Effective July 1, DOL Increases the Salary Threshold Required for Most White-Collar Exemptions

U.S. Department of Labor Raises Salary Threshold for Exempt Employees

The U.S. Department of Labor (DOL) has issued a final rule that significantly raises the required salary threshold for many salaried exempt employees starting July 1, 2024. Under this final rule, issued on April 23, 2024, the guaranteed salary that most employees must receive to qualify as exempt from the overtime rules will increase dramatically over the next nine months. Effective July 1, it will jump from $35,568 per year to $43,888 per year; and then just six short months later, on January 1, 2025, it will jump to $58,656 per year.

Under the Fair Labor Standards Act, employees who work in executive, administrative, professional, and certain computer positions must generally meet both the salary basis test and the job duty requirements to be classified as exempt from the overtime rules. In addition to being paid on a salary basis (which means there can be no deductions from salary, subject to certain limited exceptions), the threshold salary is currently $684 a week, amounting to $35,568 annually. The final rule raises the threshold for salaried employees significantly, according to the following schedule:

  • Effective July 1, 2024: $844 per week (equivalent to $43,888 per year)
  • Effective January 1, 2025: $1,128 per week (equivalent to $58,656 per year)
  • Effective July 1, 2027, and every three years thereafter: To be determined based on available earnings data

In addition, the new rule increases the total annual compensation threshold for highly compensated employees from $107,432 per year to $132,964 per year effective July 1, followed by yet another increase to $151,164 per year effective January 1, 2025. This will result in an increase of nearly $44,000 per year to the salary threshold necessary to qualify for the highly compensated employee exemption.

It is widely expected that various business and industry groups may file suit to attempt to block these changes from taking effect. Many employers may remember that a similar scenario occurred in 2016, when the DOL under the Obama Administration proposed a large increase in the salary threshold for these white collar exemptions, before that increase was blocked by court action. If the final rule issued by the DOL is not blocked through court action, it will mean significant changes for employers in compensation structure, as more employees nationwide will qualify for overtime pay unless their salaries are increased over the new threshold.

Employers should immediately review their workforces to determine what changes, if any, may be necessary if the final rule takes effect. Possible considerations include:

  • Raising the annual salary of employees who meet the duties test to at least $43,888 as of July 1, and $58,656 as of January 1, 2025, to retain their exempt status;
  • Converting employees to non-exempt status and paying the overtime premium of one-and-one half times the employees’ regular rate of pay for all overtime hours worked; or
  • Converting employees to non-exempt status and eliminating or reducing the amount of overtime hours worked by such employees.

Similar considerations should be undertaken with highly compensated employees. While it is wise to review pay practices proactively and identify potential changes that may become necessary, employers may wish to continue to monitor legal developments prior to actually implementing such changes. As employers will recall from 2016, significant changes can occur between the announcement of a final rule and the date on which it is scheduled to become effective.

Employers are encouraged to consult with legal counsel to discuss their options and strategies for implementing these changes, if necessary. Varnum’s Labor and Employment Practice Team stands ready to assist employers with any questions or concerns they may have about this new rule.

New FTC Rule Bans Most Non-Compete Agreements

FTC Bans Noncompete Agreements

UPDATE: A complaint has been filed in the Federal District Court for the Northern District of Texas challenging the FTC’s new Final Rule and seeking to block implementation.

In a major development, the Federal Trade Commission (FTC) voted today, April 23, 2024, to implement a new rule that will ban non-compete agreements for most American workers. This rule, set to take effect 120 days from the date it is published in the Federal Register, could impact as many as 30 million U.S. workers — both employees and independent contractors — who are subject to non-compete restrictions. The rule requires that businesses rescind most existing non-compete agreements and restrictions on workers, and it prohibits businesses from entering into non-compete agreements with workers in the future.

The U.S. Chamber of Commerce has already announced plans to sue the FTC over this new rule. Litigation to block the rule could be filed as soon as Wednesday, April 24.

