Non-Compete Clauses Banned!

April 26, 2024 by Leave a comment

This week, the Federal Trade Commission (FTC) voted 3-2 to pass a rule banning nearly all existing and future non-compete clauses with employees (including new agreements with senior executives). The new rule states that such clauses are an unfair practice. This rule would apply nationwide and would supersede state laws that permit non-compete clauses in employment contracts.

Non-Compete Clause Background

Non-compete clauses prevent an employee from working in a competing business – typically they will be limited based on geography (not in our town), field (not in our industry) and time (not for a certain period of time). Non-compete clauses are typically used when a business invests in an employee’s education, or gives the employee access to trade secrets that could be used by the business’ competitors. They are intended to allow the business to share education and trade secrets with a employee without worrying that the investment will inure to the benefit of a competitor if the employee leaves. They have historically incentivized investing in the employees.

But non-compete clauses can also tie an employee to their employer, which can also undermine efforts to increase wages through labor competition.

Aviation companies have historically used non-compete clauses in a variety of ways to protect their interests. They may be used to protect trade secrets, like customer lists, customer usage data, or customer confidential information. They may be used to protect proprietary manufacturing information. They may be used to ensure that a competitor does not get the benefit of an investment that the business has made in a particular employee, such as when the business has paid for the employee’s education.

Under the new regulation, businesses will still be able to protect their interests through contracts with employees, but the contracts be precluded from restricting the employee’s opportunity to work for a competitor. Limiting immediate change to a competitor has typically been viewed as an effective way to protect against misappropriation of trade secrets by an employee and the employee’s new employer. It may be a more difficult effort to prove that an employee who has gone to a a competitor has stolen the prior company’s trade secrets.

The Rule

No new non-compete agreements will be permitted after the rule’s effective date. Existing non-competes clauses with workers other than senior executives will not be enforceable after the effective date of the final rule.

There is a special rule for senior executives (employees earning more than $151,164 annually who are in a “policy-making position”). For senior executives, pre-existing non-compete clauses (predating the final rule effective date) can remain in force.

Notice Requirements

If you have existing agreements that violate the new rule, then you may be required to give written notice to the employees (including former employees) who are affected.

Exceptions

The rule will allow a non-compete clause to be part of a business sale agreement. The new rule does not extinguish causes of action for breach of a non-compete clause when the breach occurs before the effective date of the rule.

Increased Labor Costs

    The FTC specifically predicts that this rule will lead to an increase in worker’s wages, as companies use higher wages to lure talented employees from their competitors. This could be difficult for businesses that have to pay more for talent, while at the same time potentially losing the trade secrets that help keep that business competitive. There s a strong likelihood that this will disincentivize employers from investing in their employee’s education, because it will be a better use of the funds to simply pay the funds as wages in order to discourage the employees from leaving for a competitor’s better offer.

    Summary

    • After the effective date of the rule, don’t include non-compete clauses in future employment contracts, handbooks/manuals, or other resources.
    • If your business has active non-compete clauses on the effective date of the rule, then you will need to give written notice to those current and former workers (except “senior executives”) that their non-compete clauses are unenforceable.
    • Notice will not be not required for senior executives with pre-existing non-compete clauses because their pre-existing non-compete clauses are not affected; but make sure that the executives meet the legal requirements for a “senior executive.”
    • After the effective date of the rule, businesses may not enforce non-compete clauses (other than for allowed senior executive clauses) but they may continue to enforce for violations of those clauses that occurred before the effective date of the rule.

    The new rule will come into effect 120 days after its publication in the Federal Register. This new rule has not yet been published in the Federal Register. It is expected to be published next week. A pre-publication draft of the final rule is available on the FTC’s website. FTC has also published a Fact Sheet that summarizes the new rule.

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    Provide Employees with an “Essential Business” Letter

    April 6, 2020 by 1 Comment

    Are you running an essential business?  Many aviation businesses – including those that distribute aircraft parts – are part of the federal critical infrastructure.

    If you are remaining open as part of the federal critical infrastructure, then you need some of your essential employees to be able to do their work.  Some may be able to telework, but some employees, like warehouse staff, cannot do their jobs without being physically present.  Under most state “stay-at-home” laws, those essential employees who are necessary to the operations of an essential business are permitted to leave the homes to go to work.

    Some states have recommended that these employees get letters to verify their status.  We are now advising all essential employers to provide verification letters to the essential employees who must travel to work.

    If you issue employee identification badges, then you may wish to tie the letter to an employee identification on the badge and require the employee to carry the badge with the letter when traveling between work and home.

     

    [BUSINESS LETTERHEAD]

     

    This letter is provided as evidence that the named employee is an employee of [COMPANY NAME].  [COMPANY NAME] is an essential business under state law and a part of the critical federal infrastructure, and is continuing to operate until further notice.  This employee is permitted under the terms of the Executive Order to travel to and from work.  If you have questions related to this designation, then please communicate with the Business Contact listed below.

