In the last several months, federal agencies have issued a host of rules that stand to have a significant impact on employers. One is the U.S. Department of Labor’s (DOL) final rule, issued on April 23, that drastically increased the minimum salary threshold for the “white collar” workers exception. The other is the Federal Trade Commission’s (FTC) final rule, issued on the exact same day, that effectively bans covenants not to compete (noncompetes). It should come as no surprise that both rules faced immediate legal challenges.

A few months later, on June 28, the U.S. Supreme Court overturned the four-decade old Chevron doctrine (judicial deference to a federal agency’s interpretation of an ambiguous statute) in Loper Bright Enterprises v. Raimando. This decision will likely have a significant impact on how courts handle the challenges to these agencies’ final rules.

Below, we highlight what these final rules mean for employers and employees, where the current challenges stand, and what the end of Chevron deference may mean for the viability of these rules moving forward.

DOL Salary Threshold Increase

Under the Fair Labor Standards Act, employees are entitled to minimum wage and overtime pay protections unless they fall within an exemption to the statute. The most common are the “white collar” exemptions, which require an employee to (1) perform certain types of duties in the course of their employment, (2) be compensated on a salary basis and (3) earn above a certain salary level threshold. 

This third factor — the salary threshold — is where the DOL focused its efforts in its most recent rule. Prior to this rule taking effect, the minimum salary threshold for the “white collar” exemptions was $35,568 per year ($684 per week). The DOL’s final rule drastically increases these minimum thresholds in a two-step approach over six months. The first increase came on July 1, which bumped the minimum threshold to $43,888 per year ($844 per week). The second increase will come on Jan. 1, 2025, and will bump the minimum threshold to $58,656 per year ($1,128) per week. By 2025, the DOL will have mandated almost a 65% increase in the minimum salary threshold for purposes of the “white collar” exemptions. From there, the rule provides for updates to the minimum salary threshold every three years, starting July 1, 2027.

Once the final rule was issued, legal challenges immediately followed. For now, all eyes are on Texas.

In State of Texas v. DOL, the State of Texas sought nationwide injunctive relief to prevent the rule from going into effect on July 1.¹ On June 28, Judge Sean D. Jordan granted a limited injunction that blocked the rule from taking effect, but it only applied to the State of Texas as an employer. Importantly, Judge Jordan reasoned it is likely that Texas will succeed in showing that the DOL should be limited to rulemaking that “center[s] on duties.” Motions for summary judgment have been filed by the plaintiffs in this case, with briefing to close on or before Sept. 19. It is likely that the court’s decision on the merits will be issued prior to the next increase set for Jan. 1, 2025.

In Flint Avenue LLC v. Su et al., a private employer requested a nationwide injunction to block the rule from taking effect on July 1.² In a July 1 ruling, the court denied the plaintiff’s request and ordered an expedited summary judgment briefing schedule, stating its intent to reach a merits determination prior to Jan. 1, 2025. In this case, plaintiff was required to file its motion for summary judgment by Aug. 7, with the summary judgment briefing set to close on or before Oct. 9.

FTC Ban on Noncompetes

On April 23 (again, the same day that the DOL issued is salary threshold final rule), the FTC voted 3-2 in favor of its Final Noncompete Clause Rule. The FTC’s final rule effectively bans noncompetes nationwide. It applies to employees, as well as independent contractors. The rule is set to take effect on Sept. 4.

There are some narrow, but notable exceptions. Employers can maintain existing noncompetes with “senior executives” (employees paid over $151,164 per year and in a policy making position); however, that only applies for existing agreements. The final rule prohibits employers from entering into noncompetes, even with “senior executives,” after Sept. 4. Employers can still maintain causes of action to enforce noncompetes if the claim arose prior to Sept. 4. Additionally, the rule does not apply if the noncompete was entered into pursuant to the bona fide sale of a business.

Perhaps one of the most important aspects of the FTC’s final rule is that it requires employers to provide individual notice to workers subject to a now-prohibited noncompete that the provision is no longer enforceable. This notice must be provided by Sept. 4. The administrative headache of identifying which workers are subject to a noncompete and then issuing the notices is significant.

Like the DOL’s salary threshold rule, the FTC’s rule banning noncompetes garnered almost immediate legal challenges. Back in July, two federal district courts ruled on  ppreliminary motions to enjoin the FTC’s final rule: one Texas judge partially granted a motion for preliminary injunction, and one Pennsylvania judge denied a similar motion. In August, a Florida district court judge also granted a motion for preliminary injunction.