Key features of the rule are as follows:

  • Businesses will no longer be able to enter into or attempt to enter into non-compete agreements or clauses, to maintain existing non-compete agreements or clauses, or to represent to a worker that the worker is subject to a non-compete agreement, subject to a few very limited exceptions.
  • Workers covered by the rule include employees, independent contractors, interns, volunteers, apprentices, and sole proprietors, whether the person presently works for or previously worked for the business.
  • Non-disclosure/confidentiality agreements and non-solicitation agreements may be permissible, unless they are so broad in scope that they essentially function as a non-compete agreement.
  • For those workers with existing non-compete agreements that are no longer valid under the new rule, businesses must notify them that the non-compete provision has been rescinded. Notices must be delivered in writing via letter, email, or text message, no later than the rule’s effective date. The FTC rule provides a model notice that can be used for this purpose. 
  • Existing non-compete agreements with “senior executives” remain in effect and will be enforceable to the extent they are currently enforceable under applicable state law. The term “senior executive” is defined to mean persons who are in policy-making positions (such as president, CEO, or similar officer) and have total annual compensation of at least $151,164 per year. Businesses may not enter into new non-compete agreements with existing or future “senior executives,” regardless of whether they make policy decisions or how much they are paid.
  • The ban on non-compete agreements does not apply to a non-compete that is entered into by a person pursuant to the bona fide sale of a business entity or such person’s ownership interest in a business entity, regardless of the percentage interest of such person in the business entity. However, this exception does not apply to the sale of a sole proprietorship or assets of a business that has not been incorporated.

The new rule is scheduled to take effect within 120 days of its publication in the Federal Register.

Varnum will be following up this brief advisory with a more in-depth look at the FTC’s new rule in the coming days, and will continue to monitor legal developments. In the meantime, businesses are encouraged to consult with legal counsel to discuss their options and strategies for addressing this new rule. Varnum’s Corporate and Labor and Employment Practice Teams stand ready to assist businesses with any questions or concerns they may have.

U.S. EPA Designates PFAS Chemicals as CERCLA Hazardous Substances

U.S. EPA Designates PFAS Chemicals as Hazardous Substances

On April 19, the United States Environmental Protection Agency (EPA) issued final regulations designating perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) as Hazardous Substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA a/k/a “Superfund”). PFOA and PFOS are part of the per- and polyfluoroalkyl substances (PFAS) family of chemicals that are often referred to as “forever chemicals” because they do not readily break down in the environment. PFOA and PFOS were present in water-proofing materials, fire-fighting foam and any number of other industrial chemicals that may have been released at industrial sites or deposited at landfill or other disposal sites.

The designation of PFOA and PFOS as CERCLA Hazardous Substances will have far-reaching impacts on environmental investigations and cleanup across the country. Most notably the new regulations will:

  • allow the U.S. EPA and other state agencies to require investigation and response activities at sites where PFOA or PFOS have been released;
  • allow environmental agencies to seek recovery of environmental response costs relating to PFOA or PFOS contamination;
  • allow property owners and other third parties to bring CERCLA cost recovery or contribution actions to recover response costs attributable to PFOA or PFOS contamination;
  • require entities that release one pound or more of PFOA or PFOS in any 24-hour period (which is a very small reportable quantity compared to most CERCLA Hazardous Substances) to provide notice of release; and
  • allow environmental agencies to reopen closed or dormant CERCLA clean-up sites (e.g., landfills) and require Potentially Responsible Parties (PRPs) to undertake additional environmental response activities.

The designation of PFOA and PFOS is only the most recent example of increased scrutiny and regulation of PFAS chemicals. Earlier this month, EPA finalized a new rule setting legally enforceable standards for PFAS present in drinking water. Last fall, EPA also promulgated regulations imposing new reporting and recordkeeping requirements for PFAS under the Toxic Substances Control Act (TSCA). We anticipate the trend of continuing and increased regulation of PFAS chemicals by EPA and state environmental agencies.

Contact Matt Eugster, Kyle Konwinski, or your Varnum environmental attorney today to learn more about the requirements of these new PFAS regulations and how they may impact your business or organization.

