FTC Bans Noncompete Agreements Nationwide

The Federal Trade Commission (FTC) has announced a final rule banning noncompete agreements nationwide, effective 120 days after publication in the Federal Register. The rule is expected to promote competition, protect worker mobility, foster innovation, and encourage new business formation.

Projections suggest that the rule will facilitate the formation of over 8,500 new businesses annually, enhance worker earnings by an average of $524 per year, lower healthcare expenditures by up to $194 billion over the next decade, and drive innovation with an estimated 17,000 to 29,000 additional patents per year in the coming decade.

Key provisions of the final rule include:

• Banning noncompete agreements for most workers, except for senior executives (representing less than 0.75% of workers), whose existing agreements can remain in force.
• Employers are prohibited from entering into or enforcing new noncompetes, even for senior executives.
• Employers must notify workers, except for senior executives, that existing noncompetes will not be enforced.
• The rule defines “noncompete clause” broadly to encompass any agreement or policy that limits a worker’s ability to seek new employment or start a business after leaving a job.

The FTC received over 26,000 public comments on the proposed rule, with overwhelming support (over 25,000 comments) for the ban on noncompetes. The final rule is based on extensive research. It aims to address concerns that noncompete agreements suppress wages, hinder innovation, and limit worker mobility, affecting approximately one in five American workers.

The FTC also emphasized effective strategies for employers to safeguard their investments without relying on noncompete agreements, such as implementing trade secret laws and improving wages and working conditions. These alternatives demonstrate proactive measures that can benefit employers and workers while fostering a fair and competitive labor market.

Critical Factors in the FLSA’s Employee vs. Independent Contractor Determination

The Department of Labor (DOL) issued a new final rule under the Fair Labor Standards Act (FLSA) to clarify the distinction between employees and independent contractors, enhancing compliance and worker protections. This rule replaces the 2021 Independent Contractor Rule, effective March 11, 2024.

The final rule outlines how the FLSA applies to workers, setting standards for minimum wage, overtime pay, recordkeeping, and child labor protections. It defines employees as economically dependent on employers for work, while independent contractors operate their own businesses.

Whether a worker is an employee or independent contractor depends on an “economic reality test” based on specific factors, not merely job titles or contracts. The Final Rule provides six critical factors for analysis:

1. Opportunity for Profit or Loss Depending on Managerial Skill: This measure focuses on whether the worker can negotiate pay, market their services, or make business decisions affecting profit or loss.
2. Investments by the Worker and Potential Employer: This section examines whether the worker’s investments (e.g., tools and equipment) are entrepreneurial and enhance business independence.
3. Degree of Permanence of the Work Relationship: Considers if the work is ongoing and exclusive, indicating employee status, or project-based and non-exclusive, suggesting independent contractor status.
4. Nature and Degree of Control: Assesses the employer’s level of control over work performance and business aspects, such as setting schedules and supervising work.
5. Extent to Which Work is Integral to the Employer’s Business: Considers if the work is central to the employer’s core business functions.
6. Skill and Initiative: Whether the worker uses specialized skills and business-like initiative.

Each factor is weighed based on the specific circumstances of the employment relationship. The rule clarifies that workers cannot waive their FLSA rights by signing independent contractor agreements. Additionally, the FLSA’s definition of “employ” (to “suffer or permit to work”) is broader than the IRS’ standard law control test for tax purposes, potentially resulting in different classifications for workers.

Employers who incorrectly classify employees as independent contractors could be subject to liability for unpaid wages, damages, and penalties under the FLSA. This highlights the critical need for accurate worker classification to ensure compliance with FLSA standards.

OFCCP Opens Online Portal for Federal Contractors to Certify Affirmative Action

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has initiated the acceptance of online submissions from covered contractors as of April 1.

For the third consecutive year, existing federal contractors and subcontractors must utilize the OFCCP’s Contractor Portal to complete this certification, with the deadline set for July 1, 2024.

Contractors must certify that they have diligently developed and upheld affirmative action programs for their establishments or functional units. These obligations apply to contractors meeting specific contract dollar and employee thresholds. The Contractor Portal facilitates this process, allowing multiple users to register, manage records, and certify compliance.

The affirmative action programs they implement ensure that all applicants and employees of federal contractors enjoy equal employment opportunities, regardless of race, color, religion, sex, sexual orientation, gender identity, national origin, disability, or status as a protected veteran.

USDOL Updates Prevailing Wage Resource Book

The U.S. Department of Labor, Wage and Hour Division (WHD) released an updated version of the Prevailing Wage Resource Book (PWRB) on April 1, 2024. This update followed the implementation of the final rule, Updating the Davis-Bacon and Related Acts Regulations, on October 23, 2023. The update’s purpose was to simplify language, restructure the format, and offer additional guidance and examples to address stakeholder requests for clarification.

