How New Overtime and Noncompete Rules Empower Millions of Workers

In a major win for workers, federal government agencies released two highly anticipated rules last week that are expected to boost pay for millions of Americans and allow them to change jobs more freely.

The Federal Trade Commission finalized a rule on April 27 that would invalidate almost all noncompete agreements that currently restrict employees from working at rival companies. That same day, the Department of Labor expanded overtime pay for salaried employees. Together, the rules are estimated to affect some 30 million Americans.

“On both of these rules, one of the amazing things that they do for workers is set bright line tests that don't require a team of lawyers to interpret,” says Mark Hanna, the vice president of public policy at the nonprofit National Employment Lawyers Association.

Hanna, who’s also the founding partner of the employment law firm Murphy Anderson, explains that these new rules stand out for their simplicity, unlike many other labor laws.

Here’s what workers can expect in the coming months.

Ban on noncompete agreements for workers

Once the FTC’s rule is in effect, current noncompete agreements are essentially unenforceable for the vast majority of workers, and all new noncompetes will be banned entirely, the agency says. FTC Chair Lina Khan has said she expects the rule to take effect “around September.”

The one carve-out is for current noncompete agreements for senior executives who have an annual salary of $151,164 or higher. After September, all new noncompete agreements will be banned even for senior executives.

The FTC says that businesses that have noncompete agreements must tell their employees that they won’t be enforcing them anymore.

The agency estimates that about 1 in 5 workers — or about 30 million Americans — are bound by noncompete agreements. The new rule argues that these agreements are anti-competitive in nature and used to coerce workers into staying in a job they would have otherwise left.

Businesses in favor of noncompete agreements say that states already manage which agreements are legal and which aren’t and that they help companies protect trade secrets and compete against rival firms.

Already, the U.S. Chamber of Commerce, the largest business lobbying group in the country, vowed to sue the FTC for what it called an “unlawful power grab.” The group argues that the FTC doesn’t have the constitutional or statutory authority to write such a rule.

Overtime rules will help workers earn more money

As for the Labor Department’s new overtime rule, an estimated 4 million workers are expected to take home more money when working over 40 hours per week once fully in effect.

Under current rules, overtime pay does not apply to salaried workers who earn $35,568 or more. These workers are known as “exempt” employees. Hourly workers, regardless of earnings, qualify for overtime pay.

“Many salaried workers are currently exempt because the DOL has not raised the salary threshold frequently enough over the past 50 years to keep pace with inflation,” says Michele Evermore, a senior fellow at the nonprofit The Century Foundation (TCF), in an email.

In effect, a salaried employee earning about $36,000 can be forced to work 60 to 70 hours per week for no additional pay than if they worked a 40-hour workweek, according to the pro-labor Economic Policy Institute.

“The extra 20-30 hours are completely free to the employer, allowing employers to exploit workers with no consequences,” EPI analysts wrote.

The department’s new rule aims to curb that. By Jan. 1, 2025, the salary cap for mandatory overtime pay will rise to $58,656. In other words, anyone making less than that amount will qualify for overtime pay if working more than 40 hours in a week.

The ceiling will first jump to $43,888 on July 1 before reaching the final threshold at the start of 2025. Department officials have said the incremental cap in July is in place to help businesses adjust to the changes.

Starting on July 1, 2027, and every three years after, the department says it will automatically adjust the thresholds.

Similar to the FTC rule, the changes to overtime pay are expected to be challenged in court.

Making the most of new labor rules

Emily McGrath, director of workforce policy at TCF, stresses that these rules are big wins for workers.

“Together these rulings will help curb some of the more egregious employer behaviors,” she says in an email, adding that noncompete agreements have “suppressed wages and decreased mobility, while low overtime thresholds have allowed employers to pay for far fewer hours than they require employees to work.”

Hanna, with NELA, agrees, stating that “employment lawyers have been fighting these problems for decades.”

While the rules give workers much to be excited about, Hanna cautions workers to “not do anything crazy” just yet because of the likelihood of them being challenged in court. If or when the rules are being tested in court, the timelines of the rules could be suspended — or the rules could be struck down entirely.

Hanna says the overtime salary threshold has been updated several times by previous administrations, and he says he isn’t too worried about that one getting blocked. It’s the FTC rule that he says workers should watch.

“The noncompete rule is going to be a bigger fight,” he says.

At the same time, he notes, “the calculus has changed” for noncompetes. Regardless of the outcome and even before it goes into effect, Hanna says the trickle-down effect of the FTC’s rule is that businesses will be far less likely to successfully enforce noncompetes.

In fact, several states have already banned them, including California, Oklahoma, North Dakota and Minnesota. Several other states like Virginia, Maryland, Maine and Oregon restrict noncompetes for low wage or hourly workers. The federal attention from the FTC is only spurring the trend.

That said, many business groups have expressed discontent with the new rules. And even if the rules survive the courts, labor experts warn that some businesses may try to get around them.

What if an employer doesn’t comply?

One method that some employers use to avoid adhering to wage laws or providing benefits is to misclassify workers, Hanna says.

In some cases, workers who should be considered employees of the company are misclassified as 1099 independent contractors, thus making them ineligible for minimum wage or benefits. Another form of misclassification is to move an employee from a salaried position with benefits to an hourly one where benefits aren’t required.

Similarly, Hanna says some employees who are right around the overtime income threshold of $58,656 might receive nominal raises to bump their pay just above legal requirements and avoid getting overtime pay.

And in terms of the FTC rule, some employers may use other methods to keep workers at the company unwillingly. One example is through what’s called training repayment agreement provisions, aka TRAPs, which are contracts that say an employee must repay the employer for certain on-the-job training or educational expenses if the worker leaves the company within a certain time frame.

McGrath with TCF says sometimes employers abuse them, and they become noncompete agreements under another name.

“They allow the employer to classify virtually anything as ‘training,’” she says, “and then demand to be repaid thousands of dollars if that employee leaves before the clause expires.”

Experts say workers should pay extra close attention to paperwork coming from HR around these issues.

According to McGrath, companies are legally obligated to inform workers of the new noncompete rules, and the FTC even provides model language for spelling out the changes in text, email or physical mail, she says.

Likewise the Labor Department has simple guidance for workers to follow to check their overtime eligibility under the new rules. The department accepts confidential complaints about employers not adhering to the Fair Labor Standards Act, which is a federal law that the overtime rule falls under.

Similarly, violations of the new noncompete rule (once in effect) can be sent for review by the FTC’s Bureau of Competition at noncompete@ftc.gov.

Given the scale of the rules, they are bound to generate conversations in the workplace. Hanna stresses that for the vast majority of private workers, speaking about these rules, salaries and workplace conditions are fully protected rights by the National Labor Relations Board, regardless of union status.

“I'm a big advocate of employees talking to each other,” Hanna says. Better yet: “Call up your local employment lawyer and ask for advice.”

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