Student Loans and Educational Benefits

Navigating Student Loans and Educational Benefits in 2024

What Employers Should Think About in 2024

Some employers have found that providing educational assistance benefits can be a cost-effective way to attract, retain and motivate employees. Recent legal changes have expanded the scope of employer-provided tax-advantaged educational assistance benefits to cover student loan repayment. This advisory outlines some of the newest options and provides a refresher on how existing benefits are used.

Retirement Plans

If your 401(k) plan provides matching contributions, you can leverage one of the biggest changes: allowing some common student loan repayments to count as contributions for matching purposes. Once the plan is amended, employees can receive 401(k) matching contributions based on their eligible student loan repayments, as if they had contributed the student loan payments as elective deferrals to the plan. An employer who wants to provide this option should work with legal counsel and other service providers to ensure the benefit is properly implemented and administered.

Tax-Favored Student Loan Repayments

Another newer and increasingly popular choice is offering employees tax-favored repayment of qualified student loans. Up to $5,250 can be provided to each employee tax-free for repayment of eligible student loans. The benefit can be limited to those who make payments (effectively matching repayments) and can be made subject to repayment for employees who leaves. As a tax-advantaged benefit, student loan repayment assistance must be properly documented in a written plan and must be offered to a nondiscriminatory class of employees. If the company wants to provide more than $5,250 in benefits each year, the amount over $5,250 will be subject to ordinary income taxes.

Other Student Loan Repayment Benefits

Tax-Favored benefits are valuable, but legal and tax-based restrictions can dampen a bespoke approach to student loan repayments which many companies prefer. An increasing number of companies have also established taxable student loan repayment policies as an executive benefit. Although less tax-efficient, this type of benefit can be used to attract and retain talent in key, high demand positions and departments, and is often subject to repayment if the employee leaves. While not a tax code requirement, careful documentation provides valuable protection for the company and can help avoid potential claims and controversies that arise when cash payments are promised or paid. Unlike the tax-favored benefits, this option can be used to provide benefits to more senior employees who may have children with student loans.

Educational Benefits

Employers may provide tax-favored payments to cover employees’ tuition, fees, school supplies, and similar payments. This is limited to the same $5,250 threshold for student loans. This is not a new benefit. However, the rise of tax-favored student loan repayment has brought these benefits back into focus. They should be generally available to all employees, although companies can require the education to meet certain standards (if they are clearly explained) and can require repayment if certain conditions are not met, such as leaving employment or not completing the course. There are limits on what can be paid and these restrictions must be described in the required documentation. Fortunately, the $5,250 limit often means that the restrictions are not problematic in practice. Educational benefits can help keep highly motivated employees from leaving, help create critical leadership development and promote a positive culture.

A new and careful look at student loan and educational benefits is overdue at many companies. If you have questions, need your documentation updated or want more information, contact a member of our benefits team.

EPA PFAS Rule Imposes New Requirements on Public Water Systems

New EPA Rule Sets Standards for PFAS in Drinking Water

The United States Environmental Protection Agency (EPA) recently finalized a new rule setting legally enforceable standards for PFAS (per- and polyfluroalkyl substances and related chemicals) present in drinking water. The rule, promulgated under the Safe Drinking Water Act, sets Maximum Contaminant Levels (MCLs) for six separate PFAS (including PFOA, PFOS, PFHxS, PFNA and HFPO-DA) and hexafluoropropylene oxide (HFPO). Two of the most common PFAS, PFOA and PFOS, now have an enforceable level of four parts per trillion (ppt), which is only marginally higher than the applicable detection limits for each chemical. Three other PFAS, PFHxS, PFNA, and HFPO-DA chemicals – commonly referred to as GenX – now have MCLs of 10 ppt. Additionally, the MCL for any mixtures containing two or more substances including PFHxS, PFNA, HFPO-DA, and PFBS will be determined using a novel approach that EPA dubs a “hazard index,” which is a measurement of risk dependent on how many PFAS are present in the mixture and how concentrated they are relative to levels that impact human health.  