The PWRB has been a crucial resource for contractors, contracting agencies, enforcement staff, unions, associations, and workers, providing insight into labor standards for federal and federally funded contracts. These contracts include those governed by the Davis-Bacon and Related Acts (DBRA), the Service Contract Act (SCA), the Walsh-Healey Public Contracts Act (PCA), the Contract Work Hours and Safety Standards Act (CWHSSA), the Copeland “Anti-Kickback” Act, and Executive Orders affecting federal contracts.

The updated PWRB aims to make WHD policies more accessible and understandable to stakeholders, enhancing their understanding of labor standards applicable to many federal contracts and federally funded projects. The updated PWRB can be found here: https://www.dol.gov/agencies/whd/government-contracts/prevailing-wage-resource-book

Government Contractor Apprenticeship Incentives under the Inflation Reduction Act

The Inflation Reduction Act of 2022 offers several benefits to government contractors participating in apprenticeship programs, including increased tax incentives and contributions to workforce development. To qualify, contractors must adhere to specific eligibility criteria:

• Employing Qualified Apprentices: Contractors must hire apprentices in registered programs recognized by relevant authorities. These programs typically involve a blend of on-the-job training and classroom instruction, leading to certification in a trade or occupation.
• Minimum Percentage of Construction Work Hours: Contractors must ensure that qualified apprentices perform a certain proportion of labor hours for construction, alteration, or repair work. The Act may specify varying percentages based on the project’s construction commencement year.
• Compliance with Prevailing Wage Standards: Contractors must pay laborers and mechanics employed in construction work no less than prevailing wage rates set by the Department of Labor for their respective classifications in the geographic area.
• Documentation and Recordkeeping: Contractors must maintain detailed records of laborers, mechanics, and apprentices, including hourly rates, hours worked, deductions, and actual wages. Proper recordkeeping is essential for demonstrating compliance and auditing.

Adhering to these requirements is crucial for contractors to qualify for tax incentives and avoid penalties or disqualification. Positive outcomes may include a skilled workforce and improved project outcomes. However, government contractors may face challenges, such as initial investment costs and compliance burdens.

NLRB Final Rule on Joint-Employer Status Vacated by Federal Court

On March 8, 2024, Judge J. Campbell Barker made a significant ruling, vacating the National Labor Relations Board’s (NLRB) new joint employer rule and reinstating the 2020 rule in response to a lawsuit filed by a coalition of industry associations led by the U.S. Chamber of Commerce. This decision immediately affects how businesses navigate joint-employer relationships under the National Labor Relations Act (Act).

The 2023 rule, issued by the NLRB in October, redefined the criteria for determining joint-employer status. It broadened the definition, allowing multiple entities to be considered joint employers if they collectively influenced essential terms of employment. This approach, aligning with common-law agency principles, recognized the significance of indirect control in determining joint-employer status.

However, legal challenges prompted the NLRB to delay the implementation of the 2023 rule until February 26, 2024. And now, with Judge Barker’s ruling, the 2020 rule, with its stricter requirement of substantial direct control, takes precedence once again.

The 2020 rule imposes a higher threshold for establishing joint-employer status, focusing on direct and immediate control over essential employment terms. This narrower definition may provide more clarity for businesses and limit liability for labor violations and obligations.

Although the NLRB may appeal Judge Barker’s decision, businesses must currently adhere to the 2020 rule’s standards. This uncertainty underscores the importance of understanding joint-employer relationships, particularly for those involved in contracting, joint ventures, or other collaborative arrangements.

Michigan Implements Updated Prevailing Wage Regulations

The Michigan Prevailing Wage for State Projects Act, effective on February 13, 2024, closely resembles a previous prevailing wage regulation repealed in 2018. It mandates that construction workers on state-sponsored or financed projects receive wages and benefits comparable to those in the same locality on similar contracts.

Within the framework of the Act, a “state project” encompasses various construction activities authorized by a contracting agent, which includes new construction, alterations, repairs, installations, and improvements of public buildings, schools, infrastructure, bridges, highways, or roads. Additionally, construction mechanics, defined as skilled or unskilled workers involved in construction projects, must receive wages and benefits meeting or exceeding the prevailing rates established by the state based on union-level standards.

The Act also requires Contractors to enroll apprentices in Department of Labor-approved training Programs and maintain payroll records for at least three years. Future construction contracts must include language ensuring wages and fringe benefits are not lower than established rates, with nondiscrimination and nonretaliation provisions and the right for aggrieved employees to take legal action against contractors for damages or injunctive relief.