Then, on Aug. 20, the Texas judge granted the plaintiffs’ motion for summary judgement, setting aside the FTC’s final rule. Accordingly, the FTC final rule will not be enforced or otherwise take effect on Sept. 4.

In Ryan LLC v. FTC, Judge Ada Brown of the Northern District of Texas granted plaintiffs’ motion for summary judgement on Aug. 20. The court concluded that the FTC had promulgated the final rule in excess of its statutory authority. Furthermore, the court concluded that the final rule was arbitratry and capricious. Quoting Loper Bright, the court went on to note that it was required to hold unlawful and set aside the final rule based on these conclusions. The court further emphasized that this setting aside has a nationwide affect, and will affect persons in all jurisdictions equally. Accordingly, the FTC final rule will not be enforced or take effect on Sept. 4 anywhere in the nation. At present it is unclear whether the FTC will challenge this ruling.

In ATS Tree Services v. FTC, Judge Kelley Hodge of the Eastern District of Pennsylvania on July 23 denied plaintiff’s motion for preliminary injunction and stay of the effective date of the FTC’s final rule. In that case, the court determined that the plaintiff had failed to establish a likelihood of success on the merits and irreparable harm. Judge Hodge did not reference the Ryan LLC preliminary injunction decision in her opinion.

In Properties of the Villages Inc. v. FTC, Judge Judge Timothy Corrigan of the Middle District of Florida granted plaintiff’s motion for a preliminary injunction and stay of the effective date of the FTC’s final rule.

Chevron Deference Demise

The Chevron deference doctrine was born in 1984 in the case of Chevron U.S.A. Inc. v. National Resources Defense Council Inc. There, the Supreme Court created a two-part test to determine whether courts should defer to an agency’s interpretation of the laws it is tasked with administering. (1) If the law was ambiguous, and (2) the agency’s interpretation of the law was reasonable, then according to Chevron, a court was required to defer to an agency’s interpretation of the statute. For 40 years, this was the law.

On June 28, the Supreme Court overruled Chevron in Loper Bright Enterprises v. Raimando. The court held that, rather deferring to agencies’ interpretations of statutes, courts must exercise independent judgment when interpreting statutes and reviewing agencies’ interpretations thereof. While an agency’s interpretation may still provide some guidance, courts are no longer bound to defer to an agency’s interpretation, as was the case under Chevron.

What does the end of Chevron deference mean for challenges to the DOL’s rule increasing the salary threshold and the FTC’s rule banning noncompetes? While Loper Bright, the case overruling Chevron, wasn’t an employment law decision, the demise of Chevron likely means that the agencies’ final rules are now more subject to being enjoined than in the past. Courts no longer simply look to an agency’s interpretations of its rules; they must exercise their own independent judgment in determining whether the agency has overstepped.

While this means that courts have more leeway to reject an agency’s interpretation, it does not necessarily mean that rejection will always be the outcome. It just means that the courts’ decisions will now have to be based on their own independent judgment rather than simply based on deference to the agency’s interpretation. With more judicial leeway on the horizon, we may see more courts across the country reaching inconsistent decisions. But one thing is certain: the courts in which these challenges are currently pending are readily aware of the impact Loper Bright will have on their forthcoming opinions. For example, in Texas v. DOL, the district court’s opinion granting Texas’ motion for injunctive relief pointed out that its “analysis…follows Loper Bright’s controlling guidance and the [Administrative Procedures Act].” |||

EDWARD G. PHILLIPS is a lawyer with Kramer Rayson LLP in Knoxville, where his primary areas of practice are labor and employment law. He graduated with honors from East Tennessee State University and received his law degree from the University of Tennessee College of Law in 1978 with honors, and as a member of The Order of the Coif. He is a former chair of the Tennessee Bar Association’s Labor and Employment Law Section.

BRANDON L. MORROW is a lawyer with Kramer Rayson LLP in Knoxville. He represents businesses, educational institutions and religious institutions in employment and civil rights related matters. He holds a bachelor’s degree from the University of Tennessee and a law degree from the University of Tennessee College of Law.

NOTES

1. This case was consolidated with Plano Chamber of Commerce, et al. v. Su, et al., No. 4:24-cv-468 (E.D. Tex.) to State of Texas v. DOL, No. 4:24-cv-00499 (E.D. Tex.)
2. Flint Avenue LLC v. Su, et al., No. 5:24-cv-00130 (N.D. Tex.)