Although states will need to adopt their own MCLs at or below the federal standard to retain regulatory authority under the Safe Drinking Water Act, the rule imposes several new requirements on all public water systems. The rule applies to any public water system that serves at least 15 service connections used by year-round residents, any system that regularly serves over 25 year-round residents, and any system that regularly serves at least 25 of the same persons for more than six months of the year. Regulated public water providers must complete initial monitoring for these six PFAS chemicals by 2027, with ongoing compliance monitoring thereafter and reporting requirements thereafter. Depending on the results of the monitoring, public water systems will have until 2029 to reduce any PFAS exceeding the new MCLs. At that time, water systems with PFAS in violation of the MCLs will need to provide public notice of their exceedances.

Compliance with this rule is anticipated to be costly – tens of millions of dollars and upward for larger systems. Conventional water filtration technologies are not designed to effectively capture relatively miniscule PFAS molecules.  As a result, new technologies necessary to meet the standard (including granulated activated carbon and high-pressure membrane filtration technologies) are likely to result in high compliance costs.

Although it will likely be difficult for many public water suppliers to fund monitoring and improvements necessary to comply with the new PFAS standards, there are options to consider. Earlier this year, EPA announced over $3.2 billion in funding through the Drinking Water State Revolving Loan Fund to assist in funding for drinking water projects, including upgrades to water treatment plants (and PFAs treatment systems). This most recent announcement is in addition to previous funding of over $12 billion for water infrastructure improvements under the Bipartisan Infrastructure Law. Public water suppliers may also have valid claims against parties that have contaminated public water supplies that may allow for recovery of some or all of the costs of addressing that contamination.

Contact Matt Eugster, C.J. Biggs or your Varnum environmental attorney today to learn more about the requirements of these new PFAS MCLs and how they may impact your business or organization.

Preparing for Michigan Liquor License Renewal 2024-2025

Navigating Liquor License Renewals in Michigan

Requirements, Deadlines and Best Practices

All liquor licenses issued by the State of Michigan Liquor Control Commission (MLCC), including all on premises, off premises, manufacturer, wholesaler and importer licenses, must be renewed by April 30, 2024. All liquor licenses issued by the MLCC are effective for periods of one year each and expire April 30 of each licensing year. Exceptions exist only for certain sales representative and vendor permits, which are valid for terms of three years.

For those with licenses currently in escrow, different rules for renewal apply, but these licenses must also be renewed, despite the non-active nature of the license. Finally, no exceptions to the renewal rules exist for recently issued licenses: liquor licenses issued in the 2023 – 2024 licensing year must be renewed on or prior to April 30th as well.

In order for restaurants, hotels, retail stores and other liquor licensed operators to retain their licensed status with the ability to furnish and/or sell alcoholic beverages, whether at retail or wholesale, each Michigan licensee must renew their existing licenses on or prior to the extended deadline. The failure of an active licensee to timely renew a license is a violation of the Michigan Liquor Control Code and will subject the license to termination.

Renewal Process Modifications

The MLCC provides a credit card option for liquor license renewal payments. The online renewal portal accepts payments using Visa, Mastercard, American Express and Discover. Payment by electronic funds transfers (EFT) from bank accounts continues to be an available option. If there are multiple transactions, applicants will need to allow five (5) minutes between transactions of the same amount with the same account information. Otherwise, the system thinks it is a duplicate payment.

Licensees can now print their own renewal license online. If licensees have no changes to their renewal license application, they may print their own license for the April 30th, renewal date. If a renewal application has been mailed to the MLCC prior to April 1, 2024, it may also be printed online. Licensees can only print active licenses for the current renewal year. Escrow renewals do not contain licensing documents that require printing. Instructions for printing renewal licenses can be found here.  

Typically, the administrative staff of the MLCC will mail renewal packages in the middle of March. The members of Varnum’s Hospitality and Beverage Control Law Practice Group are currently responding to several license inquiries and are handling the renewal of the licenses for a number of our clients when so requested. If you would like to obtain our assistance in this regard or have any other questions, please contact us. We would be happy to review and submit the appropriate documentation to the State of Michigan to assure that your license is properly renewed and delivered to you on a timely basis to avoid any suspensions of your license.

