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Non-Compete Agreements

Under a new Federal Trade Commission rule, for-profit employers are prohibited from entering into new non-compete agreements with all employees, including senior executives. The rule applies to independent contractors as well as employees and does not apply to nonprofit organizations.

California, Colorado, Minnesota, Oklahoma and North Dakota have banned noncompete agreements and several other states have passed laws limiting their use. Colorado banned non-compete clauses in 2022, leaving a carve-out for contracts for “highly compensated workers” or HCE’s —anyone making more than $123,750 in 2024. This new FTC ruling would increase that threshold, and still ban the agreements “going forward”.

Existing non-compete agreements with senior executives remain enforceable. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.

Employers must notify all other workers that existing non-competes are unenforceable by the effective date (120 days after publication in the Federal Register, a date that hasn’t yet been announced/finalized). We have attached a model notice from the FTC that you may use to satisfy the notification piece.

As an aside, trade secret laws and non-disclosure agreements (NDAs) both provide employers with means to protect proprietary and other sensitive information.

This new ruling is speculated to face challenges from the U.S. Chamber of Commerce and other groups, and whether it ultimately is enforced by a court is not yet certain.

FLSA Salary Threshold Increase

Next, the exempt salary threshold has been increased, effective July 1, 2024, to $43,888 and increase to $58,656 on Jan. 1, 2025. Note that currently, in Colorado, our minimum exempt salary threshold is at $55,000 for 2024. As of January 1, 2025, the minimum salary threshold for exempt employees in Colorado will be the 2024 salary adjusted by the same Consumer Price Index as the Colorado Minimum Wage. This means that the 2025 exempt threshold will be around $59,800, based on the 2024 threshold of $55,000, though that number is not “final”.

Employees who are considered “exempt” from overtime must not just meet this salary threshold, but also the “duties test”, and must be a salaried bona fide executive, administrative or professional employee exempt from federal overtime pay requirements (Outside Sales, Teachers, and other limited exceptions apply). 

Of note, the federal exempt salary threshold is monitored on a weekly basis, and can only include up to 10% in compensation such as bonuses and commissions. Colorado makes the assessment based on a calendar year, not on a weekly basis, and does not limit the amount of compensation that can be the result of bonuses or commissions. Other states (or cities) may have their own minimum salary threshold, in which case those higher wages prevail.

The salary threshold will be automatically updated every three years starting on July 1, 2027. The DOL has further stated that the threshold for HCE exemption will rise, to $132,964 on July 1, then to $151,164 on January 1, 2025.

In not “new news”, at all times, employers should ensure that they understand the difference and impact of classifying a worker as exempt or non-exempt. Misclassifying workers as exempt when they do not pass the duties test can have drastic consequences for the employer – non-exempt workers must receive one and a half times their hourly rate for hours worked in excess of 40 in any given workweek, and in excess of 12 hours in any given workday (Colorado). They must also be given breaks in accordance with the state in which they are working.

Some of you may find the above familiar, back in 2015 the Obama administration attempted to raise the salary threshold. A judge in Texas blocked the rule from taking effect, and the DOL stopped pursuing the rule due to a change in presidential administration.

InTANDEM HR recommends all employers prepare for the increase as if it will go through. If it is blocked, we will certainly inform you. Now is the time to review your exempt worker’s salaries, to ensure they meet the new threshold, or prepare to change them to hourly and non-exempt.