New Overtime Rules under the FLSA

On April 23, 2024, the U.S. Department of Labor Wage and Hour Division (“Department of Labor”)
published its Final Rule increasing the Fair Labor Standards Act’s (“FLSA”) annual salary threshold for exempt employees classified as executive, administrative or professional. As explained below, this new final rule does not apply to Puerto Rico.

For employees to be exempt from the dispositions of the FLSA regarding minimum wage and overtime
protections they must meet the following requirements: (1) be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed; (2) said fix salary must comply with the specified weekly salary level; and (3) primarily perform administrative, executive or professional functions as determined by the regulations of the Department of Labor.

As of today, except for Puerto Rico and other U.S. territories which maintain the $455.00 weekly salary
threshold, the standard salary level for exempt employees is $684.00 per week which is equivalent to $35,568.00 per year. Effective July 1, 2024, employers must implement the first increase provided by the Final Rule to $844.00 per week which equals to $43,888.00 per year. Lastly, as of January 1, 2025, exempt employees must be paid a weekly salary of $1,128.00 per week which equals $58,656.00 per year.

Beginning on July 1, 2027, the eligibility threshold will be updated every three (3) years, based on current wage earnings data collected by the Department of Labor.

In the Final Rule, the Department of Labor states that the above-mentioned salary increases will not apply to Puerto Rico and other U.S. territories. Therefore, the standard salary level for Puerto Rico and the other U.S. territories remains at $455.00 per week. However, the Department of Labor leaves the door open for future changes by stating that “the Department will address these aspects of its proposal in a future final rule.”

On April 23, 2024, the U.S. Federal Trade Commission (“FTC”) approved a Final Rule banning most
non-compete clauses (“non-competes”) from existing and future employment contracts. The FTC’s purpose, on seeking a ban on non-competes, is for employees to freely seek new job opportunities with better wages, for entrepreneurs to start new ventures and practice fair market competition.

The Final 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: (1) 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 (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”

Moreover, the Final Rule provides that it is an unfair method of competition for persons to, amongst other things, enter into non-compete clauses with employees on or after the Final Rule’s effective date. Per the Final Rule, employers must provide notice to workers with existing non-competes stating that they are no longer enforceable, except for senior executives.

The Final Rule allows existing non-competes with senior executives to remain in force. The FTC defines the term “senior executive” to refer to workers earning more than $151,164.00 annually who are in a “policy-making position.” Nonetheless, employers are banned from entering into or attempting to enforce any new non-competes after the effective date of the Final Rule even with senior executives.

Although the Final Rule is set to be effective 120 days following its publication in the Federal Registry,
we expect delays in the implementation of said rule as lawsuits are expected to be filed around the United States to challenge the FTC’s ruling. The U.S. Chamber of Commerce has already stated that it will challenge the FTC’s Final Rule for exceeding its administrative authority and as of today, a federal lawsuit was filed in Texas challenging the implementation of the Final Rule and seeking declaratory judgment.

Should you need support with the analysis and the impact these matters will have on your business, please contact us at your convenience.