Department of Justice Ramps Up Investigations of Private Clubs that Received PPP Loans

DOJ's Focus on PPP Loans Now Includes Private Clubs

As Varnum’s government investigations team has previously discussed, the COVID-era Paycheck Protection Program (PPP) resulted in millions of businesses receiving emergency loans. The PPP’s hurried implementation, coupled with confusion among recipients over eligibility requirements, created an environment ripe for both fraud and the issuance of loans to ineligible recipients. Over the past few years, the Department of Justice (DOJ) has focused on fraud by among other things, opening civil investigations under the False Claims Act and bringing criminal charges against PPP loan recipients who misused loan proceeds on luxury items. But recently, the DOJ has shifted its focus to a new category of PPP recipients: social clubs that may have been technically ineligible for the loans they received.

The opportunity for improper loans to social clubs comes about because of a technical wrinkle in how Congress wrote the American Rescue Plan Act of 2021. In this Act, Congress made social clubs (i.e. golf clubs, tennis clubs, yacht clubs) organized under 26 U.S.C. § 501(c)(7) eligible for PPP loans. However, Congress incorporated an agency regulation that prohibited loans to “private clubs and businesses which limited the numbers of memberships for reasons other than capacity.” Accordingly, social clubs that limit their membership for a reason other than capacity may be ineligible for PPP loans.

In recent months, the DOJ has issued Civil Investigation Demands (CIDs) to clubs that it believes might not have been eligible for PPP loans. Commonly, CIDs are issued following a whistleblower tip or the filing of a Qui Tam lawsuit, which is a lawsuit filed by an individual “on behalf of the United States” alleging that the United States was defrauded. The focus of the United States’ current investigation is on country clubs in Florida. These CIDs are demands for documents and interrogatory answers and often relate to employment records, income statements, the membership admission process, prospective members’ applications, the club’s governance, and membership information. CIDs are expansive and the government can use the club’s answer in future civil or criminal proceedings.  

Given the DOJ’s new focus, clubs should review their PPP paperwork now and consult with an attorney to determine whether their loan was properly issued. If the clubs find technical violations, proactively approaching the government through counsel may be beneficial. If a club receives a CID, it should immediately contact an attorney to begin preparing the appropriate response.

If you have received a CID or would like more information about PPP loan eligibility and enforcement issues, contact a member of Varnum’s government investigation team.

Arbitration vs. Mediation in Family Law Cases

Bailey Contributes to Institute of Continuing Legal Education

Originally published by the Institute of Continuing Legal Education Partnership; republished with permission.

In the realm of family law, arbitration and mediation offer alternative pathways to resolving disputes outside of the courtroom. However, key distinctions exist between these two processes. This advisory will delve deeper into the legal nuances of each option.

View a printer friendly version of the comparison chart.

Controlling law

ArbitrationMCL 600.5071
Parties to an action for divorce, annulment, separate maintenance, child support, custody, or parenting time, or to a post-judgment proceeding related to such an action, may stipulate to binding arbitration by a signed agreement that specifically provides for an award with respect to one or more of the following issues:
  • real and personal propertychild custodychild support, subject to the restrictions and requirements in other law and court rule as provided in this actparenting timespousal supportcosts, expenses, and attorney feesenforceability of prenuptial and postnuptial agreementsallocation of the parties’ responsibility for debt as between the partiesother contested domestic relations matters
MediationMCR 2.410
All civil cases are subject to alternative dispute resolution (ADR) processes unless otherwise provided by statute or court rule. MCR 2.410(C) states that, at any time, after consultation with the parties, the court may order that a case be submitted to an appropriate ADR process.
MCR 2.411
This rule applies to cases that the court refers to mediation as provided in MCR 2.410.

What is it?

ArbitrationArbitration is a process in which a dispute is submitted, by agreement of the parties, to one or more arbitrators, who make a binding decision on the dispute.
MediationMediation is a process in which a neutral third party facilitates communication between parties, assists in identifying issues, and helps explore solutions to promote a mutually acceptable settlement. A mediator has no authoritative decision-making power. MCR 2.411(A)(2).

Who can participate?

