOC’s Final Rule Implementing the Pregnant Workers Fairness Act

By Natalie M. Stevens*

The Pregnant Workers Fairness Act (“PWFA”) went into effect June 27, 2023. On Monday, April 15, 2024, the Equal Employment Opportunity Commission (“EEOC”) released its final rule implementing the PWFA, which is set to be published in the Federal Register on April 19, 2024. The final regulation will go into effect sixty (60) days from April 19, 2024.

The PWFA

The PWFA requires covered entities (most employers with 15 or more employees) to provide “reasonable accommodations” for a qualified employee’s or applicant’s known limitations related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions, unless doing so will cause an undue hardship on the covered entity.

The Final Rule

According to the EEOC, the final rule is intended to “provid[e]important clarity that will allow pregnant workers the ability to work and maintain a healthy pregnancy and help employers understand their duties under the law.”

Known Limitations

The final rule explains what constitutes a “known limitation.” Specifically, “known” refers to the employee or applicant or their representative having informed the employer of the limitation.

Additionally, “limitation” is defined as “a physical or mental condition related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions.”

Further, “pregnancy, childbirth, or related medical conditions” include, but are not necessarily limited to, current pregnancy; past pregnancy; potential or intended pregnancy (which can include infertility, fertility treatment, and the use of contraception); labor; and childbirth (including vaginal and cesarean delivery); termination of pregnancy, including via miscarriage, stillbirth, or abortion; ectopic pregnancy; preterm labor; pelvic prolapse; nerve injuries; cesarean or perineal wound infection; maternal cardiometabolic disease; gestational diabetes; preeclampsia; HELLP (hemolysis, elevated liver enzymes and low platelets) syndrome; hyperemesis gravidarum; anemia; endometriosis; sciatica; lumbar lordosis; carpal tunnel syndrome; chronic migraines; dehydration; hemorrhoids; nausea or vomiting; edema of the legs, ankles, feet, or fingers; high blood pressure; infection; antenatal(during pregnancy) anxiety, depression, or psychosis; postpartum depression, anxiety, or psychosis; frequent urination; incontinence; loss of balance; vision changes; varicose veins; changes in hormone levels; vaginal bleeding; menstruation; and lactation and conditions related to lactation, such as low milk supply, engorgement, plugged ducts, mastitis, or fungal infections.

Reasonable Accommodations

The final rule contains examples of possible reasonable accommodations, including:

• Additional, longer, or more flexible breaks to drink water, eat, rest, or use the restroom;
• Changing food or drink policies to allow for a water bottle or food;
• Changing equipment, devices, or workstations, such as providing a stool to sit on, or a way to work while standing;
• Changing a uniform or dress code or providing safety equipment that fits;
• Changing a work schedule, such as having shorter hours, part-time work, or a later start time;
• Telework;
• Temporary reassignment;
• Temporary suspension of one or more essential functions of a job;
• Leave for health care appointments;
• Light duty or help with lifting or other manual labor; and
• Leave to recover from childbirth or other medical conditions related to pregnancy or childbirth.

Supporting Documentation

The final rule also addresses when it is appropriate to request supporting documentation; specifically, when it is needed to confirm the physical or mental condition, the relation to pregnancy, childbirth, or related medical conditions, and if it is reasonable to do so to determine whether to grant the accommodation. It is not considered reasonable to request documentation when the limitation and accommodation need are obvious, the employer has sufficient information to substantiate the limitation and accommodation need, or when the accommodation request is: (i) to carry or keep water near and drink, as needed; (ii) to take additional restroom breaks, as needed; (iii) to allow an employee whose work requires standing to sit and whose work requires sitting to stand, as needed; and (iv) to allow an employee to take breaks to eat and drink, as needed..

What Now?

Employers should evaluate whether their reasonable accommodation policies address the requirements of the PWFA and, if not, revise them, and ensure supervisors, managers, and those responsible for reviewing accommodation requests are informed of the requirements of the PWFA.

*Please contact ZR Team Member Natalie M. Stevens (nms@zrlaw.com) if you have questions relating to the Pregnant Workers Fairness Act and final rule.