    EMPLOYEE NAME:

     

    BUSINESS CONTACT

     

    Name:   _______________________

    Title:      _______________________

    Phone: _______________________

    Email:    _______________________

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    New Overtime Rules May Affect ASA Members and their Personnel

    May 20, 2016 by 2 Comments

    On Monday, the federal government will publish a new rule updating the overtime regulations.

    The Administration has bragged that this will automatically extend overtime pay protections to over 4 million workers who did not previously have this entitlement.

    The overtime rules typically require that employees who work more than 40 hours in a week be compensated at ‘time-and-a-half’ for hours beyond the first 40.  The overtime rules also provide ‘exempt‘ categories. These are categories of employees who are not entitled to ‘time-and-a-half’ for hours beyond the first 40. Exemptions can be based on salary (e.g. the exemption for highly compensated employees – see below).  They can also be based on job function (there are exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees).

    Key Provisions of the Final Rule

    The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt.  Specifically, the Final Rule:

    1. Sets the “standard salary level” at $913 per week; $47,476 annually for a full-year worker – employees below this threshold will automatically be eligible for overtime, unless another exemption applies;
    2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004) – employees above this level may not be eligible for overtime for weekly hours worked over 40;
    3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to keep them consistent with wage inflation; and
    4. Amends the salary basis test to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level [so an employer could pay 90% of the minimum in straight salary and the other 10% in commissions to meet the salary threshold].

    Outside Sales Exemption

    Many ASA members employ outside sales personnel.  There is a special exemption for these employees (they may not be entitled to ‘time-and-a-half’ for hours beyond the first 40).

    To qualify for the outside sales employee exemption, all of the following tests must be met:

    • The employee’s primary duty must be making sales, or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
    • The employee must be customarily and regularly engaged away from the employer’s place or places of business.

    There is no minimum nor maximum salary requirements for the outside sales exemption.

    Administrative Personnel Exemption

    Many ASA members employ administrative personnel.  There is a special exemption for administrative employees (they may not be entitled to ‘time-and-a-half’ for hours beyond the first 40 if they meet the requirements).

    Job title is never dispositive of whether an exemption applies. The Department of Labor always looks at the real tasks performed by the employee.

    To qualify for the administrative exemption, an employee:

    • Must receive at least $913 a week (the equivalent of $47,476 a year) on a salary or fee basis.  29 CFR 541.200(a)(1).
    • Must have as a primary duty the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. 29 CFR 541.200(a)(2).
    • Must have duties that include the exercise of discretion and independent judgment with respect to matters of significance.  29 CFR 541.200(a)(3).

    For example, an executive assistant or administrative assistant to a business owner generally meets the duties requirements for the administrative exemption if such employee, without specific instructions or prescribed procedures, has been delegated authority regarding matters of significance.  29 C.F.R. 541.203(d).  On the other hand, ordinary inspection work generally does not meet the duties requirements for the administrative exemption, because inspectors normally perform specialized work along standardized lines involving well-established techniques and procedures which may have been catalogued and described in manuals or other sources. 29 C.F.R. 541.203(g).

    Executive Exemption

    To successfully run a business, you must employ executive personnel.  There is a special exemption for executive employees (they may not be entitled to ‘time-and-a-half’ for hours beyond the first 40 if they meet the requirements).

    To qualify for the executive exemption, an employee must:

    • Receive compensation on a salary basis of not less than $913 per week (the equivalent of $47,476 a year);  29 C.F.R. 541.100(a)(1).
    • Have a primary duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;  29 C.F.R. 541.100(a)(2).
    • Customarily and regularly direct the work of at least two other full-time employees or their equivalent (for example, one full-time and two half-time employees are equivalent to two full-time employees);  29 C.F.R. 541.100(a)(3).
    • Have the authority to hire or fire other employees, or must be able to make recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees (and which recommendations must be given particular weight).  29 C.F.R. 541.100(a)(4).

    Under the regulations, “management” includes, but is not limited to, activities such as

    • interviewing, selecting, and training of employees;
    • setting and adjusting their rates of pay and hours of work;
    • directing the work of employees;
    • maintaining production or sales records for use in supervision or control;
    • appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status;
    • handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used;
    • apportioning the work among the employees;
    • determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold;
    • controlling the flow and distribution of materials or merchandise and supplies;
    • providing for the safety and security of the employees or the property;
    • planning and controlling the budget; and
    • monitoring or implementing legal compliance measures.  29 C.F.R. 541.102.

    Computer Personnel Exemption

    With the rising importance of IT in the aviation sphere, many ASA members employ computer personnel.  There is a special exemption for computer employees (they may not be entitled to ‘time-and-a-half’ for hours beyond the first 40 if they meet the requirements).

    To qualify for the computer exemption, an employee must receive compensation on a salary basis of not less than $913 per week (the equivalent of $47,476 a year);  29 C.F.R. 541.400(b). In addition, the exemptions apply only to computer employees whose primary duties consists of:

      • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
      • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
      • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
      • A combination of the above three duties.

    29 C.F.R. 541.400(b)(1-4).

    Implementation

    The effective date of the final rule is expected to be December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

    The final rule will be published on Monday, so of course some changes are theoretically possible over the weekend.

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