ArbitrationArbitration may be heard by a single arbitrator or by a panel of three arbitrators. The court must appoint an arbitrator agreed to by the parties if the arbitrator is qualified under MCL 600.5070 (2) and consents to the appointment.
The court may not appoint an arbitrator under MCL 600.5070 et seq. unless the individual meets all the following qualifications:
  • is an attorney in good standing with the State Bar of Michigan
  • has practiced as an attorney for not less than five years before the appointment and has demonstrated expertise in the area of domestic relations law
  • has received training in the dynamics of domestic violence and in handling domestic relations matters that have a history of domestic violence. MCL 600.5073(2).
MediationThe parties may stipulate to the selection of a mediator. A mediator selected by agreement of the parties need not meet the qualifications in MCR 2.411(F). MCR 2.411(B)(1).
If the order referring the case to mediator does not specify a mediator, the order must set the date by which the parties are to have conferred on the selection of a mediator. MCR 2.411 (B)(2). If the parties do not advise the ADR clerk of the mediator agreed on by that date, the court must appoint one as provided in MCR 2.411(B)(3).

What is the procedure?

ArbitrationAs soon as practicable after the appointment of the arbitrator, the parties and attorneys must meet with the arbitrator to consider all of the following:
  • scope of the issues submitteddate, time, and place of the hearing witnessesschedule for exchange of expert reports or summary of expert testimonyexhibits, documents, or other information each party considers applicable and material to the case and a schedule for production or exchange of that information.
MCL 600.5076.
The arbitrator must issue the written award on each issue within 60 days after either the end of the hearing or, if requested by the arbitrator, after receipt of proposed findings of fact and conclusions of law.
An arbitrator under this chapter retains jurisdiction to correct errors or omissions in an award until the court confirms the award. Within 14 days after the award is issued, a party to the arbitration may file a motion to correct errors or omissions. The other party may respond within 14 days after the motion is filed. The arbitrator must issue a decision on the motion within 14 days after receipt of a response or, if a response is not filed, within 14 days after the response period expires. MCL 600.5078.
MediationAlthough not required by authority, practitioners typically submit a brief that outlines their perspective on the issues at bar in advance of the mediation. This serves as a tool that allows the mediator to organize an effective approach to resolving the issues.
The mediator must meet with counsel and the parties, explain the mediation process, and then proceed with the process. The mediator must discuss with the parties and counsel, if any, the facts and issues involved. The mediation will continue until a settlement is reached, the mediator determines that a settlement is not likely to be reached, the end of the first mediation session, or a time agreed to by the parties. Additional sessions may be held as long as it appears that the process may result in settlement of a case. MCR 2.411(C)(2).
The mediator must advise the court of the completion of mediation within seven days after completion, stating only the date of completion, who participated, whether settlement was reached, and whether further ADR proceedings are contemplated. MCR 2.411(C)(3).

Is the procedure confidential?

ArbitrationExcept as provided by MCL 600.5077, court rule, or other arbitration agreement, a record may not be made of an arbitration hearing. An arbitrator may make a record to be used only by the arbitrator to aid in reaching the decision.
A record must be made of the portion of a hearing that concerns child support, custody, or parenting time in the same manner required by the Michigan Court Rules for the record of a witness’s testimony in a deposition. MCL 600.5077
MediationConfidentiality in the mediation process is governed by MCR 2.412.
Mediation communications are confidential. They are not subject to discovery, are not admissible in a proceeding, and may not be disclosed to anyone other than mediation participants except as provided in MCR 2.412(D). MCR 2.412(C).

Is the award enforceable?

ArbitrationThe circuit court must enforce an arbitrator’s award or other order issued under the Revised Judicature Act in the same manner as an order issued by the circuit court. A party may make a motion to the circuit court to enforce an arbitrator’s award or order. MCL 600.5079(1).
An appeal from an arbitration award that the circuit court confirms, vacated, modifies, or corrects must be taken in the same manner as from an order or judgment in other civil actions. MCL 600.5082.
MediationMediation agreements are binding and enforceable once executed by the parties involved.
If the case is settled through mediation, within 21 days the attorneys must prepare and submit to the court the appropriate documents to conclude the case. MCR 2.411(C)(4).