The Act applies to projects with bid acceptance dates on or after its effective date, excluding contracts entered before or with bid acceptance dates before this date. Contractors should seek guidance from experienced professionals to help them navigate Prevailing Wage Act issues effectively and minimize the risks and potential penalties linked with non-compliance.

OFCCP Continues and Expands Construction Contractor Reporting

The Office of Federal Contract Compliance Programs (OFCCP) announced in the Federal Register that it is renewing and changing the construction compliance review scheduling letter and the Construction Contract Award Notification Requirement Form (CC-314).

OFCCP is responsible for implementing regulations to prevent employment discrimination by Federal contractors and subcontractors based on race, color, religion, sex, sexual orientation, gender identity, national origin, disability, or status as a protected veteran.

The agency is proposing changes to the construction scheduling letter to increase the effectiveness of its construction compliance evaluations. It also plans to renew form CC-314, which covered construction contractors use to notify the agency when it receives a contract award exceeding $10,000.

Written comments must be submitted in response to the notice on or before April 26, 2024.

SECURE Act 2.0 Implementation Continues

Last spring, The Contractors Plan blog shared a table describing important provisions of the SECURE Act 2.0. Since then, many of the key provisions have taken effect. Some recently, with more in 2025. The SECURE Act 2.0, passed in 2022, is meant to improve access to retirement plans and the ability to save for retirement while also easing employer administration requirements.

In addition to the provisions that took effect before this year, several more elective provisions became available for adoption as of January 1, 2024, including:

• An increase in the cash-out limit to $7,000 from $5,000.
• A new exception from the early withdrawal penalty is created for distributions used for emergency expenses. The limit is $1,000 annually, and the participant can repay the distribution within three years.
• An employer without a retirement plan can offer a starter 401(k) plan with lower contribution limits and simplified requirements.
• Allows participants who self-certify that they experienced domestic abuse to make penalty-free withdrawals. The withdrawal is limited to the lesser of $10,000 or 50% of the vested balance.

These are just some changes that became available in 2024 that could impact your plan. Others are on the horizon for 2025, including:

• For plans created in 2023 or later, there is an auto-enrollment and auto-escalation requirement for 401(k) plans.
• An increase in the catch-up limits to the greater of $10,000 or 50% more than the regular catch-up provision for participants who are 60, 61, 62, or 63 years old. After 2025, the catch-up limits will be indexed for inflation.

These are just some of the SECURE Act 2.0’s recent and upcoming changes. For questions about these and other upcoming plan changes and design features, you may talk with your broker or contact The Contractors Plan about how these changes may impact your plan and its participants.

Biden Administration Issues Executive Orders Advancing Pay Equity

The President has issued two Executive Orders to promote equal pay for federal contractor employees and the federal workforce. To implement these orders, the Biden Administration has introduced measures focused on pay equity and transparency, including proposed revisions to the Federal Acquisition Regulation (FAR). These revisions tackle wage discrepancies by forbidding contractors and subcontractors from requesting or considering applicants’ salary histories for particular roles.

• The FAR Council has suggested a rule that would bar federal contractors and subcontractors from soliciting or considering candidates’ salary histories during recruitment. Comments on the proposed FAR regulation are open until April 1, 2024. If enacted, this regulation would prohibit contractors from using past compensation as a screening factor or basis for salary decisions, regardless of whether applicants provided the information voluntarily. The proposal also includes a mechanism for enforcement, allowing applicants to file complaints against non-compliant contractors or subcontractors, with appropriate actions to be taken by the relevant agency. Furthermore, the proposal requires federal contractors to disclose expected salary ranges in job listings.
• Additionally, the Office of Personnel Management (OPM) has finalized a rule to help ensure that federal agencies will no longer factor in an individual’s current or past pay when determining federal employee salaries. Under the final regulation, federal agencies cannot consider an applicant’s non-federal salary history when setting pay for new employees in the General Schedule, Prevailing Rate, Administrative Appeals Judge, Administrative Law Judge, Senior Executive Service, and senior-level and scientific or professional pay systems. This rule is meant to stop pay discrimination by ensuring that salaries are based on applicants’ skills, experience, and expertise rather than their salary history.

These initiatives aim to promote economy, efficiency, and effectiveness in federal contracting while fostering talent diversity, enhancing job satisfaction, and reducing turnover within the federal contractor workforce. However, the proposed rule raises concerns and uncertainties regarding compliance with existing federal contracting rules. Therefore, contractors are advised to carefully monitor developments, review the full text of the proposed rule, and participate in the notice-and-comment process to ensure their understanding and compliance.