RALEIGH – On Tuesday, the Federal Trade Commission (FTC) and U.S. Department of Labor (USDOL) each released final versions of long-awaited rules: one rule banning almost all non-compete agreements and the other updating which salaried workers should be paid overtime. The North Carolina Justice Center applauds the Biden Administration for both new rules, which will provide greater economic security for working North Carolinians.
Non-compete agreements are contracts between employers and workers that limit the ability of the employee to leave and work for a different employer or start their own business. Calling them an “unfair method of competition,” the FTC is banning new non-compete clauses for all workers and making existing non-competes null and void for everyone except senior executives. The FTC estimates that one in five Americans is subject to a non-compete. Over the last 20 years, the use of non-competes has become much more common in low-wage industries with the effect of depressing wages and hurting business hiring.
Non-competes have always faced scrutiny in court based on public policy concerns and as potential restraints on trade in violation of anti-trust laws but, for low-wage workers subject to non-competes, challenging them in court is nearly impossible. Faced with being sued or looking for a different job, most workers choose to find a different job.
The rule prohibits many functional non-compete clauses as well, such as Training Repayment Agreement Provisions, when they function to prevent a worker from seeking or accepting other work. These contracts trap workers in jobs because the workers are required to repay large amounts of money to their employers if they leave. The rule also bans non-compete agreements for independent contractors in most instances.
The overtime rule, released by USDOL on the same day as the non-compete rule, expands the rights of many salaried workers to overtime pay. First, it will increase the salary threshold under which a worker is entitled to overtime on July 1, 2024. This threshold was last set in 2019 at $684 per week, equivalent to $35,568 per year. The new rule updates the threshold to account for inflation to $844 per week or $43,888 per year. This first step extends overtime protections to workers who should have already been covered under the existing rule, but were left out because the 2019 rule did not include automatic adjustments.
The second change under the new rule is to raise the salary threshold to $58,656 per year (or $1,128 per week) on January 1, 2025, based on a new methodology that pegs the salary level to the 35th percentile of the lowest-wage census region (the South). It will also be automatically updated every three years.
The 2019 level currently in effect was already too low, leaving behind millions of workers who should not have been exempted from overtime. In 1975, the salary threshold was updated by the Ford Administration to be 1.6 times the median wage, ensuring that employees who were not entitled to overtime were still fairly compensated. At that time, 62.8 percent of full-time salaried workers were below the threshold and eligible for overtime. In 2023, with the threshold at $684 per week, only nine percent of full-time salaried workers were eligible for overtime.1 The updated methodology restores the original intent of the overtime pay requirement. Millions of workers will now be fairly compensated for their time when they work more than forty hours per week, or they will get that valuable time back, allowing better work-life balance.
“We applaud these two new rules that were announced this week,” says NC Justice Center Workers’ Rights Project Co-Director Clermont Ripley. “For too long, low-wage workers in North Carolina have worked long hours without overtime pay, and at the same time been unable to take a better job because of unfair non-compete agreements. Greater economic security and worker mobility are a real positive for the state’s workforce.”