Employment Law Update
By Michael Judd
FTC Whirlwind Swirls On—Did Your Non-Competes Just Turn to Dust?
More than a year ago, the Federal Trade Commission (FTC) proposed an attention-grabbing new rule—a full ban on employee non-compete agreements. This past week, the FTC finally brought its hammer down, releasing a 570-page final rule that amounts to an all-fronts attack on non-compete agreements: a ban on future non-competes, a prohibition on non-compete enforcement, and declaration that virtually all existing non-competes will be voided.
Carve-outs to the rule remain stubbornly small. Non-competes related to the sale of a business may remain enforceable, as may non-competes associated with franchisor–franchisee relationships. Even if non-competes are banned going forward, existing non-competes with well-compensated senior executives (workers earning more than $151,164 in a “policy-making position”) will not be voided by the new rule.
For employers who have used non-competes as a blunt-force tool to protect company relationships and information or to improve employee retention, the new rule seems to be cause for despair. But employers should pause before making drastic changes. A lawsuit challenging the rule was filed almost immediately, in north Texas, the land of high-school football, cattle ranches and nationwide anti-agency-rule injunctions. The U.S. Chamber of Commerce filed a similar lawsuit later the same day, in east Texas. And until the rule goes into effect—which won’t happen until late August, at the soonest—non-compete violations may still trigger liability that would linger even after the rule goes into effect.
While winds continue to swirl, then, employers should both keep an eye on these court challenges and explore alternative routes to protecting their interests, including through contractual agreements that focus on protecting information rather than restricting employee movement.
DOL Rule Adds Overtime-Pay Coverage for 4 Million Workers in Looming Two-Stage Bump
Millions of workers are newly eligible for overtime pay under another final rule issued last week, this one by the Department of Labor (DOL). Are those your workers? If you pay workers on a salary, and if those salaries fall between $35,000 and $60,000 per year, the answer is likely “yes.”
Employers know that the Fair Labor Standards Act (FLSA) mandates overtime pay for work beyond the 40-hour weekly threshold. And employers know that rule covers almost all hourly workers. But the question is trickier for salaried workers who may fall within an exemption for “executive, administrative, or professional” employees. And even that exemption doesn’t apply to the lowest-paid salaried employees. As of today, only workers who are paid at least $684 per week ($35,568 per year) may qualify for an overtime exemption. Put differently, even salaried employees are entitled to overtime pay if their weekly pay falls below that threshold.
When that threshold bumps up—as it’s now set to do twice in the coming year—millions of workers receive automatic entitlement to overtime pay. On July 1, 2024, the salary threshold hops to $844 per week ($43,888 per year). And on Jan. 1, 2025, the threshold hops again, to $1,128 per week ($58,656 per year). The DOL’s new rule anticipates that threshold updates will continue every three years, based on earnings data, beginning on July 1, 2027.
The bottom line, for employers, is that millions of salaried employees making between $35,568 and $58,656 will qualify for FLSA overtime-pay protections—some over the summer, the remainder by the end of the calendar year. Employers should start compliance efforts now, including a thorough reclassification analysis and salary increases, to avoid ending up on the wrong side of the FLSA.
Harmful Transfers Now Satisfy Title VII, as Supreme Court Reworks Discrimination Standard
Three decades ago, Vernet Boone, a black woman working at NASA, was reassigned—to work in a literal wind tunnel. Boone sued, arguing that her reassignment to a more stressful job constituted discrimination. A federal appeals court disagreed, ruling that Title VII discrimination claims require an “adverse employment action” like discharge or demotion, and that reassignment—even to a wind tunnel—didn’t qualify.
The U.S. Supreme Court, in a case called Muldrow v. City of St. Louis, has now expanded the scope of that law, making discriminatory-transfer claims (and potentially other retaliation claims) decidedly more employee-friendly. In that case, Jatonya Muldrow alleged that the St. Louis Police Department had transferred her to a less desirable role, with less action and more administrative duties. Muldrow insisted that she was transferred because she was a woman. Lower courts ruled against Muldrow, based on findings that her rank and pay remained the same.
The Supreme Court reversed, concluding that Muldrow didn’t need to show a “significant employment disadvantage” to sustain a Title VII claim—she only needed to show “some harm from a forced transfer.” Employers may fairly ask what the practical difference is between a “significant harm” test and a “some harm” test. (Justice Alito certainly asked that question in dissent.) District courts will now start the hard work of answering that question.
What’s clear now, however, is that the kind of harm Muldrow alleged—diminished “responsibilities, perks, and schedule”—is enough to support a discriminatory-transfer claim. That makes transfers more delicate than ever, and employers transferring employees must now keep a careful eye on Title VII and Muldrow when doing so.
Question Corner
Recouping Losses on Damaged Employer Property
By Jason R. Mau
Q. We provide laptop computers to all our personnel. Many employees damage them during employment or return them with damage upon leaving employment. What are our options for recouping from employees the costs of repairing or replacing the damaged employer-owned materials?
A. Basically, the company’s two main options for recuperating losses for damage to company property include: previously-authorized deductions through payroll; or a claim based on property or tort laws. While Idaho law does allow for deductions to be made from an employee’s paycheck for damage to company property, and for a lawsuit based on negligent or intentional harm to company property, there are issues to consider before pursuing such a course of action. These main options presume the damage was not caused by criminal or willful intent, which would need to be addressed separately through local authorities.
The first considerations are related to payroll deductions. A deduction from a non-exempt employee’s paycheck can only be made where written authorization was given prior to the deduction (i.e. an authorization form at the time the computer was issued) and where the deduction would not cause the employee to receive less than minimum wage for that pay period. For exempt employees, even where written authorization was previously given, any deduction would violate the salary-basis requirement under the Fair Labor Standards Act, creating potential liability for an overtime claim.
The remaining considerations are related to pursuing a remedy in the Idaho court system. Even though a cause of action would be available in a civil lawsuit or small claims court, litigation costs may easily outweigh the available remedy. Further, the company needs to be very mindful that the employee may decide to pursue a counterclaim or discrimination charge in response, or even that the timing of a lawsuit could be perceived as retaliating against a former employee’s own lawsuit pursuing a wrongful discharge claim or other right protected by law.
Of course, it is recommended that the company first have a policy in place describing its expectations for the care of company property and its intentions to hold employees responsible under certain circumstances for damage to, or destruction of, the employer’s property, whether that be through direct disciplinary actions or seeking to recoup the company’s losses.
