Noncompete Ban, PWFA Regulations and Other Rules Face Legal Challenges

Author: Robert S. Teachout, Brightmine Legal Editor 

May 6, 2024 

Several employment regulations recently issued by federal agencies face challenges by states and business organizations.  

FTC Noncompete Ban 

Last month, the Federal Trade Commission (FTC) issued a final rule banning the use of noncompete agreements, except with very limited exceptions. The rule not only would ban new noncompete agreements but also invalidate almost all current noncompetes. The US Chamber of Commers has already challenged the rule in the East Texas federal district court, as have other organizations in other states. They argue that the rule exceeds the FTC’s authority under the Federal Trade Commission Act. 

EEOC Pregnant Workers Fairness Act Regulations 

The Equal Employment Opportunity Commission (EEOC) in April issued new regulations that require covered employers to reasonably accommodate employees' known limitations resulting from pregnancy, childbirth and related medical conditions, unless the employer could show that doing so would cause undue hardship. The state attorneys general of 17 states have filed a lawsuit challenging the rule over provisions that require time off and other accommodations for abortions.  

DOL New Overtime Final Rule 

Also in April, the US Department of Labor (DOL) issued a long-expected rule to increase the overtime salary threshold under the Fair Labor Standards Act. In an unusual move, the DOL will implement the increase in a two-step approach, once on July 1, 2024, and again on January 1, 2025. Although no organizations have filed a lawsuit to block the rule yet, many have signaled their intent to do so. As with previous challenges to attempts to increase the overtime threshold, legal experts expect business organizations to argue that rule exceeds the DOL’s statutory authority, and that the rulemaking process did not satisfy the requirements of the Administrative Procedure Act. 

NLRB Joint Employer Rule 

The National Labor Relations Board (NLRB) rule expanding the standard for determining joint employers has remained a focus of challenges since it came out in October 2023. The rule holds that an employer's reserved or indirect control of the terms and conditions of a third party's employees is sufficient to create a joint employment relationship. Just three days before the rule would have taken effect, a federal district court in Texas struck down the rule, holding that it was unlawfully broad and went beyond the bounds defining common-law employment. In addition, Congress passed a resolution under the Congressional Review Act repealing the final rule; however, on May 3, President Biden vetoed it.